<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DTI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
MISSOURI
(State or Other Jurisdiction of
Incorporation or Organization)
4813
(Primary Standard Industrial
Classification Code Number)
43-1674259
(I.R.S. Employer
Identification Number)
------------------------
11111 DORSETT ROAD
ST. LOUIS, MISSOURI 63043
(314) 253-6600
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
RICHARD D. WEINSTEIN
PRESIDENT, CHIEF EXECUTIVE OFFICER AND SECRETARY
11111 DORSETT ROAD
ST. LOUIS, MISSOURI 63043
(314) 253-6600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
Copies to:
J. MARK KLAMER, ESQ.
BRYAN CAVE LLP
211 NORTH BROADWAY, SUITE 3600
ST. LOUIS, MISSOURI 63102
(314) 259-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(4)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 1/2% Series B Senior Discount Notes due
2008.................................... $506,000,000(2) $333.33(3) $168,664,980(3) $49,756.17
=====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended (the
"Securities Act").
(2) Represents the maximum amount of 12 1/2% Series B Senior Discount Notes due
2008 (the "Exchange Notes") that may be issued pursuant to the exchange
offer described in this Registration Statement.
(3) Represents one-third of the $1,000 principal amount per unit of the
outstanding 12 1/2% Senior Discount Notes due 2008 (the "Private Notes") to
be tendered to the Registrant (which has an accumulated capital deficit) in
exchange for the Exchange Notes.
(4) The registration fee for the securities offered hereby, $49,756.17, is
calculated under Rule 457(f)(2) of the Securities Act as follows: the
product of .000295 and $168,664,980, one-third of the aggregate principal
amount of the outstanding Private Notes that may be tendered to the
Registrant (which has an accumulated capital deficit) in exchange for the
Exchange Notes.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 14, 1998
PROSPECTUS CONFIDENTIAL
DTI DIGITAL TELEPORT LOGO
OFFER TO EXCHANGE
12 1/2% SERIES B SENIOR DISCOUNT NOTES DUE 2008
FOR ALL OUTSTANDING 12 1/2% SENIOR DISCOUNT NOTES DUE 2008
OF
DTI HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1998 UNLESS EXTENDED
------------------------
DTI Holdings, Inc. ("DTI" or the "Company") is hereby offering (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount at maturity of its 12 1/2%
Series B Senior Discount Notes due 2008 (the "Exchange Notes"), which exchange
has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement of which this Prospectus
is a part (the "Registration Statement"), for each $1,000 principal amount at
maturity of its outstanding 12 1/2% Senior Discount Notes due 2008 (the "Private
Notes"), of which $506,000,000 in aggregate principal amount at maturity was
issued on February 23, 1998 and is outstanding as of the date hereof. The form
and terms of the Exchange Notes are identical in all material respects to those
of the Private Notes, except for certain transfer restrictions and registration
rights relating to the Private Notes and except for certain interest provisions
related to such registration rights. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be entitled to
the benefits of an Indenture dated as of February 23, 1998 governing the Private
Notes and the Exchange Notes (the "Indenture"). The Private Notes and the
Exchange Notes are sometimes referred to herein collectively as the "Notes." See
"The Exchange Offer" and "Description of the Notes."
The Exchange Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after March 1, 2003 at the redemption prices set
forth herein, together with accrued interest, if any, to the date of redemption.
In addition, at any time or from time to time on or prior to March 1, 2001, the
Company may redeem up to 33 1/3% of the aggregate principal amount at maturity
of the originally issued Notes with the net proceeds of one or more Public
Equity Offerings (as defined herein) at a redemption price equal to 112.5% of
the Accreted Value (as defined herein) thereof; provided that immediately after
giving effect to such redemption, at least 66 2/3% of the aggregate principal
amount at maturity of the originally issued Notes remain outstanding. Upon the
occurrence of a Change of Control (as defined herein), each holder of Exchange
Notes may require the Company to purchase all or a portion of such holder's
Exchange Notes at a purchase price in cash equal to 101% of the Accreted Value
thereof, together with accrued interest, if any, to the date of purchase. See
"Description of the Notes -- Redemption" and "-- Certain Covenants."
The Exchange Notes will be senior unsecured obligations of the Company,
ranking pari passu in right of payment with the Private Notes and all future
unsecured senior indebtedness of the Company and senior in right of payment to
all future obligations of the Company expressly subordinated in right of payment
to the Exchange Notes. As of December 31, 1997, on a pro forma basis after
giving effect to the Private Offering, there would have been $0 of indebtedness
of the Company outstanding other than the Private Notes. Because the Company is
a holding company that conducts its business through its wholly owned
subsidiary, Digital Teleport, Inc., all existing and future indebtedness and
other liabilities and commitments of the Company's subsidiary, including trade
payables, will be effectively senior to the Notes. The Company's subsidiary will
not be a guarantor of the Exchange Notes. As of December 31, 1997, on the same
pro forma basis, Digital Teleport, Inc. would have had aggregate liabilities of
$22.1 million, including $14.3 million of deferred revenues. See "Description of
the Notes."
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on ,1998,
unless the Exchange Offer is extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000. The Exchange Offer is subject to certain customary conditions. See
"The Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH THE
EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
[MAP OF U.S. WITH PLANNED DTI NETWORK INSET]
2
<PAGE> 4
NOTICE TO INVESTORS
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Notes Registration Rights Agreement
(as defined). Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private Notes may be offered for resale,
resold and otherwise transferred by any Holder thereof (other than any such
Holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder has no arrangement with any person to participate in the
distribution of such Exchange Notes. Notwithstanding the foregoing, each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that (i) Private Notes tendered by it in the
Exchange Offer were acquired in the ordinary course of its business as a result
of market-making or other trading activities and (ii) it will deliver a
prospectus in connection with any resale of Exchange Notes received in the
Exchange Offer. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of the Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired by such
broker-dealer as a result of market-making or other trading activities (other
than Private Notes acquired directly from the Company). The Company has agreed
that, for a period of 120 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Any holder who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes cannot
rely on the no-action letters discussed above or similar letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
Tenders of Private Notes pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. The Exchange Offer is subject to certain
customary conditions. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Private Notes, the Company will promptly return
the Private Notes to the Holders thereof. The Company will give oral or written
notice of any extension, amendment, non-acceptance or termination of the
Exchange Offer to the Holders of the Private Notes as promptly as practicable,
such notice in the case of any extension to be issued by means of a press
release or other public announcement no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
The Company can, in its sole discretion, extend the Exchange Offer indefinitely,
subject to the Company's obligation to pay Special Interest (as defined) if the
Exchange Offer is not consummated by September 21, 1998 and, under certain
circumstances, file a shelf registration statement with respect to the Private
Notes. The Company has agreed to pay the expenses of the Exchange Offer. The
Company will not receive any proceeds from the Exchange Offer. See "Use of
Proceeds."
Prior to the date of this Prospectus, there has been no public market for
the Exchange Notes. The Company does not currently intend to list the Exchange
Notes on any securities exchange or to seek approval for quotation through any
automated quotation system. Accordingly, there can be no assurance as to the
development or liquidity of any public market that may develop for the Exchange
Notes, the ability of holders to sell the Exchange Notes, or the price at which
holders would be able to sell the Exchange Notes. The National Association of
Securities Dealers, Inc. ("NASD") has designated the Private Notes as securities
eligible for trading in the Private Offerings. Resales and Trading through
Automatic Linkages ("PORTAL") market of the NASD (see "Price Range of the
Private Notes") and the Company has been advised that Merrill Lynch, Pierce,
Fenner & Smith Incorporated and TD Securities (USA) Inc. (together, the "Initial
Purchasers") have heretofore acted as market makers for the Private Notes. The
Company has been advised by each of the aforesaid market makers that it
currently intends to make a market in the Exchange Notes. Future trading prices
of the Exchange Notes will depend on many factors, including among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Historically, the market for securities similar to the
Exchange Notes, including non-investment grade debt, has been
3
<PAGE> 5
subject to disruptions that have caused substantial volatility in the prices of
such securities. There can be no assurance that any market for the Exchange
Notes, if such market develops, will not be subject to similar disruptions. See
"Risk Factors -- Absence of a Public Market for the Notes."
The Private Notes were sold by the Company on February 23, 1998 (the
"Original Issue Date") in transactions which were not registered under the
Securities Act, in reliance upon the exemption provided by Section 4(2) of the
Securities Act.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement") under the Securities Act with
respect to the Exchange Notes covered by this Prospectus. This Prospectus does
not contain all of the information set forth in the Exchange Offer Registration
Statement and the exhibits and schedules thereto, certain portions of which have
been omitted pursuant to the rules and regulations of the Commission. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. With respect to each such contract,
agreement or other document filed or incorporated by reference as an exhibit to
the Exchange Offer Registration Statement, reference is made to such exhibit for
a more complete description of the matter involved, and each such statement is
qualified in its entirety to such reference.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with the
Commission. The Exchange Offer Registration Statement and reports and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained by mail from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Under the terms of the
Indenture pursuant to which the Private Notes were, and the Exchange Notes will
be, issued, the Company will be required to file with the Commission, and to
furnish holders of the Notes with, the information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act, including reports on
Forms 10-K, 10-Q and 8-K.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INCLUDE, AMONG
OTHERS, STATEMENTS CONCERNING THE COMPANY'S PLANS TO COMPLETE THE DTI NETWORK,
EXPECTATIONS AS TO FUNDING ITS CAPITAL REQUIREMENTS, ANTICIPATED EXPANSION OF
CARRIER'S CARRIER AND END-USER SERVICES, AND OTHER STATEMENTS OF EXPECTATIONS,
BELIEFS, FUTURE PLANS AND STRATEGIES, ANTICIPATED DEVELOPMENTS AND OTHER MATTERS
THAT ARE NOT HISTORICAL FACTS. MANAGEMENT CAUTIONS THE READER THAT THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED BY THE STATEMENTS. THE MOST IMPORTANT FACTORS THAT COULD PREVENT THE
COMPANY FROM ACHIEVING ITS STATED GOALS INCLUDE, BUT ARE NOT LIMITED TO, FAILURE
BY THE COMPANY TO (I) OBTAIN SUBSTANTIAL AMOUNTS OF ADDITIONAL CAPITAL AND
FINANCING AT REASONABLE COSTS AND ON SATISFACTORY TERMS AND CONDITIONS, (II)
MANAGE EFFECTIVELY AND COST EFFICIENTLY
4
<PAGE> 6
THE CONSTRUCTION OF THE DTI NETWORK ROUTE SEGMENTS, (III) ACCESS MARKETS AND
ENTER INTO ADDITIONAL DARK FIBER AND WHOLESALE NETWORK CAPACITY AGREEMENTS AND
OTHERWISE EXPAND ITS TELECOMMUNICATIONS CUSTOMER BASE ON THE DTI NETWORK, (IV)
OBTAIN ADDITIONAL FRANCHISES, PERMITS AND RIGHTS-OF-WAY AND MAINTAIN ALL
NECESSARY FRANCHISES, PERMITS AND RIGHTS-OF-WAY AND (V) MAINTAIN EXISTING
STRATEGIC ALLIANCES AND CUSTOMER AND SUPPLIER RELATIONSHIPS.
5
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, the financial statements and
the notes thereto and other financial data contained elsewhere in this
Prospectus. Prospective investors should carefully consider the factors set
forth herein under the caption "Risk Factors" and are urged to read this
Prospectus in its entirety. References in this Prospectus to the "Company" and
"DTI" refer to DTI Holdings, Inc. and its subsidiary, Digital Teleport, Inc.
("Digital Teleport"), except where the context otherwise requires. The Company's
fiscal year ends on June 30 of each year. Unless otherwise indicated, or the
context otherwise suggests, (i) references in this Prospectus to the design or
physical characteristics of the DTI network refer to the design and physical
characteristics of the DTI network as currently completed and the presently
anticipated design and physical characteristics of the remaining network sought
to be built by the Company in the Midwest region, (ii) references herein to
years and quarters shall refer to calendar years and calendar quarters, rather
than fiscal years and fiscal quarters, and (iii) the summary and selected
financial data and the other financial data contained herein give effect to the
100-for-1 stock split, in the form of a stock dividend, of the common stock, par
value $0.01 per share ("Common Stock") of the Company effected on October 21,
1997, the reorganization of the Company in which Digital Teleport became an
operating subsidiary of the newly created DTI Holdings, Inc., effected on
December 23, 1997, as more fully described elsewhere in the Prospectus, and the
1,000-for-1 stock split, in the form of a stock dividend, of the Common Stock
effected on February 17, 1998. Certain terms used in this Prospectus have the
respective meanings ascribed to them in the Glossary included as Annex A hereto.
THE COMPANY
DTI is a facilities-based provider of long-haul and local
telecommunications services primarily to interexchange carriers ("IXCs") and
other communications entities on a wholesale basis ("carrier's carrier
services"), as well as directly to business and governmental end users
("end-user services"). DTI initially will focus on carrier's carrier services
because it believes that (i) the scope and flexibility of its network design
will be attractive to carrier customers, (ii) revenues from carrier's carrier
services can be achieved more rapidly than from end-user services, and (iii)
margins from carrier's carrier services will be greater than from end-user
services. DTI currently provides carrier's carrier services under contracts with
AT&T, Sprint, MCI and IXC Carrier, and long-haul and local private line services
to targeted business and governmental end-user customers ("end-user customers")
in Missouri. The Company is preparing to offer local switched services and data
transmission services to targeted end-user customers in Missouri by mid 1998.
DTI intends to provide local switched service capacity to its carrier's carrier
customers on a wholesale basis as it deploys its switches throughout its
network.
DTI has completed construction of approximately 1,400 route miles of a
planned 2,000 route mile fiber optic network in the state of Missouri, including
an aggregate of approximately 500 local route miles in St. Louis, Kansas City
and four other population centers in Missouri with populations of over 70,000
people. DTI currently provides services over 750 route miles of its network. DTI
is expanding its fiber optic network (the "DTI network") to cover a 14-state
region in the Midwest (the "Midwest region") which is expected to consist of
approximately 7,700 route miles of fiber optic cable and 10 Northern Telecom
Inc. ("Nortel") DMS-500 switches. The Company has built the majority of its
network facilities by partnering with utility companies and state transportation
departments, which the Company believes has decreased the time and cost of
construction of its network.
DTI intends to route the long-haul portions of the DTI network near
secondary and tertiary cities and remote access tandems of incumbent local
exchange carriers ("ILECs") in the Midwest region. When completed, the DTI
network will be interconnected to all major IXC POPs and ILEC access tandems in
the Midwest region, substantially through DTI-owned facilities. Through this
design, the Company believes it will be able to offer carrier customers a means
to deliver all of their customers' calls to any state or area in the Midwest
region by connecting to the DTI network at a single location. The Company
believes that this design will provide its carrier customers greater reliability
and accountability and less administrative burden than if such customers were to
utilize multiple carriers' networks to deliver these calls. Through strategic
routing and
6
<PAGE> 8
switch placement, DTI believes it can leverage its long-haul capacity and
routing to permit the Company to cost-effectively construct local loops and
pursue other revenue-generating opportunities.
The Company believes deregulation in the telecommunications industry has
created a significant market opportunity by allowing carriers such as DTI to
compete in both local and long haul markets. The FCC has reported that, in 1996,
toll service revenues of long distance carriers in the U.S. were approximately
$82 billion and revenues of reporting local exchange carriers in the U.S. were
approximately $101 billion. Based on FCC data, toll service revenues of long
distance carriers and revenues of reporting local exchange carriers grew at a
compound annual rate of approximately 8.5% and 3.3%, respectively, during the
period 1991 through 1996. The Company believes that these growth trends
generally will continue and that non-facilities-based companies will need to
either invest in network facilities or lease high bandwidth network capacity to
remain competitive. The Company believes additional network transmission
capacity and faster response times will be required to accommodate the use of
the Internet and other high-bandwidth multimedia and data applications.
DTI employs a self-healing, SONET ring architecture throughout
substantially all of its network that allows for virtually instantaneous
rerouting in the event of a cut in the fiber ring. DTI's practice is to install
over 95% of the fiber in the DTI network underground, providing protection from
weather and other environmental hazards affecting the reliability of
communication connections. The DTI network will have both high-bandwidth
capacity and flexibility as a result of (i) the selective installation on each
route of between 48 and 288 strands of fiber optic cable incorporating Corning
glass, (ii) extra conduits in certain locations, (iii) high speed transmission
electronics equipment from Fujitsu Network Transmission Systems, Inc.
("Fujitsu") and, along selected long-haul routes, dense wavelength division
multiplexing equipment from Ciena Corporation ("Ciena"), and (iv) 10
strategically located Nortel DMS-500 switches. The Ciena equipment also will
give the DTI network an open architecture, providing compatibility with the
broad range of transmission speeds and signal formats used by the existing
transmission systems of its carrier customers. The Company is currently in the
process of deploying its first Nortel DMS-500 switch in St. Louis. By mid-1998,
the Company expects to have substantially completed construction in Missouri.
The Company has commenced construction in Arkansas and, over the following 12 to
18 months, expects to have commenced construction in Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Nebraska, Ohio, Oklahoma, Tennessee and
Wisconsin.
The Company believes its strategic alliances and customer relationships
provide it with a cost advantage in the construction of its network. DTI has
successfully developed strategic alliances with utilities, state transportation
departments and other governmental authorities, as well as telecommunications
companies. Through these relationships, the Company has obtained strategic
rights-of-way and financing to assist in the construction of its network. For
example, in 1996, DTI entered into a joint venture with KLT Telecom Inc.
("KLT"), a subsidiary of Kansas City Power & Light Company ("KCPL"), to build a
fiber optic network in the Kansas City metropolitan area using, in part, the
electrical conduits of KCPL in downtown Kansas City. In 1997, this joint venture
was merged into the Company in connection with KLT's commitment to invest $45.0
million in the Company in exchange for voting preferred stock convertible into
50% of the Company's outstanding common stock after such conversion. In 1994,
DTI entered into a 40-year agreement with the Missouri Highway and
Transportation Commission ("MHTC"), granting to DTI the exclusive right to build
a long-haul, fiber optic network along the interstate highway system in Missouri
in exchange for long-haul telecommunications services. In 1994, DTI also entered
into an agreement with Union Electric Company ("Union Electric," now known as
Ameren Corporation), granting to DTI the right to build in Union Electric's
conduit in downtown St. Louis and along Union Electric's rights-of-way elsewhere
in portions of Missouri and southern Illinois. In return, DTI is required to
install and maintain fiber optic network facilities and services to designated
Union Electric sites. As of December 31, 1997, the Company had received
aggregate advance payments of approximately $14.3 million under agreements with
major telecommunication companies such as Sprint and MCI and an end user. These
payments have helped defray the cost of construction of the DTI network.
The Company may pursue construction outside the Midwest region to take
advantage of market opportunities as they arise from time to time. Such projects
might take the form of fiber swaps in which the
7
<PAGE> 9
Company would receive dark fiber capacity along routes outside the Midwest
region from other telecommunications carriers. In exchange, the Company might
provide fiber along DTI network routes or construct fiber optic facilities
outside the Midwest region for use by these carriers. The Company expects that
it would own and maintain any such facilities and retain fiber for its own use
in such facilities.
BUSINESS STRATEGY
The Company's objective is to become a leading facilities-based provider of
communication services to other communications entities and end-user customers
in the Midwest region. To achieve this objective, the Company intends to:
LEVERAGE INTEGRATED LONG-HAUL AND LOCAL NETWORK DESIGN. The Company
believes that the strategic design of the DTI network will allow it to offer
reliable, high-capacity long-haul and local switched services to carrier and
end-user customers in the Midwest region who seek a competitive alternative to
incumbent providers of such services. The long-haul portions of the DTI network
will be strategically routed near secondary and tertiary markets and remote ILEC
access tandems in the Midwest region and, on selected routes, will use
high-capacity, dense wavelength division multiplexing equipment manufactured by
Ciena. Local network rings will be constructed near identified potential
end-user customers, ILEC access tandems and major IXC POPs and will be
integrated with long-haul routes through 10 strategically located switches. This
integrated design will permit the Company to offer carrier's carrier services
between all major IXC POPs and ILEC access tandems in the Midwest region.
Through this design, the Company believes it can also offer IXCs a means to
deliver all of their calls to any state or area of the Midwest region by
connecting to the DTI network at a single location, which the Company believes
will provide its IXC customers with greater reliability and accountability and
less administrative burden than if they had utilized multiple carriers'
networks.
STRATEGICALLY LOCATE AND EXPAND ITS NETWORK THROUGHOUT THE MIDWEST
REGION. The Company is constructing the DTI network in the Midwest region
because it believes that substantial unmet demand for additional IXC capacity
exists in such region, and that the secondary and tertiary markets located
between the major markets in the Midwest region are currently underserved. The
Company plans to expand its fiber optic telecommunications network outward from
Missouri into the remaining 13 states in the Midwest region. In general, new
network facilities will be constructed to allow interconnection with previously
completed portions of the DTI network and will be built first in those areas in
which IXCs have made prior commitments to purchase services over such
facilities. Clustering the DTI network buildout in the Midwest region will help
the Company to (i) take advantage of economies of scale in management,
construction, network operations, and sales and marketing, (ii) reduce capital
expenditures by optimizing the network's switching capacity through the use of
fewer remote switches in strategically located metropolitan areas, (iii) offer
services cost-effectively to secondary and tertiary markets adjacent to its
existing networks and in markets in which the Company is less likely to face
significant competition from ILECs and other competitive local exchange carriers
("CLECs"), and (iv) offer reliable connectivity on a regional basis. The Company
recently entered into a letter of intent with Black & Veatch LLP, the terms of
which provide that (i) the parties will undertake negotiations regarding an
agreement pursuant to which Black & Veatch would provide network construction
management services to the Company in connection with the build out of the
planned DTI network, and (ii) during such negotiations, Black & Veatch will
provide certain preliminary planning services to the Company. To complete the
DTI network buildout, the Company may also enter into dark fiber swaps with
other telecommunications companies pursuant to which the Company would exchange
dark fiber along portions of the DTI network for dark fiber of other
telecommunications companies located along uncompleted portions of the planned
DTI network. In this manner, the Company believes that it would be able to
establish telecommunications facilities along the DTI network routes more
quickly than by constructing its own facilities.
POSITION ITSELF AS A LOW-COST PROVIDER OF TELECOMMUNICATIONS SERVICES. The
Company will strive to position itself as a low-cost provider of
telecommunications services by (i) developing and expanding strategic network
construction alliances, whereby the Company obtains commitments and advance
payments from
8
<PAGE> 10
other telecommunications carriers prior to construction on a given route, (ii)
taking advantage of the potential cost efficiencies of the DTI network design,
(iii) continuing to deploy advanced fiber optic network technology, which the
Company believes lowers construction, operating and maintenance costs, and (iv)
realizing cost efficiencies through existing and additional rights-of-way
agreements with utilities, state transportation departments, other governmental
authorities and other telecommunications companies.
GROW CUSTOMER BASE. The Company intends to grow its carrier and end-user
customer base as it expands the DTI network, its product and service offerings,
and its sales and marketing infrastructure. Based upon its analysis of both the
capacity needs of other carriers and the locations of potential end-user
customers, the Company believes it can expand its customer base and increase its
revenues as it completes additional routes along the DTI network. Approximately
44% of the population within the Midwest region is located in counties in which
the DTI network will be located. The Company will target end-user customers
located along the DTI network routes. The Company also expects to grow its
carrier and end-user customer base through the introduction of new products and
services, such as its carrier branded offerings, IXC call transport services,
and local switched services. DTI intends to devote significant resources to
sales and marketing and customer service in order to capture and retain
customers as the DTI network expands throughout the Midwest region.
PURSUE LOCAL SWITCHED SERVICES OPPORTUNITIES. DTI believes it can
cost-effectively pursue local switched services opportunities throughout the
Midwest region by constructing local fiber optic rings along its long-haul
routes and by leveraging the high-bandwidth capacity of the DTI network. The DTI
network's design will provide the Company with sufficient long-haul capacity to
offer local switched services to targeted end-user customers in secondary and
tertiary cities located near long-haul routes. The Company will also offer local
switched services to targeted end-user customers located near the Company's
local loops in metropolitan areas. DTI plans to offer a wide range of local
switched services, including Caller ID, Voice Mail and Centrex services, and
advanced data transmission services, such as ATM and Frame Relay, as it expands
its customer base and increases network traffic volume. The Company also intends
to provide local switched service capacity to its carrier's carrier customers on
a wholesale basis as it deploys its switches throughout the Midwest region.
CONTINUE TO DEVELOP AND EXPAND STRATEGIC ALLIANCES. The Company intends to
continue to develop and expand strategic alliances with utilities, such as KCPL
and Union Electric, state transportation departments, such as the MHTC, and
other governmental authorities. The Company believes that these alliances will
assist DTI in obtaining rights-of-way with preferable routing on a
cost-effective and timely basis. In addition, the Company expects to continue to
pursue dark fiber leases and wholesale network capacity agreements with other
telecommunications carriers to assist in the construction of the DTI network.
The Company believes that these customer relationships will assist DTI in (i)
lowering the net cost per fiber mile by sharing the cost of construction of the
DTI network and (ii) securing significant advance payment arrangements which are
expected to continue to serve as a key source of financing for the expansion of
the DTI network.
LEVERAGE EXPERIENCED MANAGEMENT TEAM. The Company's management team
includes individuals with significant experience in the deployment and marketing
of telecommunications services. Prior to founding DTI in 1989, Mr. Richard D.
Weinstein, President and Chief Executive Officer of DTI, owned and managed
Digital Tele- resources, Inc., a firm which designed, engineered and installed
telecommunications systems for large telecommunications companies, including SBC
and other Fortune 500 companies. Prior to joining DTI as Chief Financial
Officer, Robert F. McCormick served in various financial and strategic advisory
roles at Pacific Bell Communications, McCaw Cellular Communications, Inc. and
Cellular One. Jerome W. Sheehy, DTI's Vice President, Regulatory-Industry
Affairs, has over 42 years' experience in the telecommunications industry,
including 20 years at GTE.
FINANCING PLAN
The Company estimates that total capital expenditures, including the total
cost to construct and activate the DTI network, will be approximately $526.4
million. Of this amount, the Company had already expended approximately $57.2
million as of December 31, 1997. The Company anticipates total capital
expenditures of
9
<PAGE> 11
approximately $30.0 million in the remaining two quarters of fiscal 1998 and
$283.9 million in fiscal 1999. On February 23, 1998, the Company consummated a
private placement (the "Private Offering") in reliance upon the exemption from
registration under Section 4(2) of the Securities Act, pursuant to which the
Company issued and sold 506,000 units (the "Units") consisting of $506.0 million
aggregate principal amount at maturity of Private Notes and warrants to purchase
3,926,560 shares of Common Stock (the "Warrants"). The net proceeds to the
Company of the Private Offering were approximately $264.8 million. On a pro
forma basis as of December 31, 1997, after giving effect to the Private
Offering, the Company would have had $265.4 million of cash and cash
equivalents. See "Capitalization." In addition, aggregate amounts of advance
payments expected to be paid to the Company over the next five years under
existing contracts for dark fiber and wholesale network capacity total
approximately $21.4 million as of December 31, 1997. Further financing sources
may include: (i) advance payments under additional dark fiber leases and
wholesale network capacity agreements; (ii) borrowings under bank credit
facilities; (iii) additional debt or equity financings; and (iv) any available
cash flow from operations. There can be no assurance that additional financing
will be available to the Company or, if available, that it can be obtained on a
timely basis and on acceptable terms. See "Risk Factors -- Substantial Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
HOLDING COMPANY REORGANIZATION
On December 23, 1997, the Company completed a corporate reorganization (the
"Reorganization"), pursuant to which DTI was formed as the parent holding
company of Digital Teleport, which became a wholly owned subsidiary of DTI.
Pursuant to the Reorganization, the outstanding shares of common and preferred
stock of Digital Teleport were exchanged for the number of shares of common and
preferred stock of DTI having the same relative rights and preferences as such
exchanged shares. The Reorganization was required in connection with the
establishment of Digital Teleport's bank credit facility. The business
operations, name, charter, by-laws and board of directors of the Company are
identical in all material respects to those of Digital Teleport prior to the
Reorganization.
The Company's principal executive offices are located at 11111 Dorsett
Road, St. Louis, Missouri 63043, and its telephone number is (314) 253-6600.
10
<PAGE> 12
THE EXCHANGE OFFER
The Exchange Offer......... The Company is hereby offering to exchange $1,000
principal amount at maturity of Exchange Notes for
each $1,000 principal amount at maturity of Private
Notes that are properly tendered and accepted. As
of the date hereof, $506,000,000 aggregate
principal amount at maturity of Private Notes is
outstanding. The Company will issue the Exchange
Notes to Holders promptly following the Expiration
Date. See "Risk Factors -- Consequences of Failure
to Exchange." Holders of the Private Notes do not
have appraisal or dissenter's rights in connection
with the Exchange Offer under the Missouri General
and Business Corporation Law, the governing law of
the state of incorporation of the Company.
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Private Notes
being tendered or accepted for exchange.
Expiration Date............ 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
Notes Registration Rights
Agreement................ The Private Notes were sold by the Company on
February 23, 1998 to Merrill Lynch, Pierce, Fenner
& Smith Incorporated and TD Securities (USA) Inc.,
who placed the Private Notes with institutional
investors. In connection therewith, the Company
executed and delivered for the benefit of the
holders of the Private Notes a registration rights
agreement (the "Notes Registration Rights
Agreement") providing for, among other things,
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such rights,
which will terminate upon the consummation of the
Exchange Offer. The Holders of the Exchange Notes
will not be entitled to any exchange or
registration rights with respect to the Exchange
Notes.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions." The Company
reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration
Date upon the occurrence of any such condition. NO
VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR
PROXY THEREFOR) IS BEING SOUGHT HEREBY.
Procedures for Tendering
Private Notes.............. Each Holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Private Notes and any other required
documentation to The Bank of New York, as exchange
agent (the "Exchange Agent"), at the address set
forth herein. By executing the Letter of
Transmittal, each Holder will represent to the
Company, among other things, that (i) the Exchange
Notes acquired pursuant to
11
<PAGE> 13
the Exchange Offer by the Holder and any beneficial
owners of Private Notes are being obtained in the
ordinary course of business of the person receiving
such Exchange Notes, (ii) neither the Holder nor
such beneficial owner is participating in, intends
to participate in or has an arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and (iii)
neither the Holder nor such beneficial owner is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private
Notes were acquired by such broker or dealer as a
result of market-making activities or other trading
activities (other than Private Notes acquired
directly from the Company), may participate in the
Exchange Offer but may be deemed an "underwriter"
under the Securities Act and, therefore, must
acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker or dealer will
not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. See "The
Exchange Offer -- Procedures for Tendering" and
"Plan of Distribution."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
Holder promptly and instruct such registered Holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering his Private Notes, either make
appropriate arrangements to register ownership of
the Private Notes in such owner's name or obtain a
properly completed bond power from the registered
Holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Exchange Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of Tenders."
Acceptance of Private Notes
and Delivery of Exchange
Notes.................... The Company will accept for exchange any and all
Private Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the
12
<PAGE> 14
Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Federal Income Tax
Consequences............. The exchange of Private Notes for Exchange Notes by
tendering holders should not be a taxable exchange
for federal income tax purposes, and such holders
should not recognize any taxable gain or loss or
any interest income for federal income tax purposes
as a result of such exchange (assuming no Special
Interest becomes due). See "Certain United States
Federal Income Tax Considerations."
Use of Proceeds............ There will be no proceeds to the Company from, and
the Company has agreed to bear the expenses of, the
Exchange Offer.
Effect on Holders of
Private Notes.............. As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Private Notes pursuant to the terms of
this Exchange Offer, the Company will have
fulfilled certain obligations under the terms of
the Private Notes and the Notes Registration Rights
Agreement and, accordingly, the holders of the
Private Notes will have no further registration or
other rights under the Notes Registration Rights
Agreement, except under certain limited
circumstances. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer." Holders of the
Private Notes who do not tender their Private Notes
in the Exchange Offer will continue to hold such
Private Notes and will be entitled to all the
rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Private Notes will continue to be
subject to the restrictions on transfer provided
for in the Private Notes and the Indenture. To the
extent that Private Notes are tendered and accepted
in the Exchange Offer, the trading market, if any,
for the Private Notes not so tendered could be
adversely affected. See "Risk
Factors -- Consequences of Failure to Exchange."
Exchange Agent............. The Bank of New York is serving as Exchange Agent
in connection with the Exchange Offer. See "The
Exchange Offer -- Exchange Agent."
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Offer applies to $506,000,000 aggregate principal amount at
maturity of Private Notes. The terms of the Exchange Notes are identical in all
material respects to the Private Notes, except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not contain certain terms providing for an
increase in the interest rate on the Private Notes under certain circumstances
relating to the timing of the Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. The Exchange Notes will evidence the same
debt as the Private Notes and will be entitled to the benefits of the Indenture,
under which both the Private Notes were, and the Exchange Notes will be, issued.
See "Description of the Notes."
The Exchange Notes......... $506,000,000 aggregate principal amount at maturity
of 12 1/2% Series B Senior Discount Notes due 2008.
Maturity Date.............. March 1, 2008
Yield and Interest......... 12 1/2% per annum (computed on a semiannual bond
equivalent basis) calculated from February 23, 1998
(without giving effect to any allocation of net
proceeds of the Private Offering to the Warrants
issued in the
13
<PAGE> 15
Private Offering). Cash interest will not accrue on
the Exchange Notes prior to March 1, 2003, from
which time cash interest will accrue on the
Exchange Notes at a rate of 12 1/2% per annum. Cash
interest on the Exchange Notes is payable
semiannually in arrears on March 1 and September 1
of each year, commencing September 1, 2003.
Original Issue Discount.... Each Exchange Note is issued with original issue
discount for United States federal income tax
purposes. Thus, although cash interest will not
begin to accrue on the Exchange Notes until March
1, 2003, and there will be no periodic payments of
interest on the Exchange Notes prior to September
1, 2003, the total amount of original issue
discount (i.e., the difference between the stated
redemption price at maturity of the Notes and the
amount of the issue price of the Units allocated to
the Notes) will accrue from the issue date and will
be includible as interest income periodically in a
holder's gross income for federal income tax
purposes in advance of receipt of the cash payments
to which the income is attributable. See "Certain
United States Federal Income Tax Considerations."
Optional Redemption........ The Exchange Notes will be redeemable at the
Company's option, in whole or in part, at any time
on or after March 1, 2003 at the redemption prices
set forth herein together with accrued interest, if
any, to the date of redemption.
In addition, on or prior to March 1, 2001, the
Company may redeem up to 33 1/3% of the aggregate
principal amount at maturity of the originally
issued Notes with the net proceeds of one or more
Public Equity Offerings (as defined) at a
redemption price of 112.5% of the Accreted Value
thereof; provided that at least 66 2/3% of the
aggregate principal amount at maturity of
originally issued Notes remains outstanding. See
"Description of the Notes -- Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
holder of Exchange Notes may require the Company to
make an offer to purchase all outstanding Exchange
Notes at a purchase price equal to 101% of the
Accreted Value thereof, together with accrued
interest, if any, to the date of purchase. See
"Description of the Notes -- Certain Covenants."
Ranking.................... The Exchange Notes will be senior unsecured
obligations of the Company ranking pari passu in
right of payment with all future unsecured senior
indebtedness of the Company and senior in right of
payment to all future obligations of the Company
that are expressly subordinated in right of payment
to the Exchange Notes. As of December 31, 1997, on
a pro forma basis after giving effect to the
Private Offering, there would have been $0 of
indebtedness of the Company outstanding other than
the Exchange Notes. Because the Company is a
holding company that conducts its business through
Digital Teleport, its wholly owned subsidiary, all
existing and future indebtedness and other
liabilities and commitments of the Company's
subsidiary, including trade payables, will be
effectively senior to the Exchange Notes, and the
Company's subsidiary will not be a guarantor of the
Notes. As of December 31, 1997, on the same pro
forma basis, Digital Teleport would have had
aggregate liabilities of $22.1 million, including
$14.3 million of deferred revenues.
14
<PAGE> 16
Subject to certain limitations, the Company and its
Restricted Subsidiaries (as defined) may incur
additional indebtedness in the future. See "Risk
Factors -- High Leverage; Ability to Service
Indebtedness; Restrictive Covenants," "-- Holding
Company Structure; Priority of Secured Debt" and
"Description of the Notes -- Ranking."
Certain Covenants.......... The Indenture contains certain covenants that
restrict, among other things, the ability of the
Company and its Restricted Subsidiaries to (i)
incur certain indebtedness, (ii) pay dividends and
make certain other restricted payments, (iii)
create liens, (iv) permit other restrictions on
dividends and other payments by Restricted
Subsidiaries, (v) issue and sell capital stock of
Restricted Subsidiaries, (vi) guarantee certain
indebtedness, (vii) sell assets, (viii) enter into
transactions with Affiliates (as defined), (ix)
merge, consolidate or transfer substantially all of
the assets of the Company and (x) make investments
in any Unrestricted Subsidiary (as defined). The
covenants require the Company to make an offer to
purchase specified amounts of Notes in the event of
certain asset sales. There can be no assurance that
the Company will have sufficient funds to complete
any purchase of Exchange Notes upon such a sale of
assets. See "Description of the Notes -- Certain
Covenants."
RISK FACTORS
Holders of the Private Notes should carefully consider the information set
forth in this Prospectus, and in particular, should evaluate the factors set
forth under "Risk Factors" beginning on page 18.
15
<PAGE> 17
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial data presented below for each of the
three years in the period ended June 30, 1997 have been derived from the audited
consolidated financial statements of the Company, which have been audited by
Deloitte & Touche LLP, independent auditors. The summary consolidated financial
data as of and for the six-month periods ended December 31, 1996 and 1997 have
been derived from the unaudited consolidated financial statements of the
Company, which have been prepared on the same basis as the audited consolidated
financial statements of the Company and, in the opinion of management, reflect
all normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations as of the end of and for such
period. The results for the six months ended December 31, 1997 are not
necessarily indicative of the operating results to be expected for the entire
year. The information set forth below should be read in conjunction with the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and the audited and unaudited
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------- ----------------------------
1995(A) 1996(A) 1997 1996 1997
------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenue
Telecommunications services
Carrier's carrier services..... $ -- $ 188,424 $ 807,347 $ 232,385 $ 744,185
End-user services.............. 199,537 488,377 515,637 270,879 274,346
Other services(b)................ -- -- 711,006 -- --
------------ ----------- ------------ ----------- ------------
Total revenue.................. 199,537 676,801 2,033,990 503,264 1,018,531
------------ ----------- ------------ ----------- ------------
Operating expenses:
Telecommunication services....... 165,723 296,912 847,190 295,278 409,372
Other services(b)................ -- -- 364,495 -- --
Selling, general and
administrative................. 240,530 548,613 1,118,809 467,491 1,598,136
Depreciation and amortization.... 70,500 425,841 757,173 313,060 830,700
------------ ----------- ------------ ----------- ------------
Total operating expenses....... 476,753 1,271,366 3,087,667 1,075,829 2,838,208
------------ ----------- ------------ ----------- ------------
Loss from operations............... (277,216) (594,565) (1,053,677) (572,565) (1,819,677)
Interest income (expense), net..... (9,516) (191,810) (51,023) (63,552) 120,146
Loan commitment fees............... -- -- (784,500) (784,500) --
Equity in earnings of joint
venture.......................... -- -- 37,436 20,640 --
------------ ----------- ------------ ----------- ------------
Loss before income tax benefit..... (286,732) (786,375) (1,851,764) (1,399,977) (1,699,531)
Income tax benefit................. -- -- 1,214,331 918,000 680,000
------------ ----------- ------------ ----------- ------------
Net loss(c)........................ $(286,732) $(786,375) $(637,433) (481,977) (1,019,531)
============ =========== ============ =========== ============
OTHER FINANCIAL DATA:
Cash flows from operations......... $ 6,903,884 $ 299,710 $ 7,674,272 $ 3,649,476 $ 3,946,036
Cash flows from investing
activities....................... (11,804,176) (1,122,569) (19,417,073) (6,421,393) (21,926,768)
Cash flows from financing
activities....................... 5,030,000 1,500,030 15,292,316 2,550,000 17,250,000
EBITDA(d).......................... (206,716) (168,724) (259,068) (238,865) (988,977)
Capital expenditures............... 6,804,176 5,663,047 19,876,595 9,802,338 21,926,768
Ratio of earnings to fixed
charges(e)....................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------
ACTUAL AS ADJUSTED(F)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,636,174 $265,386,871
Network and equipment, net................................ 55,097,202 55,097,202
Total assets.............................................. 62,457,431 334,680,951
Long-term debt............................................ -- 265,252,184
Deferred revenues(g)...................................... 13,945,173 13,945,173
Redeemable Convertible Series A Preferred Stock(h)........ 51,124,607 --
Stockholders' equity (deficit)(h)......................... (10,734,840) 50,361,103
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Route miles.................................... 372 520 732 1,361 1,427
Fiber miles.................................... 23,085 33,269 44,071 84,254 87,498
POP/Collocation sites(i)....................... 15 19 24 43 45
</TABLE>
(footnotes on following page)
16
<PAGE> 18
(a) From its inception in June 1989 through June 30, 1996, the Company was
considered a development stage enterprise focused on developing the DTI
network and customer base.
(b) Other services revenues and expenses in the year ended June 30, 1997 reflect
the design, construction and installation of innerduct for another carrier's
fiber optic network.
(c) Net loss attributable to Common Stock, loss per share data and weighted
average number of shares outstanding are not meaningful.
(d) EBITDA represents net loss before interest income (expense), loan commitment
fees, income tax benefit, depreciation and amortization. EBITDA is included
because the Company understands that such information is commonly used by
investors in the telecommunications industry as an additional basis on which
to evaluate the Company's ability to pay interest, repay debt and make
capital expenditures. Excluded from EBITDA are interest income (expense),
loan commitment fees, income taxes, depreciation and amortization, each of
which can significantly affect the Company's results of operations and
liquidity and should be considered in evaluating the Company's financial
performance. EBITDA is not intended to represent, and should not be
considered more meaningful than, or an alternative to, measures of operating
performance determined in accordance with generally accepted accounting
principles ("GAAP"). Additionally, EBITDA should not be used as a comparison
between companies, as it may not be calculated in a similar manner by all
companies.
(e) For purposes of calculating the ratio of earnings to fixed charges: (i)
earnings consist of loss before income tax benefit, plus fixed charges
excluding capitalized interest; and (ii) fixed charges consist of interest
expenses and capitalized costs, amortization of deferred financing costs,
plus the portion of rentals considered to be representative of the interest
factor (one-third of lease payments). For the years ended June 30, 1995,
1996 and 1997, and for the six months ended December 31, 1996 and 1997, the
Company's earnings were insufficient to cover fixed charges by approximately
$296,000, $2.0 million, $2.4 million, $1.8 million and $1.7 million,
respectively.
(f) As adjusted to reflect: (i) the Private Offering and the application of the
net proceeds therefrom; and (ii) the elimination of the redemption
provisions of the Company's redeemable convertible Series A preferred stock,
par value $0.01 per share (the "Series A Preferred Stock"). See note (h),
below. Of the $275.2 million gross proceeds from the issuance of the Units
in the Private Offering, $265.3 million has been allocated to the initial
Accreted Value of the Private Notes and $10.0 million has been allocated to
the Warrants. See "Capitalization."
(g) Does not include current portion of deferred revenues in the amount of
approximately $366,000 as of December 31, 1997. See "Capitalization."
(h) On February 13, 1998, in conjunction with the Private Offering, the Company
amended the terms of the Series A Preferred Stock to provide that it is no
longer redeemable, and, as a result, the Series A Preferred Stock is
classified with stockholders' equity. See "Capitalization."
(i) Consists of interconnections with ILEC access tandems, ILEC central offices,
IXC POPs, DTI's network control center and POP buildings, and end-user
customer connections.
17
<PAGE> 19
RISK FACTORS
In addition to the other information in this Prospectus, before tendering
their Private Notes for the Exchange Notes offered hereby, holders of Private
Notes should consider carefully the following factors, which may be generally
applicable to the Private Notes as well as to the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Private Notes who do not exchange their Private Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Private Notes, as set forth in the legend
thereon, as a consequence of the issuance of the Private Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Private Notes
under the Securities Act. Based on interpretations by the staff of the
Commission set forth in no-action letters issued to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1988) (the "Exxon Capital Letter"), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) (the "Morgan Stanley Letter"), and
similar letters, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer may be offered for resale, resold or otherwise transferred by
any Holder thereof (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such Holder's business and such Holder has no arrangement with any
person to participate in the distribution of such Exchange Notes.
Notwithstanding the foregoing, each broker-dealer that receives Exchange Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with any resale of Exchange Notes received in exchange for Private
Notes where such Private Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities (other than Private
Notes acquired directly from the Company). The Company has agreed that, for a
period of 120 days from the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." Any holder who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes cannot rely on
the Morgan Stanley Letter or similar letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. To the extent that Private Notes
are tendered and accepted in the Exchange Offer, the trading market, if any, for
the Private Notes not so tendered could be adversely affected. See "The Exchange
Offer."
FAILURE TO COMPLY WITH EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Private Notes pursuant
to the Exchange Offer will be made only after timely receipt by the Exchange
Agent of such Private Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the Private
Notes desiring to tender such Private Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under no
duty to give notification of defects or irregularities with respect to tenders
of Private Notes for exchange. Holders of Private Notes who do not exchange
their Private Notes for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Private Notes as
set forth in the legend thereon. See "The Exchange Offer."
LIMITED HISTORY OF OPERATIONS; OPERATING LOSSES AND NEGATIVE CASH FLOW
Digital Teleport was formed in June 1989 and began offering
telecommunications services in February 1994. Prospective investors, therefore,
have limited historical financial information about the Company upon which to
base an evaluation of the Company's performance and an investment in the Notes.
As a result of development and operating expenses, the Company has incurred
significant operating and net
18
<PAGE> 20
losses to date. Operating losses for fiscal 1995, 1996 and 1997, and the six
months ended December 31, 1997 were approximately $277,000, $595,000, $1.1
million and $1.8 million, respectively. DTI's operations have resulted in net
losses before interest income (expense), loan commitment fees, income tax
benefit, depreciation and amortization of $207,000, $169,000 and $259,000 for
the years ended June 30, 1995, 1996 and 1997, respectively, and $1.0 million for
the six months ended December 31, 1997. In addition, the Company's accumulated
deficit was approximately $11.5 million at December 31, 1997. The Company
expects to incur significant operating losses, to generate negative cash flows
from operating activities and to invest substantial funds to construct the DTI
network during the next several years while the Company continues to develop and
expand its telecommunications services and customer base. There can be no
assurance that the Company will achieve or sustain profitability or generate
sufficient positive cash flow to meet its debt service obligations and working
capital requirements. If the Company cannot achieve operating profitability or
positive cash flows from operating activities, it may not be able to service the
Notes or to meet its other debt service or working capital requirements, which
would have a material adverse effect on the Company. See "-- Substantial Capital
Requirements," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
HIGH LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS; RESTRICTIVE COVENANTS
The Company is and will continue to be highly leveraged. As of December 31,
1997, on a pro forma basis after giving effect to the Private Offering, there
would have been $0 of indebtedness of the Company outstanding other than the
Private Notes. Because the Company is a holding company that conducts its
business through Digital Teleport, all existing and future indebtedness and
other liabilities and commitments of the Company's subsidiary, including trade
payables, are effectively senior to the Notes, and the Company's subsidiary will
not be a guarantor of the Notes. As of December 31, 1997, on the same pro forma
basis, Digital Teleport would have had aggregate liabilities of $22.1 million,
including $14.3 million of deferred revenues. See "-- Holding Company Structure;
Priority of Secured Debt," "Capitalization" and "Selected Consolidated Financial
Data." The Indenture limits but does not prohibit the incurrence of additional
indebtedness by the Company, and the Company expects to incur additional
indebtedness in the future. The Company's leverage could result in adverse
consequences to the holders of the Notes. Such consequences may include, among
other things: (i) a substantial portion of the Company's cash flow will be
dedicated to the payment of the Company's interest expense and may be
insufficient to meet such payment obligations on the Notes, in addition to
paying other indebtedness and obligations of the Company as they become due;
(ii) the Company's ability to obtain any necessary financing in the future for
completion of the DTI network or other purposes may be impaired; (iii) certain
of the future borrowings by the Company may be at variable rates of interest
that could cause the Company to be vulnerable to increases in interest rates;
(iv) the Company may be more leveraged than certain of its competitors, which
may place the Company at a competitive disadvantage; and (v) the Company's
vulnerability to the effects of general economic downturns or to delays in or
increases in the cost of constructing the DTI network may be increased. The
Company's ability to pay the principal of and interest on its indebtedness will
depend upon the Company's future performance, which is subject to a variety of
factors, uncertainties and contingencies, many of which are beyond the Company's
control. There can be no assurance that the Company will generate sufficient
cash flow in the future to enable it to meet its anticipated debt service
requirements, including those with respect to the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Indenture imposes and will impose significant operating and financial
restrictions on the Company, Digital Teleport and any future subsidiaries. These
restrictions affect, and in certain cases significantly limit or prohibit, among
other things, the ability of the Company and its subsidiary to incur certain
indebtedness, pay dividends and make certain other restricted payments, create
liens, permit other restrictions on dividends and other payments by Restricted
Subsidiaries, issue and sell capital stock of Restricted Subsidiaries, guarantee
certain indebtedness, sell assets, enter into transactions with affiliates or
related persons, or consolidate, merge or transfer all or substantially all of
their assets. There can be no assurance that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities. See "Description of the Notes."
19
<PAGE> 21
In addition, any future senior indebtedness incurred by the Company is
likely to impose similar restrictions on the Company. Failure by the Company or
its subsidiaries to comply with these restrictions could lead to a default under
the terms of such indebtedness and the Notes notwithstanding the ability of the
Company to meet its debt service obligations. In the event of such a default,
the holders of such indebtedness could elect to declare all such indebtedness to
be due and payable, together with accrued and unpaid interest. In such event, a
significant portion of the Company's indebtedness (including the Notes) may
become immediately due and payable, and there can be no assurance that the
Company would be able to make such payments or borrow sufficient funds from
alternative sources to make any such payment. Even if additional financing could
be obtained, there can be no assurance that it would be on terms that are
acceptable to the Company.
HOLDING COMPANY STRUCTURE; PRIORITY OF SECURED DEBT
The Company is a holding company with no direct operations and no
significant assets other than the stock of Digital Teleport. The Company is
dependent on the cash flow of Digital Teleport to meet its obligations,
including the payment of interest and principal on the Notes. Digital Teleport
is a separate legal entity that has no obligation to pay any amounts due
pursuant to the Notes or to make any funds available therefor, whether by
dividends, loans or other payments. Because Digital Teleport does not guarantee
the payment of the principal or interest on the Notes, any right of the Company
to receive assets of Digital Teleport upon its liquidation or reorganization
(and the consequent right of holders of the Notes to participate in the
distribution or realize proceeds from those assets) are effectively subordinated
to the claims of the creditors of Digital Teleport (including trade creditors
and holders of indebtedness of such subsidiary), except if and to the extent the
Company is itself a creditor of Digital Teleport, in which case the claims of
the Company would still be effectively subordinated to any security interest in
the assets of Digital Teleport held by other creditors. As of December 31, 1997,
on a pro forma basis after giving effect to the Private Offering, Digital
Teleport would have had aggregate liabilities of $22.1 million, including $14.3
million of deferred revenues.
The Notes are unsecured and will be effectively subordinated to any future
secured indebtedness of the Company to the extent of the value of the assets
securing such indebtedness. As of December 31, 1997, the Company had no secured
indebtedness. The Indenture permits the Company or Digital Teleport to incur
additional secured indebtedness, including purchase money indebtedness in
unlimited amounts, and indebtedness pursuant to one or more bank credit
facilities of up to $70.0 million and the greater of (i) 80% of DTI's accounts
receivable or (ii) $30.0 million. See "Description of the Notes." The Company
expects that indebtedness under any bank credit facility will be secured by a
pledge by the Company of 100% of the capital stock of Digital Teleport and
present and future subsidiaries of Digital Teleport and all assets held directly
by Digital Teleport and its subsidiaries, and will be guaranteed by such
subsidiaries. Consequently, in the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect to the Company,
such assets will be available to satisfy obligations of such secured debt before
any payment can be made on the Notes. In addition, to the extent such assets
would not satisfy in full such secured indebtedness, the holders of such
indebtedness will have a claim for any shortfall that is pari passu (or
effectively senior if the indebtedness were issued by Digital Teleport) with the
Notes. Accordingly, there may only be a limited amount of assets available to
satisfy any claims of the holders of the Notes upon an acceleration of the
Notes.
SUBSTANTIAL CAPITAL REQUIREMENTS
The development of the Company's business and the installation and
expansion of the DTI network have required and will continue to require
substantial capital. In the past, the Company has funded its capital
expenditures through advance payments from certain of its customers prior to
network construction and private debt and equity financing. The Company is
funding its future capital expenditure requirements through the net proceeds of
the Private Offering, advance payments under existing and additional dark fiber
leases and wholesale network capacity agreements, borrowings under bank credit
facilities, additional debt or equity financings and any available cash flow
from operations. The Company estimates that total capital expenditures,
including the total cost to construct and activate the DTI network, will be
approximately $526.4 million.
20
<PAGE> 22
Of this amount, the Company had already expended approximately $57.2 million as
of December 31, 1997. The Company anticipates total capital expenditures of
approximately $30.0 million in the remainder of fiscal 1998 and $283.9 million
in fiscal 1999. The Company's estimated capital requirements primarily include
the estimated cost of (i) completing the construction and activation of the DTI
network and (ii) network expansion activities, including the construction of
additional local loops in secondary and tertiary cities as network traffic
volume increases. The Company also may require additional capital in the future
to fund operating deficits and net losses and for potential strategic alliances,
joint ventures and acquisitions. These activities could require significant
additional capital not included in the foregoing estimated capital requirements.
The Company is in various stages of discussions with potential customers
for additional dark fiber leases and wholesale network capacity agreements.
There can be no assurance, however, that the Company will continue to obtain
advance payments from customers prior to commencing construction or that other
sources of capital will be available on a timely basis and on terms that are
acceptable to the Company and within the restrictions under the Company's
existing financing arrangements, or at all. If the Company fails to obtain the
capital required to complete the DTI network build-out, the Company could
modify, defer or abandon building certain portions of the DTI network. The
failure of the Company, however, to raise the substantial capital required to
complete the DTI network construction could have a material adverse effect on
the Company. See "-- Risks Related to Completing the DTI Network; Increasing
Traffic Volume" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The Company's expectation of required future capital is based on the
Company's current estimates. The actual amount and timing of DTI's future
capital requirements may differ materially from these estimates depending on
demand for the Company's services, the Company's ability to implement its
current business strategy and as a result of regulatory, technological and
competitive developments in the telecommunications industry. There can be no
assurance that actual expenditures will not differ significantly from such
estimates. The Company may seek to raise additional capital from public or
private equity or debt sources. There can be no assurance that the Company will
be able to raise such capital on satisfactory terms or at all. If the Company
decides to raise additional capital through the incurrence of debt, the Company
may become subject to additional or more restrictive financial covenants. In the
event that the Company is unable to obtain such additional capital on acceptable
terms or at all, the Company may be required to reduce the scope or pace of
deployment of the DTI network, which could materially adversely affect the
Company's business, results of operations and financial condition and its
ability to compete.
RISKS RELATED TO COMPLETING THE DTI NETWORK; INCREASING TRAFFIC VOLUME
The Company's ability to achieve its strategic objectives will depend in
large part upon the successful, timely and cost-effective completion of the DTI
network, as well as on achieving substantial traffic volumes on the DTI network.
The construction of the DTI network may be affected by a variety of factors,
uncertainties and contingencies, many of which are beyond the Company's control.
There can be no assurance that the DTI network will be completed as planned at
the cost and in the timeframe currently estimated, if at all. Although the
Company believes that its cost estimates and build-out schedule are reasonable,
there can be no assurance that the actual construction costs or time required to
complete the construction of the DTI network will not substantially exceed
current estimates. In addition, the Company must substantially increase its
current traffic volume in order to realize expected cash flows, operating
efficiencies and cost benefits of the DTI network. There can be no assurance
that the Company will be able to achieve such increased traffic volume. See "--
Pricing Pressures and Industry Capacity."
The successful and timely construction of the DTI network will depend upon,
among other things, the Company's ability to (i) obtain substantial amounts of
additional capital and financing, at reasonable costs and on satisfactory terms
and conditions, (ii) effectively and efficiently manage the construction of the
DTI network route segments, (iii) access markets and enter into additional
customer contracts to sell or lease high volume capacity on the DTI network and
(iv) obtain additional franchises, permits and rights-of-way to permit it to
complete its planned strategic routing. Successful construction of the DTI
network also will
21
<PAGE> 23
depend upon the timely performance by third-party contractors of their
obligations. Certain of the Company's customer contracts provide for reduced
payments and varying penalties for late delivery of route segments and allow the
customers, after expiration of grace periods, to delete such non-delivered
segment from the system route to be delivered. The Company is currently not in
compliance with construction schedules under contracts with certain of its
customers. The Company has received notice from a customer that it intends to
setoff against amounts payable to the Company approximately $400,000 as damages
and penalties under the Company's contract with that customer due to the failure
by the Company to meet certain construction deadlines and such customer reserved
its rights to seek other remedies under the contract. The Company believes that
if such setoffs were to be made, they would not be material to the Company's
business, financial position or results of operations. However, there can be no
assurance that such customer or other customers will not in the future find the
Company to have materially breached its contracts, that such customers will not
terminate such contracts or that such customers will not seek other remedies.
There can be no assurance that the Company will obtain sufficient capital and
financing to fund its currently planned capital expenditures, successfully
manage construction, sell fiber and capacity to additional customers, meet
contractual timetables for future services, or maintain existing and acquire
necessary additional franchises, permits and rights-of-way. Any failure by DTI
to accomplish these objectives may significantly delay or prevent completion of
the DTI network, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The telecommunications industry is highly competitive. The Company competes
and expects to compete with numerous established facilities-based IXCs, ILECs
and CLECs throughout the Midwest region. These competitors have substantially
greater financial and technical resources, long-standing relationships with
their customers and the potential to subsidize competitive services from less
competitive service revenues. DTI is aware that other facilities-based providers
of local and long distance telecommunications services are planning and
constructing additional networks that, if and when completed, could employ
advanced fiber optic technology similar to the DTI network. Such competing
networks may also have operating capabilities similar to those of the DTI
network and be positioned geographically to compete directly with the DTI
network for many of the same customers along a significant portion of the same
routes.
The Company competes primarily on the basis of price, transmission quality,
reliability and customer service and support. The Company's competitors in
carrier's carrier services include many large and small IXCs, including AT&T,
MCI, Sprint and WorldCom. The Company competes with both LECs and IXCs in its
end-user business. In the local exchange market, the Company also faces or
expects to face competition from ILECs and other competitive providers,
including non-facilities based providers, and, as the local access markets
become opened to IXCs under the Telecommunications Act of 1996 (the "Telecom
Act"), from long distance providers. AT&T, MCI and Sprint, among other carriers,
have each indicated their intention to begin offering local telecommunications
services in major U.S. markets using their own facilities or by resale of the
LECs' or other providers' services and either have begun or will likely begin
offering local exchange service in certain states, subject to the certain
restrictions contained in the Telecom Act. See "Business -- Regulatory Matters."
WorldCom, together with its wholly owned subsidiaries MFS Communications and
Brooks Fiber Properties, Inc., currently provides both local exchange and long
distance telecommunications services throughout the United States. WorldCom also
announced its agreement to acquire MCI. In addition, AT&T has recently announced
its agreement to acquire Teleport Communications Group, Inc., a facilities-based
CLEC with networks in operation in 57 markets in the United States. The Company
also believes that high initial network cost and low marginal costs of carrying
long distance traffic have led to a trend among non-facilities-based carriers to
consolidate in order to achieve economies of scale. Such consolidation among
significant telecommunications carriers could result in larger, better
capitalized competitors that can offer a "one-stop shopping" combination of long
distance and local switched services in many of DTI's target markets.
Certain companies have recently announced efforts to use Internet
technologies to supply telecommunications services, potentially leading to a
lower cost of supplying these services and therefore increased pressure
22
<PAGE> 24
on IXCs and other telecommunications companies to reduce their prices. There can
be no assurance that the Company's IXC and other carrier customers will not
experience substantial decreases in call volume or pricing due to competition
from Internet-based telecommunications, which could lead to a decreased need for
the Company's services, or a reduction in the amount these companies are willing
or able to pay for the Company's services. There can also be no assurance that
the Company will be able to offer its telecommunications services to end users
at a price which is competitive with the Internet-based telecommunications
services offered by these new companies. The Company does not currently market
to Internet service providers ("ISPs") and therefore may not realize any
revenues from the Internet-based telecommunications market. If the Company does
commence marketing to ISP's, there can be no assurance that it will be able to
do so successfully, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition to IXCs and LECs, entities potentially capable of offering
switched services in competition with the DTI network include cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and large subscribers who build private networks. Previous impediments
to certain utility companies entering telecommunications markets under the
Public Utility Holding Company Act of 1935 were also removed by the Telecom Act,
creating a new competitive threat for DTI.
In the future, the Company may be subject to more intense competition due
to the development of new technologies, an increased supply of domestic and
international transmission capacity, the consolidation in the industry among
local and long distance service providers and the effects of deregulation
resulting from the Telecom Act. The telecommunications industry is experiencing
a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity for
services similar to those provided by the Company. For instance, recent
technological advances permit substantial increases in transmission capacity of
both new and existing fiber, and the introduction of new products or emergence
of new technologies may reduce the cost or increase the supply of certain
services similar to those provided by the Company. The Company cannot predict
which of many possible future product and service offerings will be crucial to
maintain its competitive position or what expenditures will be required to
develop profitably and provide such products and services.
Many of the Company's competitors and potential competitors have financial,
personnel, marketing and other resources significantly greater than those of the
Company, as well as other competitive advantages. A continuing trend toward
business combinations and alliances in the telecommunications industry may
increase the resources available to DTI's competitors, create significant new
competitors and potentially decrease the Company's carrier customer base. The
ability of DTI to compete effectively will depend upon, among other things, its
ability to deploy the DTI network throughout the Midwest region and to maintain
high quality services at prices equal to or below those charged by its
competitors. There can be no assurance that the Company will be able to compete
successfully with existing competitors or new entrants in the markets for
carrier's carrier services and end-user services. Failure of the Company to do
so would have a material adverse effect on the Company. See "Business --
Competition."
NEED TO OBTAIN AND MAINTAIN FRANCHISES, PERMITS AND RIGHTS-OF-WAY
In order to develop its networks, the Company must obtain local franchises
and other permits, as well as rights to utilize underground conduit, pole space
and other rights-of-way from entities such as utilities, state highway
authorities, local governments, ILECs and IXCs. The Telecom Act requires that
local governmental authorities treat telecommunications carriers in a
competitively neutral, non-discriminatory manner, and that most utilities,
including electric companies and most ILECs, afford CLECs access to their
conduits, poles and rights-of-way at reasonable rates and on non-discriminatory
terms and conditions. The Company has entered into long-term agreements with
highway authorities in Missouri and Arkansas and with electric utilities
operating in Missouri and southern Illinois, pursuant to which the Company
generally has access to various rights-of-ways in given localities. There can be
no assurance that the Company will be able to maintain its existing franchises,
permits and rights-of-way or to obtain and maintain the other franchises,
permits and rights-of-way needed to implement its business plan on acceptable
terms and to complete its planned strategic routing. Although the Company does
not believe that any of its existing franchises, permits or rights-of-way
23
<PAGE> 25
will be terminated or not renewed as needed, termination or non-renewal of
certain of such franchises, permits or rights-of-way relating to a significant
portion of the DTI network could materially adversely affect the Company. See
"Business -- The DTI Network -- Highway and Utility Rights-of-Way."
DEPENDENCE ON LIMITED NUMBER OF LARGE CUSTOMERS
The Company has substantial business relationships with a few large
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." In addition, the Company's business plan assumes that a
large proportion of its future revenues will come from its carrier's carrier
services, which by their nature are marketed to a limited number of
telecommunications carriers. Therefore, dissatisfaction with the Company's
services by a relatively few number of customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Risks Related to Completing the DTI Network; Increasing Traffic Volume."
The Company is aware that certain IXCs are constructing or considering
construction of new networks, or buying companies with local networks, which
could reduce their need for the Company's services. See "Risk
Factors -- Competition." In addition, it is possible that as IXCs expand their
product offerings and networks, and the Company expands its product offerings
and the geographic scope of the DTI network, the Company may become a competitor
of one or more of its large customers for certain end-user customers.
Accordingly, there can be no assurance that any of the Company's carrier's
carrier customers will continue to use or increase their use of the Company's
services, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
EXPANSION AND MANAGING RAPID GROWTH
The expansion of the DTI network and the Company's services will depend on,
among other things, its ability to enter new markets, design fiber optic network
routes, install facilities and obtain rights-of-way, building access and any
required government authorizations and/or permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions. The expansion of the
DTI network and services also will require substantial growth in the Company's
management base, systems and other operations. Implementation of the Company's
current and future expansion plans will also depend on factors such as: (i) the
availability of financing and regulatory approvals; (ii) the existence of
strategic alliances or relationships; (iii) technological, regulatory or other
developments in the Company's business; (iv) changes in the competitive climate
in which the Company operates; and (v) the emergence of future opportunities.
There can be no assurance that the Company will be able to expand its existing
network or services in a cost effective manner.
A key part of the Company's business strategy is to achieve rapid growth by
expanding the DTI network throughout the Midwest region and using the DTI
network and services to exploit opportunities expected to arise from regulatory
and technological changes and other industry developments. The Company's ability
to manage its expansion effectively will depend on, among other things: (i)
expansion, training and management of its employee base, including attracting
and retaining highly skilled personnel; (ii) expansion and improvement of the
Company's customer service and support systems and improvement or cost-effective
outsourcing of the Company's operational and financial systems; (iii)
development, introduction and marketing of new products and services; and (iv)
control of the Company's expenses. The failure of the Company to satisfy these
requirements and to otherwise manage its growth effectively would have a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends to a significant degree upon the
continued contributions of a small number of key executives, particularly
Richard D. Weinstein, the Company's founder, Chief Executive Officer and
President. The Company has entered into employment agreements with certain of
these executives. Nonetheless, the loss of these individuals and the inability
of the Company to attract and retain suitable replacements could have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects. See "Management -- Executive Officers and
Directors" and
24
<PAGE> 26
"Management -- Employment Agreements." The Company's future success and ability
to manage growth will be dependent also upon its ability to hire additional
highly skilled employees for a variety of management, engineering, technical,
and sales and marketing positions. The competition for such personnel is
intense. There can be no assurance that the Company will be able to attract and
retain sufficient qualified personnel. The failure to do so could have a
material adverse effect on the Company.
DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS
The Company is dependent upon single or limited source suppliers for a
number of components and parts used in the DTI network. In particular, the
Company is dependent primarily on Siecor Corporation ("Siecor") and Pirelli
Cable Corporation ("Pirelli") for its supply of fiber optic cable. The Company's
arrangements with Siecor and Pirelli have provided it with a supply of fiber
optic cable at a stable, attractive price. DTI's network design strategy also is
dependent on obtaining transmission equipment from Fujitsu and dense wavelength
division multiplexing equipment from Ciena, both of which supply such equipment
to other substantially larger customers. There can be no assurance that the
Company's suppliers will be able to meet the Company's future requirements on a
timely basis. The Company believes that there are alternative suppliers or
alternative components for all of the components contained in the DTI network.
However, any extended interruption in the supply of any of the key components
currently obtained from a single or limited source, disturbance in the pricing
arrangements with Siecor, Pirelli, Fujitsu or Cienna, delay in transitioning a
replacement supplier's product into the DTI network, could disrupt the Company's
operations and have a material adverse effect on the Company's operating
results. There can be no assurance that such interruption, disturbance or delay
will not occur or that the Company will be successful in obtaining alternative
sources. Significant delays in the expansion of the DTI network throughout the
Midwest region resulting from interruptions in the supply of any key network
components or other problems with suppliers could have a material adverse effect
on the Company.
PRICING PRESSURES AND INDUSTRY CAPACITY
Although the Company believes that, in the last several years, increasing
demand has corrected the telecommunications capacity supply imbalance and slowed
the decline in prices, the Company anticipates that prices for carrier's carrier
services and end-user services will continue to decline over the next several
years due primarily to (i) installation of additional fiber that provides
substantially more transmission capacity than will be needed over the short or
medium term, (ii) technological advances that permit substantial increases in
the transmission capacity of both new and existing fiber, and (iii) strategic
alliances or similar transactions, such as long distance capacity purchasing
alliances among certain Regional Bell Operating Companies ("RBOCs"), that
increase customer purchasing power. Such price decreases, without offsetting
decreases in the Company's cost of services or increases in demand for the
Company's services, could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. For instance, recent technological advances permit substantial
increases in transmission capacity of both new and existing fiber, and the
introduction of new products or emergence of new technologies may reduce the
cost or increase the supply of certain services similar to those provided by the
Company. While the Company believes that, for the foreseeable future,
technological changes will neither materially affect the continued use of fiber
optic cable nor materially hinder the Company's ability to acquire necessary
technologies, the effect of technological changes on the Company's operations
cannot be predicted and could have a material adverse effect on the Company.
DEVELOPMENT OF ACCOUNTING, BILLING, CUSTOMER SERVICE AND MANAGEMENT INFORMATION
SYSTEMS
Sophisticated information and processing systems are vital to the Company's
operations and growth and its ability to monitor costs, render monthly invoices
for services, process customer orders, provide customer
25
<PAGE> 27
service and achieve operating efficiencies. The Company intends to install the
accounting, information and processing systems necessary to provide its services
efficiently throughout the Midwest region. However, there can be no assurance
that the Company will be able to successfully install or operate such systems.
As the Company begins to provide local switched services, the need for
sophisticated billing and information systems will also increase significantly
and the Company will have significant additional requirements for data interface
with ILECs. Additionally, any acquisitions would place additional burdens on the
Company's accounting, information and other systems.
While the Company believes that its existing software applications are year
2000 compliant, there can be no assurance until the year 2000 that all of the
Company's systems then in place will function adequately. Further, if the
software applications of ILECs, IXCs or others on whose services the Company
depends are not year 2000 compliant, any loss of such services could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Unanticipated problems in any of the above areas, or the Company's
inability to implement solutions in a timely manner or to establish or upgrade
systems as necessary, could have a material adverse impact on the ability of the
Company to reach its objectives and on its business, financial condition and
results of operations.
REGULATION RISKS
The Company is required to obtain certain authorizations from the FCC and
state public utility commissions ("PUCs") to offer certain of its
telecommunications services, as well as to file tariffs for many of its
services. To date, the Company has not experienced significant difficulties in
receiving certification, maintaining tariffs, or otherwise complying with its
regulatory obligations. The Company will face new obligations arising out of the
Telecom Act as it begins to enter the local telephone market. It also is likely
that state PUCs will regulate the local telephone services offered by the
Company and other competitive local exchange carriers more heavily than
competitive long distance services have been regulated in the past. Because the
FCC and the states have yet to adopt many of the rules and policies necessary to
implement the Telecom Act, or to respond to other related local telephone
competition issues, it is uncertain how burdensome these requirements will be
for the Company.
The Company's plans to provide local switched services are heavily
dependent upon implementation of provisions of the Telecom Act. The Telecom Act
preempted state and local laws to the extent that they prohibited local
telephone competition, and imposed a variety of new duties on incumbent local
exchange carriers intended to advance such competition, including the duty to
negotiate in good faith with competitors requesting interconnection to the
ILEC's network. However, negotiations with ILECs have sometimes involved
considerable delays and the resulting negotiated agreements may not necessarily
be obtained on terms and conditions that are acceptable to the Company. In such
instances, the Company may petition the proper state regulatory agency to
arbitrate disputed issues. There can be no assurance that the Company will be
able to negotiate acceptable new interconnection agreements with ILECs or that
if state regulatory authorities impose terms and conditions on the parties in
arbitration, such terms will be acceptable to the Company.
On August 8, 1996, the FCC adopted rules and policies implementing the
local competition provisions of the Telecom Act, which rules, in general, are
considered favorable to new competitive entrants, but those rules have not been
fully implemented. On October 15, 1996, the U.S. Court of Appeals for the Eighth
Circuit (the "Eighth Circuit") issued a stay of the implementation of certain of
the FCC's rules and on July 18, 1997, the Eighth Circuit issued its decision
finding that the FCC lacked statutory authority under the Telecom Act for
certain of its rules. In particular, the Eighth Circuit found that the FCC was
not empowered to establish the pricing standards governing unbundled local
network elements or wholesale local services of the incumbent local exchange
carriers. The Eighth Circuit also struck down other FCC rules, including one
that would have enabled new entrants to "pick and choose" from provisions of
established interconnection agreements between the incumbent local exchange
carriers and other carriers. The Eighth Circuit rejected certain other
objections to the FCC rules brought by the ILECs or the states, including
challenges to the FCC's definition of unbundled elements, and to the FCC's rules
allowing new competitors to create their own networks by
26
<PAGE> 28
combining ILECs network elements together without adding additional facilities
of their own. The overall impact of the Eighth Circuit's decision is to
materially reduce the role of the FCC in fostering local competition, including
its ability to take enforcement action if the Telecom Act is violated, and
increase the role of state utility commissions. The Supreme Court recently
announced that it will review the Eighth Circuit's decision. Meanwhile, certain
state commissions have asserted that they will be active in promoting local
telephone competition using the authority they have under the ruling, lessening
the significance of the reduced FCC role. At this time the impact of the Eighth
Circuit's decision cannot be evaluated, but there can be no assurance that the
Eighth Circuit decision and related developments will not have a material
adverse effect on the Company. Furthermore, other FCC rules related to local
telephone competition remain the subject of legal challenges, and there can be
no assurance that decisions affecting those rules will not be adverse to
companies seeking to enter the local telephone market.
Although the Company believes that the Telecom Act and other state and
federal regulatory initiatives that favor increased competition are advantageous
to the Company, there can be no assurance that changes in current or future
state or federal regulations, including changes that may result from court
review of the FCC's interconnection rules, or increased competitive
opportunities resulting from such changes, will not have a material adverse
effect on the Company.
The Telecom Act also creates the foundation for increased competition in
the long distance market from ILECs, which could affect the successful
implementation of the Company's business plans. For example, certain provisions
eliminate previous prohibitions on the provision of inter-LATA long distance
services (both carrier's carrier and end-user services) by the RBOCs, subject to
compliance by such companies with requirements set forth in the Telecom Act and
implemented by the FCC. On December 31, 1997, the U.S. District Court, Northern
District of Texas (Wichita Falls) ("Court"), in SBC Communications, Inc. v. FCC
and U.S. (the "SBC Communications Case"), overturned as unconstitutional the
provisions of the Telecom Act which prohibited RBOCs from providing inter-LATA
long distance services within their own region without demonstrating that the
local exchange market was opened to local competition. The decision, however,
affects only SBC Communications, Inc. and U.S. West, Inc. Nonetheless, other
RBOCs may use the decision to petition courts in their operating regions to
obtain similar rulings. On January 2, 1998, AT&T, MCI and other intervenors in
the SBC Communications Case filed a petition for stay with the Court. On January
5, 1997, the FCC also filed a petition for stay of the decision in the Court. On
February 11, 1998, the Court temporarily stayed its decision in the SBC
Communications Case, which places those provisions of the Telecom Act which had
been found unconstitutional back into effect and forecloses, temporarily, the
RBOCs from providing inter-LATA long distance service within their own service
regions without FCC approval. The Company would be adversely affected if the
RBOCs are allowed to provide wireline inter-LATA long distance services within
their own regions before local competition is established. In a related
development, the FCC is considering proposed new policies and rules that would
grant the ILECs additional flexibility in the pricing of interstate access
services, and states are considering or are expected to consider ILECs' requests
for similar regulatory relief with respect to intrastate services. Such
flexibility is likely to come first for services offered in the business market.
Any pricing flexibility or other significant deregulation of the ILECs could
have a material adverse effect on the Company. See "Business -- Regulatory
Matters."
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Private Notes were issued with original issue discount for U.S. federal
income tax purposes. Since the Exchange Notes are treated as a continuation of
the Private Notes for federal income tax purposes, the Exchange Notes will also
be considered to have been issued at a substantial discount. Consequently,
holders of the Exchange Notes generally will be required to include amounts in
gross income for U.S. federal income tax purposes in advance of receipt of the
cash payments to which the income is attributable. In addition, the Exchange
Notes will be subject to the applicable high-yield discount obligation rules,
which will defer and, in part, eliminate the Company's ability to deduct for
U.S. federal income tax purposes the original issue discount attributable to the
Exchange Notes. Accordingly, the Company's after-tax cash flow will be less than
if the original issue discount on the Exchange Notes was deductible when it
accrued. See "Certain United States Federal Income Tax Considerations" for a
more detailed discussion of the U.S. federal income tax
27
<PAGE> 29
consequences to the Company and the beneficial owners of the Exchange Notes
resulting from the purchase, ownership and disposition of the Private Notes.
Furthermore, if a bankruptcy case is commenced by or against the Company
under the United States Bankruptcy Code after the issuance of the Exchange
Notes, the claim of a holder of Exchange Notes may be limited to an amount equal
to the sum of the issue price as determined by the bankruptcy court and that
portion of the original issue discount which is deemed to accrue from the issue
date to the date of any such bankruptcy filing.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Private Notes are eligible for trading in the Private Offering Resale
and Trading through Automated Linkages ("PORTAL") market. The Exchange Notes
will be securities for which there is no public market. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange or
for quotation of the Exchange Notes on the Nasdaq National Market. The Company
has been advised by the Initial Purchasers that they presently intend to make a
market in the Exchange Notes, as permitted by applicable laws and regulations.
The Initial Purchasers are not obligated, however, to make a market in the
Exchange Notes and any such market making activity may be discontinued at any
time without notice at the sole discretion of each Initial Purchaser. There can
be no assurance as to the liquidity of the public market for the Exchange Notes,
the ability of holders to sell the Exchange Notes, or the price at which holders
would be able to sell the Exchange Notes, or that an active public market for
the Exchange Notes will develop. If an active public market does not develop,
the market price and liquidity of the Exchange Notes may be adversely affected.
See "Plan of Distribution."
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Exchange Notes. There can be no assurances that any market for
the Exchange Notes will not be subject to similar disruptions.
CONTROL OF THE COMPANY; CONFLICTS OF INTEREST
Each of Mr. Weinstein and KLT beneficially owns approximately 45.9% of the
outstanding voting equity securities of the Company, on a fully diluted basis.
Accordingly, they are and will be able to control the management policy of the
Company and all fundamental corporate actions, including mergers, substantial
acquisitions and dispositions, and election of the Board of Directors of the
Company (the "Board"). In addition, Mr. Weinstein and KLT have entered into a
voting agreement with respect to the election of directors. See "Management --
Executive Officers and Directors" and "Principal Stockholders."
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the Company's shareholders and
the holders of the Exchange Notes. For example, if the Company encounters
financial difficulties or is unable to pay its debts as they mature, the
interests of the Company's shareholders and holders of the Warrants might
conflict with those of the holders of the Exchange Notes. In addition, the
Company's shareholders and holders of the Warrants may have an interest in
pursuing acquisitions, divestitures, financings, mergers, consolidations or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risk to the holders of
the Exchange Notes. Because Mr. Weinstein and KLT are able to control the
management policy of the Company and all fundamental corporate actions, any such
conflict of interest may be resolved in favor of the Company's shareholders and
holders of the Warrants and to the detriment of the holders of the Exchange
Notes.
VARIABILITY OF OPERATING RESULTS
As the Company expands the DTI network, it will incur significant costs
relating principally to fiber, switching and other equipment and construction
costs. See "-- Substantial Capital Requirements." The installation and expansion
of the DTI network has required and will continue to require considerable
expenses in advance of anticipated revenues and may cause substantial
fluctuations in the Company's operating results.
28
<PAGE> 30
The Company expects to incur substantial and increasing operating losses and
negative net cash flow after capital expenditures for the foreseeable future as
it expands its marketing efforts and installs the DTI network. The losses
created by this lag in revenues are expected to increase until the revenues from
the completed DTI network overtakes the costs associated with its deployment.
The Company does not expect positive cash flow after capital expenditures from
its network operations for several years. See "-- Limited History of Operations;
Operating Losses and Negative Cash Flow" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
29
<PAGE> 31
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on February 23, 1998 to the
Initial Purchasers, who privately placed the Private Notes with institutional
investors. In connection therewith, the Company and the Initial Purchasers
entered into a Notes Registration Rights Agreement (the "Notes Registration
Rights Agreement"), pursuant to which the Company agreed, for the benefit of the
holders of the Private Notes, that the Company would, at its sole expense, (i)
within 50 days following the original issuance of the Private Notes ("Original
Issue Date"), file with the Commission the Exchange Offer Registration Statement
(of which this Prospectus is a part) under the Securities Act with respect to an
issue of a series of Exchange Notes of the Company identical in all material
respects to the series of Private Notes, (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective under the Securities
Act within 180 days following the Original Issue Date, and (iii) use its best
effort to consummate the Exchange Offer within 210 days after the Original Issue
Date. Upon the Exchange Offer Registration Statement (of which this Prospectus
is a part) being declared effective, the Company will offer the Exchange Notes
in exchange for the Private Notes. The Company will keep the Exchange Offer open
for not less than 20 business days (or longer if required by applicable law)
after the date notice of the Exchange Offer is mailed to the holders of the
Private Notes. For each Private Note surrendered to the Company, the Holder of
such Private Note will receive an Exchange Note for a like principal amount at
maturity equal to that of the surrendered Private Notes. The term "Holder" with
respect to the Exchange Offer means any person in whose name Private Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in general
be freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any holder of Private Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes (i) will not be able to rely on the
interpretations of the staff of the Commission, (ii) will not be able to tender
its Private Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Private Notes unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Private Notes (other than certain specified holders) who
wishes to exchange Private Notes for Exchange Notes in the Exchange Offer will
be required to represent that (i) it is not an affiliate of the Company, (ii)
any Exchange Notes to be received by it were acquired in the ordinary course of
its business and (iii) at the time of commencement of the Exchange Offer, it had
no arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with the resale of the Exchange Notes, any broker-dealer (a "Participating
Broker-Dealer") who acquired the Exchange Notes for its own account as a result
of marketmaking or other trading activities must deliver a prospectus meeting
the requirements of the Securities Act. The Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Notes
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of the Exchange Notes.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any reason the Exchange Offer is not consummated within 210 days
following the Original Issue Date, or if any holder of the Private Notes (other
than the Initial Purchasers) is not eligible to participate in the Exchange
Offer, or upon the request of either Initial Purchaser under certain
circumstances, the Company will, at its cost (a) as promptly as practicable,
file the Shelf Registration Statement covering resales of the Private Notes, (b)
use its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act by the 210th day after the
30
<PAGE> 32
Original Issue Date and (c) use its best efforts to keep effective the Shelf
Registration Statement until two years after its effective date (or until one
year after such effective date if such Shelf Registration Statement is filed at
the request of either Initial Purchaser) or such shorter period which will
terminate when all of the Private Notes covered by the Shelf Registration
Statement have been sold pursuant thereto. The Company will, in the event of the
filing of a Shelf Registration Statement, provide to each holder of the Private
Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Private Notes has become effective and take certain other actions as are
required to generally permit unrestricted resales of the Notes. A holder of the
Private Notes that sells such Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Notes Registration
Rights Agreement which are applicable to such a holder (including certain
indemnification obligations). In addition, each holder of the Private Notes will
be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Notes Registration Rights
Agreement in order to have their Private Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding liquidated
damages set forth in the following paragraph.
In the event that (i) the Exchange Offer Registration Statement is not
declared effective on or prior to the 180th calendar day following the Original
Issue Date, (ii) the Exchange Offer is not consummated or, if required, a Shelf
Registration Statement with respect to the Private Notes is not declared
effective on or prior to the 210th calendar day following the Original Issue
Date or (iii) the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable (each event referred to in
clauses (i) through (iii) above, a "Registration Default"), then the Company
will be required to pay additional interest in cash on each Interest Payment
Date in an amount equal to one-half of one percent (0.5%) per annum of the
principal amount with respect to the first 90-day period following such
Registration Default. The amount of such additional interest will increase by an
additional one-half of one percent (0.5%) to a maximum or one and one-half
percent (1.5%) per annum for each subsequent 90-day period until such
Registration Default has been cured. Upon (x) the effectiveness of the Exchange
Offer Registration Statement after the 180-day period described in clause (ii)
above, (y) the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after the 210-day period
described in clause (ii) above, or (z) the cure of any Registration Default
described in clause (iii) above, such additional interest shall cease to accrue
from the date of such filing, effectiveness, consummation or cure, as the case
may be, if the Company is otherwise in compliance with this paragraph; provided,
however, that if, after any such additional interest ceases to accrue, a
different event specified in clause (i), (ii) or (iii) above occurs, such
additional interest will again accrue pursuant to the foregoing provisions.
During any 365-day period, the Company will have the ability to suspend the
availability of such Shelf Registration Statement for up to two periods of up to
45 consecutive days (except for the consecutive 45-day period immediately prior
to maturity of the Private Notes), but no more than an aggregate 60 days during
any 365-day period, if any event shall occur as a result of which it shall be
necessary, in the good faith determination of the Board of Directors, to amend
the Shelf Registration Statement or amend or supplement any prospectus or
prospectus supplement thereunder in order that each such document not include
any untrue statement of fact or omit to state a material fact necessary to make
the statements therein not misleading in light of the circumstances under which
they were made.
The summary herein of certain provisions of the Notes Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provision of the Notes Registration Rights
Agreement, a copy of which is available upon request to the Company. As a result
of the making of this Exchange Offer, and upon acceptance for exchange of all
validly tendered Private Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled certain obligations under the terms of the Private
Notes and the Notes Registration Rights Agreement and, accordingly, the holders
of the Private Notes will have no further registration or other rights under the
Notes Registration Rights Agreement, except under certain limited circumstances.
31
<PAGE> 33
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount at
maturity of Exchange Notes in exchange for each $1,000 principal amount at
maturity of outstanding Private Notes accepted in the Exchange Offer. Holders
may tender some or all of their Private Notes pursuant to the Exchange Offer.
However, Private Notes may be tendered only in integral multiples of $1,000
principal amount at maturity.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Private Notes, except that (i) the
Exchange Notes will have been registered under the Securities Act and hence will
not bear legends restricting the transfer thereof and (ii) the holders of the
Exchange Notes will not be entitled to certain rights under the Notes
Registration Rights Agreement, including the terms providing for an increase in
the interest rate on the Private Notes under certain circumstances relating to
the timing of the Exchange Offer, all of which rights will terminate when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the Private Notes and will be entitled to the benefits of the Indenture under
which the Private Notes were, and the Exchange Notes will be, issued.
As of the date of this Prospectus, $506,000,000 aggregate principal amount
at maturity of the Private Notes was outstanding, all of which is registered in
the name of Cede & Co., as nominee for The Depository Trust Company (the
"Depository"). Only a registered holder of the Private Notes (or such holder's
legal representative or attorney-in-fact) as reflected on the records of the
Trustee under the Indenture may participate in the Exchange Offer. Solely for
reasons of administration, the Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will initially be sent. There will be no fixed record date for
determining registered holders of the Private Notes entitled to participate in
the Exchange Offer.
Holders of Private Notes do not have any appraisal or dissenters' rights
under the Missouri General and Business Corporation Law or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Private Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Private Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
32
<PAGE> 34
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after each previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under the caption "Conditions" shall not have been
satisfied, to terminate the Exchange Offer, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by a public announcement thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the amendment and the manner of disclosure to the registered
Holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, termination or amendment of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
No cash interest will be payable on the Exchange Notes prior to March 1,
2003. The Exchange Notes offered hereby will accrete original issue discount at
a rate of 12 1/2% per annum from the Original Issue Date until March 1, 2003.
Thereafter, the Exchange Notes will bear interest at the rate of 12 1/2% per
annum which will be payable in cash semiannually on March 1 and September 1 of
each year, commencing September 1, 2003. Interest on the Private Notes accepted
for exchange will cease to accrete upon issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
Only a Holder of Private Notes may tender such Private Notes in the
Exchange Offer. A Holder who wishes to tender Private Notes for exchange
pursuant to the Exchange Offer must transmit a properly completed and duly
executed Letter of Transmittal, or a facsimile thereof, including any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for such
Private Notes must be received by the Exchange Agent along with the Letter of
Transmittal or (ii) the Holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Private Notes, the
Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
The method of delivery of the Private Notes and the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder. Instead of delivery by mail, it is recommended that Holders
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Private Notes should be sent to the Company. Holders
may request their respective brokers, dealers, commercial banks, trust companies
or nominees to effect the above transactions for such Holders.
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Private Notes, either make appropriate arrangements to register
ownership of the Private Notes in such owner's name or obtain a properly
completed bond power from
33
<PAGE> 35
the registered Holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Private Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole and absolute discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Private Notes not properly tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Private Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Private Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Private Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering, each Holder will represent to the Company, among other
things, that (i) the Exchange Notes to be acquired by the Holder and any
beneficial owners of Private Notes pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Exchange Notes, (ii) the Holder and each such beneficial owner are not
participating, do not intend to participate and have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) neither the Holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company.
Each broker or dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker or dealer as a result of market-making activities or other trading
activities (other than Private Notes acquired directly from the Company), must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depository for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's systems may make
book-entry delivery of
34
<PAGE> 36
Private Notes by causing the Depository to transfer such Private Notes into the
Exchange Agent's account at the Depository in accordance with the Depository's
procedures for transfer. However, although delivery of Private Notes may be
effected through book-entry transfer at the Depository, the Letter of
Transmittal or facsimile thereof, with any required signature guarantees and any
other required documents, must, in any case, be transmitted to and received by
the Exchange Agent at the address set forth below under "-- Exchange Agent" on
or prior to the Expiration Date or pursuant to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Private Notes and the principal amount of Private Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Private Notes and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Private Notes in proper form for transfer and all other documents required
by the Letter of Transmittal are received by the Exchange Agent within
three New York Stock Exchange trading days after the Expiration Date. Upon
request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent
to Holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Private Notes to be withdrawn (the "Depositor"),
(ii) identify the Private Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Private Notes), (iii) be signed
by the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Private Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Private Notes register the transfer of such
Private Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Private Notes are to be registered, if
different from that of the Depositor. If certificates for Private Notes have
been delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing Holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
Holder is an Eligible Institution. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company in its sole discretion, which determination shall be final and
binding on all parties.
Any Private Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Private Notes so withdrawn are validly
retendered. Properly withdrawn Private Notes may be retendered by following one
of
35
<PAGE> 37
the procedures described above under "-- Procedures for Tendering" at any time
prior to the Expiration Date. Any Private Notes which have been tendered but
which are not accepted for payment due to withdrawal, rejection of tender or
termination of the Exchange Offer will be returned as soon as practicable to the
Holder thereof without cost to such Holder.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Private
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Private Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole and absolute discretion that any of
the conditions are not satisfied, the Company may (i) refuse to accept any
Private Notes and return all tendered Private Notes to the tendering Holders,
(ii) extend the Exchange Offer and retain all Private Notes tendered prior to
the expiration of the Exchange Offer, subject, however, to the rights of Holders
to withdraw such Private Notes (see "-- Withdrawal of Tenders" above) or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all properly tendered Private Notes which have not been withdrawn. If such
waiver constitutes a material change to the Exchange Offer, the Company will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the significance
of the waiver and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
By Registered or Certified (For Eligible Institutions By Hand/Overnight Delivery:
Mail: Only) The Bank of New York
The Bank of New York By Facsimile: One Wall Street -- 27
One Wall Street -- 27 The Bank of New York Corporate Trust & Agency
New York, New York 10286 (212) 571-3080 Services Window
Attn: Reorganization Section Confirm by telephone: Ground Level
(212) 815-2742 New York, New York 10286
Attn: Reorganization Section
</TABLE>
36
<PAGE> 38
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange of
Private Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Private Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Private Notes tendered,
or if tendered Private Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of Private Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Private Notes, which is face value less accrued original issue discount, as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer and the unamortized expenses related to the
issuance of the Private Notes will be amortized over the term of the Exchange
Notes.
OTHER
Participation in the Exchange Offer is voluntary and holders of Private
Notes should carefully consider whether to accept the terms and conditions
thereof. Holders of the Private Notes are urged to consult their financial and
tax advisors in making their own decisions on what action to take with respect
to the Exchange Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Private Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled certain obligations under the terms of the Private
Notes and the Notes Registration Rights Agreement. Holders of the Private Notes
who do not tender their Private Notes in the Exchange Offer will continue to
hold such Private Notes and will be entitled to all the rights, and limitations
applicable thereto, under the Indenture, except for any such rights under the
Notes Registration Rights Agreement which by their terms terminate or cease to
have further effect as a result of the making of this Exchange Offer. All
untendered Private Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for any
remaining Private Notes could be adversely affected. See "Risk
Factors -- Consequences of Failure to Exchange."
37
<PAGE> 39
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Notes Registration Rights Agreement. The Company will not
receive any proceeds from the issuance of the Exchange Notes in the Exchange
Offer.
CAPITALIZATION
The following table sets forth the cash, deferred revenues and
capitalization of the Company as of December 31, 1997 on an actual basis and as
adjusted to reflect (i) the Private Offering and the application of the net
proceeds therefrom and (ii) the elimination of the redemption provisions of the
Series A Preferred Stock. This table should be read in conjunction with the
"Selected Consolidated Financial Data" and the consolidated financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Cash and cash equivalents(a)................................ $ 3,636,174 $265,386,871
============ ============
Deferred revenues(b)........................................ $ 13,945,173 $ 13,945,173
============ ============
Notes offered hereby(c)..................................... $ -- $265,252,184
Redeemable convertible Series A Preferred Stock, $0.01 par
value, 30,000 authorized, issued and outstanding(d)....... 51,124,607 --
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value, 20,000 shares
authorized, no shares issued and outstanding........... -- --
Convertible Series A Preferred Stock, $0.01 par value,
30,000 authorized, issued and outstanding(d)........... -- 300
Common Stock, $0.01 par value, 100,000,000 shares
authorized, 30,000,000 issued and outstanding(e)....... 300,000 300,000
Additional paid-in capital(d)............................. -- 44,013,063
Common Stock warrants(c)(e)............................... 450,000 10,421,336
Accumulated deficit(d).................................... (11,484,840) (4,373,596)
------------ ------------
Total stockholders' equity (deficit)...................... (10,734,840) 50,361,103
------------ ------------
Total capitalization........................................ $ 40,389,767 $315,613,287
============ ============
</TABLE>
- -------------------------
(a) Cash and cash equivalents, as adjusted, includes the repayment of short-term
borrowings of $3.0 million outstanding under Digital Teleport's bank credit
facility as of February 23, 1998, all of which were repaid with a portion of
the net proceeds of the Private Offering.
(b) Reflects payments received by DTI in advance of the provision of
telecommunications services under dark fiber leases (and wholesale network
capacity agreements), which payments are recognized over the terms of the
leases (or agreements) on a straight-line basis. Does not include current
portion of deferred revenues in the amount of approximately $366,000.
(c) Of the $275.2 million gross proceeds from the issuance of the Units offered
hereby, $265.3 million has been allocated to the initial Accreted Value of
the Notes and $10.0 million has been allocated to the Warrants. No assurance
can be given that the value allocated to the Warrants will be indicative of
the price at which the Warrants may actually trade.
(d) On February 13, 1998, in conjunction with the Private Offering, the Company
amended its Articles of Incorporation to provide that the Series A Preferred
Stock is not mandatorily redeemable. As a result of such amendment, the
Series A Preferred Stock is classified with stockholders' equity. Of the
amounts classified with stockholders' equity, $44.3 million represents the
aggregate amount paid for the Series A Preferred Stock, for which there is a
liquidation preference less transaction costs. The remaining $6.8 million
has been classified with accumulated deficit and represents the net amounts
which had been accreted to Series A Preferred Stock. The adjusted balance
also reflects the reclassification of approximately $270,000 of additional
paid-in capital to accumulated deficit in order to effect the stock split on
February 17, 1998. See Notes 13 and 14 of the notes to the audited
consolidated financial statements and Note 4 of the unaudited consolidated
financial statements.
(e) Common Stock outstanding excludes (i) 303,030 shares of Common Stock
issuable upon exercise of an outstanding warrant and (ii) 750,000 shares of
Common Stock issuable upon exercise of options that the Company has granted
or is obligated to grant to certain of its directors and executive officers
under the Company's 1997 Long-Term Incentive Award Plan. See "Management --
Incentive Award Plan," Notes 6 and 13 of the notes to the audited
consolidated financial statements and Note 5 of the notes to the unaudited
consolidated financial statements.
38
<PAGE> 40
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data presented below for each of the
three years in the period ended June 30, 1997 have been derived from the audited
consolidated financial statements of the Company which have been audited by
Deloitte & Touche LLP, independent auditors. The results of operation from
inception at June 23, 1989 to June 30, 1994 are not presented because they are
not material. The selected consolidated financial data as of and for the
six-month periods ended December 31, 1996 and 1997 have been derived from the
unaudited consolidated financial statements of the Company, which have been
prepared on the same basis as the audited consolidated financial statements of
the Company and, in the opinion of management, reflect all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations as of the end of and for such period. The results for the
six months ended December 31, 1997 are not necessarily indicative of the
operating results to be expected for the entire year. The information set forth
below should be read in conjunction with the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and the audited and unaudited consolidated financial statements of
the Company and notes thereto appearing elsewhere in the Private Offering
Memorandum.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------------------- ----------------------------
1995(A) 1996(A) 1997 1996 1997
------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenues:
Telecommunication services
Carrier's carrier
services................. $ -- $ 188,424 $ 807,347 $ 232,385 $ 744,185
End-user services........... 199,537 488,377 515,637 270,879 274,346
Other services(b)............. -- -- 711,006 -- --
------------ ----------- ------------ ----------- ------------
Total revenue............... 199,537 676,801 2,033,990 503,264 1,018,531
------------ ----------- ------------ ----------- ------------
Operating expenses:
Telecommunication services.... 165,723 296,912 847,190 295,278 409,372
Other services(b)............. -- -- 364,495 -- --
Selling, general and
administrative.............. 240,530 548,613 1,118,809 467,491 1,598,136
Depreciation and
amortization................ 70,500 425,841 757,173 313,060 830,700
------------ ----------- ------------ ----------- ------------
Total operating expenses.... 476,753 1,271,366 3,087,667 1,075,829 2,838,208
------------ ----------- ------------ ----------- ------------
Loss from operations............ (277,216) (594,565) (1,053,677) (572,565) (1,819,677)
Interest income (expense),
net........................... (9,516) (191,810) (51,023) (63,552) 120,146
Loan commitment fees............ -- -- (784,500) (784,500) --
Equity in earnings of joint
venture....................... -- -- 37,436 20,640 --
------------ ----------- ------------ ----------- ------------
Loss before income tax
benefit....................... (286,732) (786,375) (1,851,764) (1,399,977) (1,699,531)
Income tax benefit.............. -- -- 1,214,331 918,000 680,000
------------ ----------- ------------ ----------- ------------
Net loss(c)..................... $ (286,732) $ (786,375) $ (637,433) $ (481,977) $ (1,019,531)
============ =========== ============ =========== ============
OTHER FINANCIAL DATA:
Cash flows from operations...... $ 6,903,884 $ 299,710 $ 7,674,272 $ 3,649,476 3,946,036
Cash flows from investing
activities.................... (11,804,176) (1,122,569) (19,417,073) (6,421,393) (21,926,768)
Cash flows from financing
activities.................... 5,030,000 1,500,030 15,292,316 2,550,000 17,250,000
EBITDA(d)....................... (206,716) (168,724) (259,068) (238,865) (988,977)
Capital expenditures............ 6,804,176 5,663,047 19,876,595 9,802,338 21,926,768
Ratio of earnings to fixed
charges(e).................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31, 1997
--------------------------------------- -----------------------------
1995(A) 1996(A) 1997 ACTUAL AS ADJUSTED(F)
------- ------- ---- ------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 140,220 $ 817,391 $ 4,366,906 $ 3,636,174 $265,386,871
Network and equipment, net......... 6,788,582 13,064,169 34,000,634 55,097,202 55,097,202
Total assets....................... 11,983,497 15,025,758 39,849,136 62,457,431 334,680,951
Long-term debt..................... -- -- -- -- 265,252,184
Deferred revenues(g)............... 4,927,228 6,595,948 9,420,224 13,945,173 13,945,173
Redeemable Convertible Series A
Preferred Stock(h)............... -- -- 28,889,165 51,124,607 --
Stockholders' equity
(deficit)(h)..................... (237,638) (1,100,703) (4,729,867) (10,734,840) 50,361,103
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Route miles...................................... 372 520 732 1,361 1,427
Fiber miles...................................... 23,085 33,269 44,071 84,254 87,498
POP/Collocation sites(i)......................... 15 19 24 43 45
</TABLE>
(footnotes on following page)
39
<PAGE> 41
(a) From its inception in June 1989 through June 30, 1996, the Company was
considered a development stage enterprise focused on developing the DTI
network and customer base.
(b) Other services revenues and expenses in the year ended June 30, 1997 reflect
the design, construction and installation of innerduct for another carrier's
fiber optic network.
(c) Net loss attributable to Common Stock, loss per share data and weighted
average number of shares outstanding are not meaningful.
(d) EBITDA represents net loss before interest income (expense), loan commitment
fees, income tax benefit, depreciation and amortization. EBITDA is included
because the Company understands that such information is commonly used by
investors in the telecommunications industry as an additional basis on which
to evaluate the Company's ability to pay interest, repay debt and make
capital expenditures. Excluded from EBITDA are interest income (expense),
loan commitment fees, income taxes, depreciation and amortization, each of
which can significantly affect the Company's results of operations and
liquidity and should be considered in evaluating the Company's financial
performance. EBITDA is not intended to represent, and should not be
considered more meaningful than, or an alternative to, measures of operating
performance determined in accordance with generally accepted accounting
principles ("GAAP"). Additionally, EBITDA should not be used as a comparison
between companies, as it may not be calculated in a similar manner by all
companies.
(e) For purposes of calculating the ratio of earnings to fixed charges: (i)
earnings consist of loss before income tax benefit, plus fixed charges
excluding capitalized interest; and (ii) fixed charges consist of interest
expenses and capitalized costs, amortization of deferred financing costs,
plus the portion of rentals considered to be representative of the interest
factor (one-third of lease payments). For the ended June 30, 1995, 1996 and
1997, and for the six months ended December 31, 1996 and 1997, the Company's
earnings were insufficient to cover fixed charges by approximately $296,000,
$2.0 million, $2.4 million, $1.8 million and $1.7 million, respectively.
(f) As adjusted to reflect: (i) the Private Offering and the application of the
net proceeds therefrom; and (ii) the elimination of the redemption
provisions of the Series A Preferred Stock. See note (h), below. Of the
$275.2 million gross proceeds from the issuance of the Units in the Private
Offering, $265.3 million has been allocated to the initial Accreted Value of
the Notes and $10.0 million has been allocated to the Warrants. See
"Capitalization."
(g) Does not include current portion of deferred revenues in the amount of
approximately $101,000, $139,000, $260,000 and 366,000 as of June 30, 1995,
1996 and 1997 and December 31, 1997.
(h) On February 13, 1998, in conjunction with the Private Offering, the Company
amended the terms of the Series A Preferred Stock to provide that it is no
longer mandatorily redeemable, and, as a result, the Series A Preferred
Stock will be classified with stockholders' equity. See "Capitalization."
(i) Consists of interconnections with ILEC access tandems, ILEC central offices,
IXC POPs, DTI's network control center and POP buildings, and end-user
customer connections.
40
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto and the
other financial data appearing elsewhere in this Prospectus.
OVERVIEW
DTI is a facilities-based provider of long-haul and local
telecommunications services primarily to IXCs and other communications entities
on a wholesale basis, as well as directly to business and governmental end
users. DTI intends to expand its network outward from Missouri into an
additional 13 states in the Midwest region. The Company is preparing to offer
local switched services and data transmission services to targeted end-user
customers in Missouri in mid-1998. DTI intends to provide local switched service
capacity to its carrier's carrier customers on a wholesale basis as it deploys
its switches throughout its network.
DTI was incorporated in June 1989. Pursuant to a February 1994 agreement
with St. John's Hospital in St. Louis, Missouri ("St. John's"), DTI commenced
construction of a fiber optic network to provide data communications services
between St. John's facilities within the St. Louis area. The Company
subsequently established its network control center in suburban St. Louis, which
was then interconnected with the St. John's routes. Following the execution of
agreements with the MHTC in September 1994 and with Union Electric in October
1994, DTI began construction of a long-haul route between St. Louis and
Jefferson City, Missouri. This long-haul route and its local portions enabled
DTI to begin providing long-haul and local carrier's carrier services in 1996 to
certain IXCs, including MCI and WorldCom. During fiscal 1995 and 1996, DTI
continued construction of its network, primarily along the Missouri highway
system to Kansas City and other Missouri locations. DTI also entered into
agreements with St. Louis metropolitan municipalities and other secondary
Missouri cities to obtain rights-of-way and construct local loops in such areas.
In July 1996, pursuant to its joint venture agreement with KLT, a subsidiary of
KCPL, DTI commenced construction of a fiber optic network in the Kansas City
metropolitan area. In June 1997, DTI obtained rights-of-way for the construction
of its network facilities along certain Arkansas highways, which will facilitate
the Company's first network expansion outside the state of Missouri.
REVENUES. The Company derives revenues principally from (i) the sale of
wholesale telecommunications services, primarily through dark fiber leases and
wholesale network capacity agreements, to IXCs, such as the Tier 1 carriers, and
other telecommunications entities and (ii) the sale of telecommunications
services directly to business and governmental end users. For the year ended
June 30, 1997, the Company derived approximately 40% and 25% of its total
revenues from carrier's carrier services and end-user services, respectively.
The remaining 35% of its total revenues in fiscal 1997 were derived from
non-recurring network construction services, which involved the design,
construction and installation of innerduct for the fiber optic network of one of
DTI's carrier customers. Excluding such network construction revenues, carrier's
carrier services and end-user services represented approximately 61% and 39%,
respectively, of the Company's total revenues in fiscal 1997. For the six months
ended December 31, 1997, DTI derived approximately 73% and 27% of its total
revenues from carrier's carrier services and end-user services, respectively.
During the past several years, market prices for many telecommunications
services have been declining, which is a trend the Company believes will likely
continue. This decline has had and will continue to have a negative effect on
the Company's gross margin, which may not be offset by decreases in the
Company's cost of services. However, the Company believes that such decreases in
prices may be partially offset by increased demand for DTI's telecommunications
services as it expands the DTI network and introduces new services. See
"Industry Overview," "Business -- Business Strategy" and "-- Products and
Services."
Carrier's carrier services are generally high capacity, private line
telecommunications services provided over the Company's owned facilities and, in
locations where the DTI network has not been extended or completed, over leased
line capacity. Carrier's carrier services generally are provided to (i)
facilities-based carriers that require long distance transmission capacity where
they have geographic gaps in their facilities, need additional capacity or
require alternative routing and (ii) non-facilities-based carriers requiring
long haul transmission capacity. Carrier's carrier is a wholesale business
characterized by higher margins than are
41
<PAGE> 43
typically realized through end-user services primarily because carrier's carrier
services can be established more quickly and at a lower cost than end-user
services.
DTI derives carrier's carrier services revenues from dark fiber leases and
wholesale network capacity agreements. Dark fiber leases typically have a term
of 10 to 20 years. The Company provides wholesale network capacity services
through service agreements for terms of one year or longer which typically
require customers to pay for such capacity regardless of level of usage. Both
dark fiber leases and wholesale network capacity agreements generally provide
for a fixed monthly payment based on the capacity and length of circuit provided
and frequently require substantial advance payments. Such advance payments are
recorded by the Company as deferred revenue and are recognized as revenue over
the life of the lease or agreement on a straight-line basis. For the year ended
June 30, 1997 and the six months ended December 31, 1997, the Company's three
largest carrier customers accounted for an aggregate of 70% and 62%,
respectively, of carrier's carrier services revenues, or 28% and 45%,
respectively, of total revenues.
Beginning in mid-1998, the Company plans to offer (i) carrier branded
offerings, which, for example, would provide an IXC, using the DTI network
exclusively, the ability to transmit the traffic of a large business customer
which is located at or near the DTI network from the premises of such customer
to the IXC's POP and (ii) IXC call transport services, which would allow an IXC
to deliver all in-bound calls of such IXC to all major IXC POPs and all ILEC
access tandems in the Midwest region, substantially through DTI-owned
facilities. The Company also intends to provide local switched service capacity
to its carrier's carrier customers on a wholesale basis as it deploys its
switches throughout the Midwest region.
End-user services are telecommunications services provided directly to
businesses and governmental end users. The Company currently provides private
line services to end users to connect certain points on an end user's private
telecommunications network as well as to bypass the applicable ILEC in accessing
such end user's long distance provider. DTI end-user services agreements
generally provide for services for a term of one year or longer and for a fixed
monthly payment based on the capacity and length of circuit provided, regardless
of level of usage. As of December 31, 1997, the Company has received aggregate
advance payments of approximately $13.9 million from certain of its end-user
customers. Revenues from end-user services and carrier's carrier services are
recognized monthly as the services are provided, except with respect to advance
payments, for which revenues are deferred and recognized over the life of the
agreement. Upon expiration, such agreements may be renewed or services may be
provided on a month-to-month basis. For the year ended June 30, 1997 and the six
months ended December 31, 1997, five customers accounted for all of DTI's end-
user services revenue, or an aggregate of 25% and 27%, respectively, of total
revenues.
Beginning in mid-1998, the Company plans to offer, through the addition of
high-capacity switches on the DTI network, local switched services to certain
end-user customers. Switched services are expected to be billed to customers
primarily on a minutes-of-use basis. As a provider of local switched services,
the Company would also receive subscriber-paid line access charges, IXC-paid
per-minute access charges for completing IXC connections to end users on the DTI
network, and LEC-paid access charges for terminating LEC local calls to end
users on the DTI network. The Company completed installation of the first of 10
Nortel DMS-500 switches in January 1998 and estimates that the remaining nine
will be operational by the end of 1999. Competitive, regulatory and
technological developments in the telecommunications industry may have a
significant effect on the Company's ability to compete in the local switched
services market. See "Risk Factors -- Competition" and "Business --
Competition." Further, the Company believes revenues from local switched
services customers that are billed on a minutes-of-use basis have the potential
to fluctuate significantly based on factors beyond DTI's control, including the
prices charged by its competitors. There can be no assurance that the Company
will have the ability or the necessary resources to successfully develop and
offer local switched services or that such services will achieve market
acceptance or profitability.
In fiscal 1997, at the request of a specific carrier customer, the Company
designed, constructed and installed innerduct for such customer's own fiber
optic network. While the Company does not presently consider the provision of
such services to be part of its business strategy, it will consider such
opportunities as they arise. The Company expects that future revenues, if any,
from network construction services will not be a significant contributor to the
Company's overall revenues or results of operations.
42
<PAGE> 44
OPERATING EXPENSES. The Company's principal operating expenses consist of
the cost of telecommunications services, selling, general and administrative
("SG&A") expenses, depreciation and amortization, and, in fiscal 1997, costs of
network construction services.
The cost of telecommunications services consists primarily of the cost of
leased line facilities and capacity, and engineering and operating costs in
connection with its owned facilities. Because the Company currently provides
carrier's carrier and end-user services principally over its own network, the
cost of providing these services includes a minor amount of leased space (in the
form of physical collocation at ILEC access tandems and IXC POPs) and leased
line capacity (to fill requirements of a customer contract which are otherwise
substantially met on the DTI network and typically where the Company plans to
expand the DTI network) and no ILEC access charges. However, when the Company
begins providing local switched services, leased line capacity costs and access
charges are expected to increase significantly because the Company expects to
obtain access to a greater number of ILEC facilities through leased lines in
order to reach end users that cannot be cost-effectively connected to the DTI
network in a given local market. The Company expects that the addition of local
switched services will have a negative impact on its overall gross margin due to
the fact that the gross margin of local switched services is generally lower
than that of carrier's carrier services. Engineering and operating costs
include, but are not limited to, costs of designing the DTI network, ordering,
testing and installing fiber optic cable and electronic equipment, and locating
installed fiber to minimize the risk of fiber cuts.
SG&A expenses include the cost of salaries, benefits, occupancy costs,
sales and marketing expenses and administrative expenses. Selling expenses
include commissions for the Company's sales programs, which consists of a
percentage of a customer's initial billing, plus a residual percentage of
ongoing monthly revenues. The Company plans to add sales offices in selected
markets as additional segments of the DTI network become operational. The
Company began developing a sales staff late in fiscal 1997 to concentrate on
sales to end-user customers. However, DTI does not expect to begin to realize
the results of its increased sales efforts until fiscal 1999. Depreciation and
amortization are primarily related to fiber optic cable plant, electronic
terminal equipment and network buildings, and are expected to increase as the
Company incurs substantial capital expenditures to build the DTI network and
begins to install its own switches. In general, SG&A expenses have increased
significantly as the Company has developed and expanded the DTI network. The
Company expects to incur significant increases in SG&A expenses to realize the
anticipated growth in revenue for carrier's carrier services and end-user
services. In addition, SG&A expenses will increase as the Company continues to
recruit experienced personnel to implement the Company's business strategy. See
"Risk Factors -- Expansion and Managing Rapid Growth" and "Business -- Sales and
Marketing."
OPERATING LOSSES. As a result of development and operating expenses, the
Company has incurred significant operating and net losses to date. Losses from
operations in fiscal 1995, 1996 and 1997 and for the six months ended December
31, 1997 were $277,000, $595,000, $1.1 million and $1.8 million, respectively.
DTI expects to incur significant operating losses and to generate negative cash
flows from operating activities during at least the next three years of the
Company's construction and activation of the DTI network. There can be no
assurance that the Company will achieve or sustain profitability or generate
sufficient positive cash flow to meet its debt service obligations and working
capital requirements. If the Company cannot achieve operating profitability or
positive cash flows from operating activities, it may not be able to service the
Notes or to meet its other debt service or working capital requirements, which
could have a material adverse effect on the Company.
43
<PAGE> 45
RESULTS OF OPERATIONS
The table set forth below summarizes the Company's percentage of revenue by
source and operating expenses as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------- -----------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Carrier's carrier services..................... --% 27.8% 39.7% 46.2% 73.1%
End-user services.............................. 100.0 72.2 25.3 53.8 26.9
----- ----- ----- ----- -----
100.0 100.0 65.0 100.0 100.0
Other services................................. -- -- 35.0 -- --
----- ----- ----- ----- -----
Total revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Operating Expenses:
Telecommunications services.................... 83.1% 43.9% 41.7% 58.7% 40.2%
Other services................................. -- -- 17.9 -- --
Selling, general and administrative............ 120.5 81.0 55.0 92.9 156.9
Depreciation and amortization.................. 35.3 62.9 37.2 62.2 81.6
----- ----- ----- ----- -----
Total operating expenses.................... 238.9% 187.8% 151.8% 213.8% 278.7%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1997
REVENUE. Total revenue increased 102.4% from $503,000 in 1996 to $1.0
million in 1997 due to increased revenue from carrier's carrier and end-user
services. Revenue from carrier's carrier services increased 220.2%, from
$232,000 in 1996 to $744,000 in 1997. This increase resulted principally from
the completion of additional network segments, as well as from adding traffic on
the existing DTI network. End-user revenues increased 1.3%, from $271,000 in
1996 to $274,000 in 1997. This increase was attributable to the completion of
additional sites under a deferred revenue contract, which caused additional
deferred revenues to be recognized.
OPERATING EXPENSES. Operating expenses increased 163.8% from $1.1 million
in 1996 to $2.8 million in 1997, due primarily to increases in
telecommunications services, SG&A expenses and depreciation and amortization.
Telecommunication services expenses increased 38.6% from 295,000 in 1996 to
409,000 in 1997 due to increased personnel to support the expansion of the DTI
network. SG&A expenses increased 241.9%, from $467,000 in 1996 to $1.6 million
in 1997, in order to support the expansion of the DTI network, which includes an
increase in administrative and sales personnel and the related expenses of
supporting these personnel, as well as increased legal fees resulting from
expanded levels of operations. Depreciation and amortization increased 165.3%,
from $313,000 in 1996 to $831,000 in 1997 due to higher amounts of plant and
equipment being in service in 1997 versus 1996. The Company expects that
significant additional amounts of plant and equipment will be placed in service
throughout fiscal 1998. As a result, depreciation and amortization is expected
to increase significantly.
INTEREST AND OTHER INCOME (EXPENSE). Net interest and other income
(expense) improved from an expense of $827,000 in 1996 to income of $120,000 in
1997. Interest income increased from $33,000 in 1996 to $120,000 in 1997 due to
carrying larger average cash balances. Interest expense decreased $96,000 in
1997, as a result of repayment of outstanding debt. Loan commitment fees
decreased from $785,000 in 1996 to $0 in 1997. These fees represented a one-time
charge for a loan commitment which was not used.
INCOME TAXES. The Company has incurred $0 of income taxes from July 1, 1994
through December 31, 1997 as a result of generating net operating losses for tax
purposes. An income tax benefit of $918,000 and $680,000 was recorded in the six
month periods ended December 31, 1996 and 1997, respectively, as management
believes it is more likely than not that it will generate taxable income
sufficient to realize the tax benefit associated with future deductible
temporary differences and net operating loss carryforwards prior to their
expiration.
44
<PAGE> 46
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
REVENUE. Revenue increased 200.5%, from $677,000 in 1996 to $2.0 million in
1997. This increase was due primarily to increased revenue from both carrier's
carrier services and end-user services, as well as significant income from other
services. Revenue from carrier's carrier services increased 328.5%, from
$188,000 in 1996 to $807,000 in 1997. This increase resulted principally from
completion and activation of additional route miles of the DTI network, which
allowed the Company to sell both lighted and dark fiber capacity to several
IXCs. End-user services revenue increased 5.6%, from $488,000 in 1996 to
$516,000 in 1997. Other services revenue of $711,000 in fiscal 1997 represented
a single contract for installation of innerduct for one of the Company's carrier
customers along the Company's right-of-way. The Company recorded $0 in other
service revenues in fiscal 1996, and other services are not expected to be a
recurring source of revenue for the Company in the future. However, the Company
will consider similar opportunities, should they become available in the future,
principally as a means of lowering the cost of expanding its network.
OPERATING EXPENSES. Operating expenses increased 142.9%, from $1.3 million
in 1996 to $3.1 million in 1997, due primarily to increases in
telecommunications services expenses, SG&A expenses, other services expenses,
and depreciation and amortization. Telecommunications services expenses
increased 185.3%, from $297,000 in 1996 to $847,000 in 1997 due to the expansion
of the network and increased revenues from carrier's carrier services. SG&A
expenses increased 103.9%, from $549,000 in 1996 to $1.1 million in 1997 to
support the Company's expansion. Other services expenses of $364,000 in 1997
represent the costs associated with a contract for the installation of innerduct
for one of the Company's carrier customers.
Depreciation and amortization increased 77.8%, from $426,000 in 1996 to
$757,000 in 1997 primarily due to additional plant and equipment being placed
into service. As of June 30, 1997, the Company had gross plant and equipment of
$35.2 million, of which $19.0 million (54%) consisted of construction in
progress that was not subject to depreciation. A substantial portion of this
construction in progress is expected to be placed in service in fiscal 1998. In
addition, the Company plans to construct and place in service significantly
greater amounts of plant and equipment in fiscal 1998 than in prior years. As a
result, depreciation and amortization expense is expected to increase
significantly.
INTEREST AND OTHER INCOME (EXPENSE). Net interest and other expenses
increased $606,000, from $192,000 in 1996 to $798,000 in 1997. This increase was
primarily attributable to loan commitment fees of $785,000 incurred in
connection with a bridge loan commitment made available to the Company but not
utilized as a result of KLT's investment in the Company. Interest income
decreased from $193,000 in 1996 to $102,000 in 1997 because the Company carried
smaller average cash balances. Interest expense decreased from $385,000 in 1996
to $153,000 in 1997, as the Company issued its Series A Preferred Stock to
finance, in part, its network construction. The Company reported equity in
earnings of a joint venture of $37,000 in 1997. This joint venture was formed
and its operations and assets were combined with the Company's during the year
ended June 30, 1997 in connection with the issuance of Series A Preferred Stock
to KLT.
INCOME TAXES. The Company incurred $0 of income taxes from July 1, 1994
through June 30, 1997 as a result of generating net operating losses for tax
purposes. An income tax benefit of $1.2 million was recorded in fiscal 1997, as
the Company believes that it is more likely than not that it will generate
taxable income sufficient to realize the tax benefits associated with future
deductible temporary differences and net operating loss carryforwards prior to
their expiration. This belief is based primarily upon changes in operations over
the last year.
NET LOSS. The Company's net loss decreased 18.9% from $786,000 in 1996 to
$637,000 in 1997.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
REVENUE. Total revenue increased 239.2%, from $200,000 in 1995 to $677,000
in 1996, due primarily to increased revenue from both carrier's carrier services
and end-user services. Revenue from carrier's carrier services amounted to
$188,000 in 1996 as a result of the completion of additional route miles of the
DTI
45
<PAGE> 47
network, which allowed it to sell capacity to several IXCs. End user services
revenue increased 144.8%, from $200,000 in 1995 to $488,000 in 1996. This
increase was attributable to the expansion of the DTI network.
OPERATING EXPENSES. Operating expenses increased 166.7%, from $477,000 in
1995 to $1.3 million in 1996 due primarily to increases in telecommunications
services expenses, SG&A expenses and depreciation and amortization.
Telecommunications services expenses increased 79.2%, from $166,000 in 1995 to
$297,000 in 1996 due to the expansion of the DTI network and increased levels of
revenue from telecommunications services. SG&A expenses increased 128.1%, from
$241,000 in 1995 to $549,000 in 1996 in order to support the Company's
expansion. Depreciation and amortization increased 504.0%, from $71,000 in 1995
to $426,000 in 1996 due to significant additional amounts of plant and equipment
being placed into service as part of the DTI network's expansion.
INTEREST AND OTHER INCOME (EXPENSE). Net interest and other expenses
increased $182,000, from $10,000 in 1995 to $192,000 in 1996. This increase was
primarily attributable to interest expense incurred in connection with increased
levels of borrowing. Interest income increased 26.0%, from $153,000 in 1995 to
$193,000 in 1996 because the Company carried larger average cash balances.
Interest expense increased 136.4%, from $163,000 in 1995 to $385,000 in 1996 due
to higher average loan balances.
INCOME TAXES. The Company incurred $0 of income taxes from July 1, 1994
through June 30, 1996 as a result of generating net operating losses for tax
purposes.
NET LOSS. The Company's net loss increased 174.3%, from $287,000 in 1995 to
$786,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its capital expenditures, working capital and debt
requirements and operating losses through a combination of advance payments for
future telecommunications services received from certain major customers,
private debt and equity financings and external borrowings. In addition to
utilizing the net proceeds of the Private Offering, DTI intends to finance its
capital expenditures, working capital requirements, operating losses and debt
service requirements through advance payments under existing and additional
agreements for the lease of dark fiber or wholesale capacity, borrowings under
bank credit facilities, additional debt or equity financings, and available cash
flow from operations.
The net cash provided by operating activities for the years ended June 30,
1997 and 1996 totaled $7.7 million and $300,000, respectively, and for the six
months ended December 31, 1997 and 1996, net cash provided by operating
activities totaled $3.9 million and $3.6 million, respectively. During the year
ended June 30, 1997, cash provided by operating activities came principally from
increases in accounts payable of $3.4 million, deferred revenues of $2.9 million
and other liabilities of $1.5 million. The increase in accounts payable in
fiscal 1997 reflects the increase in liabilities under DTI's supply contracts in
connection with the buildout of the DTI network. Deferred revenues in fiscal
1997 principally reflect advance payments received from carrier customers under
agreements for the lease of both dark fiber and wholesale network capacity.
During the six months ended December 31, 1997, net cash provided by operating
activities resulted principally from an increase in deferred revenues of $4.6
million relating to an advance payment received under wholesale network capacity
agreements and end-user agreements. As of December 31, 1997, advance payments of
approximately $22.6 million will become due over the next five years under
existing agreements with certain major customers upon DTI's meeting its
obligations under certain agreements, which require the Company to provide
telecommunications services or dark fiber capacity.
In January 1998, Digital Teleport entered into a $30.0 million bank credit
facility (the "Credit Facility") with certain commercial lending institutions
and Toronto Dominion (Texas), Inc., as administrative agent for the lenders, to
fund its working capital requirements until consummation of the Private
Offering. Certain covenants under the Credit Facility required that all
outstanding borrowings be repaid upon the consummation of the Private Offering
and effectively preclude any additional borrowings after such amounts are so
repaid. The Company has repaid all borrowings under The Credit Facility. The
Company intends to pursue a long-term bank credit facility to replace the Credit
Facility.
On February 23, 1998 the Company completed the issuance and sale of the
Private Notes, for which the Company received proceeds, net of underwriting
discounts and expenses totaling approximately $264.8 million.
46
<PAGE> 48
At June 30, 1997 the Company had a working capital deficit of $1.7 million,
which represents an improvement of $4.8 million compared to the working capital
deficit of $6.5 million at June 30, 1996. This improvement is primarily
attributable to the receipt of cash payments from, and the retirement of
outstanding obligations to, KLT during fiscal 1997. See "Certain Relationships
and Related Transactions." The fiscal 1996 working capital deficit resulted
primarily from growth experienced by the Company and DTI's substantial
investment in network and equipment. At December 31, 1997, the Company had a
working capital deficit of $2.7 million, which compared to the working capital
deficit of $1.7 million at June 30, 1997. The working capital deficit for the
six months ended December 31, 1997 resulted primarily from the growth
experienced by the Company and its substantial investment in network and
equipment in that quarter.
The Company's investing activities used cash of $19.4 million for the year
ended June 30, 1997 and $1.1 million for the year ended June 30, 1996. During
the year ended June 30, 1997, the Company invested $19.9 million in network and
equipment and reduced restricted cash by $460,000 to repay borrowings under
DTI's former credit facility. During the year ended June 30, 1996, the Company
invested $5.7 million in network and equipment and reduced restricted cash by
$4.5 million to repay borrowings under the Company's former credit facility.
During the first six months of fiscal 1998, the Company's investing activities
used cash of $21.9 million compared to $6.4 million for the first six months of
fiscal 1997. During the first six months of fiscal 1998 the Company invested
$21.9 million in network and equipment. During the first six months of fiscal
1997 the Company invested $6.9 million in network and equipment and reduced
restricted cash by $447,000.
Cash provided by financing activities was $15.3 million for the year ended
June 30, 1997 and $1.5 million for the year ended June 30, 1996. During the year
ended June 30, 1997, the Company borrowed $8.0 million under a loan agreement
with KLT, bringing the total borrowings under that agreement to $14.0 million.
These total borrowings were converted into Series A Preferred Stock, and
additional cash proceeds in the amount of $10.5 million were received pursuant
to the KLT Agreement (as defined herein). Cash was used to make principal
payments on a bank loan of $500,000 and to repurchase common stock warrants
granted to a customer in the amount of $2.7 million. During the year ended June
30, 1996, cash was provided by borrowings under notes payable in the amount of
$10.4 million and cash was used to repay notes payable in the amount of $8.9
million. During the first six months of fiscal 1998 cash provided by financing
activities was $17.3 million compared to $2.6 million for the first six months
of fiscal 1997. During the first two quarters of fiscal 1998, the Company
received $17.3 million in proceeds from the issuance of Series A Preferred Stock
to KLT. During the first two quarters of fiscal 1997, the Company borrowed $3.0
million under a loan agreement with KLT. These borrowings were subsequently
converted to Series A Preferred Stock during the year ended June 30, 1997.
During the first two quarters of fiscal 1997 restricted cash was used to make
principal payments on a former bank credit facility of $450,000.
To achieve its business plan, DTI will need significant financing to fund
its capital expenditure, working capital and debt service requirements and its
anticipated future operating losses. The Company estimates that total capital
expenditures, including the total cost to construct and activate the DTI
network, will be approximately $526.4 million. Of this amount, the Company had
already expended approximately $57.2 million as of December 31, 1997. The
Company anticipates remaining total capital expenditures of approximately $30.0
million in the remainder of fiscal 1998 and $283.9 million in fiscal 1999, with
the remaining $155.3 million to be expended thereafter. Estimated total
expenditures for the remaining two quarters of fiscal 1998 include $6.4 million
for amounts currently due to the Company's contractors and for outstanding
purchase orders, which includes the purchase of one Nortel DMS-500 switch.
Estimated total expenditures through fiscal 1999 include approximately $149.8
million for the purchase of electronic equipment, including the nine remaining
Nortel DMS-500 switches. The Company's estimated capital requirements primarily
include the estimated cost of (i) completing the construction and activation of
the DTI network throughout the Midwest region in accordance with its business
strategy, and (ii) network expansion activities, including the construction of
additional local loops in secondary and tertiary cities as network traffic
volume increases. The Company also may require additional capital in the future
to fund operating deficits and net losses and for potential strategic alliances,
joint ventures and acquisitions. These activities could require significant
additional capital not included in the foregoing estimated capital requirements.
47
<PAGE> 49
As of December 31, 1997 DTI had $265.4 million of cash and cash equivalents
(on a pro forma basis after giving effect to the Private Offering). Such amount
is expected to provide sufficient liquidity to meet the Company's operating and
capital requirements through approximately the next twelve months. Subsequent to
such date, DTI's operating and capital requirements are expected to be funded,
in large part, out of advance payments under dark fiber leases and wholesale
network capacity agreements, borrowings under bank credit facilities, additional
debt or equity financings, and available cash flow from operations. The Company
is in various stages of discussions with potential customers for leases of dark
fiber and wholesale network capacity agreements. There can be no assurance,
however, that the Company will continue to obtain advance payments from
customers prior to commencing construction, that it will be able to obtain
financing under any credit facility or that other sources of capital will be
available on a timely basis or on terms that are acceptable to the Company and
within the restrictions under the Company's existing financing arrangements, or
at all. If the Company fails to obtain the capital required to complete the DTI
network build-out, the Company could modify, defer or abandon building certain
portions of the DTI network. The failure of the Company, however, to raise the
substantial capital required to complete the DTI network construction could have
a material adverse effect on the Company. The actual amount and timing of DTI's
capital requirements may differ materially from those estimates depending on
demand for the Company's services, and the Company's ability to implement its
current business strategy as a result of regulatory, technological and
competitive developments (including market developments and new opportunities)
in the telecommunications industry. See "Risk Factors -- Substantial Capital
Requirements," "-- High Leverage; Ability to Service Indebtedness; Restrictive
Covenants," "-- Risks Related to Completing the DTI Network; Increasing Traffic
Volume" and "-- Competition."
In February 1998, the Company received notice from a customer that it
intends to setoff against amounts payable to the Company approximately $400,000
as damages and penalties under the Company's contract with that customer due to
the failure by the Company to meet certain construction deadlines and such
customer reserved its rights to seek other remedies under the contract. The
Company believes that if such setoffs were to be made, they would not be
material to the Company's business, financial position and results of
operations.
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's consolidated results of operations.
48
<PAGE> 50
INDUSTRY OVERVIEW
GENERAL
The Telecom Act and several state regulatory initiatives have substantially
increased the competitive nature of the telecommunications regulatory
environment in the United States. These developments have removed significant
legal barriers to entry by IXCs and other carriers into the local
telecommunications market and required the RBOCs to allow competing
telecommunications companies to connect their facilities with their network.
IXCs and other carriers have also been guaranteed access to and a right to
resell local telecommunications and network services on an unbundled basis. The
Telecom Act also has created the foundation for increased competition from ILECs
in the long distance telecommunications market. Due to these regulatory changes,
telecommunications companies are now permitted, upon regulatory approval, to
offer an array of interstate and intrastate telephone services, including long
distance and other private line services as well as local telephone service.
The telecommunications market consists of long distance and local services.
Long distance services include retail and wholesale services. Retail long
distance services include traditional switched and dedicated long distance,
"800" and "888" calling, calling card and operator services, ATM, frame relay
and high capacity broadband private line services, as well as Internet, Intranet
and Web page hosting and development services. The dominant national retail long
distance providers include AT&T, Sprint, MCI and WorldCom (the "Tier 1
carriers") and a number of regional retail long distance service providers.
Wholesale long distance and local access service is known as the "carrier's
carrier" business. This business encompasses providing line capacity and
switched services over proprietary network facilities to the carrier's carrier
target market and interconnection within those markets. The primary customers
for companies in the carrier's carrier business are the Tier 1 carriers and the
RBOCs, followed by regional long distance carriers, ISPs, CLECs and other
telecommunications providers.
Local services include switch-based and non-switch-based local exchange
services. Local service providers primarily consist of ILECs, which include the
RBOCs, and CLECs. CLECs can penetrate a local market by (i) reselling ILEC
services by entering into interconnection agreements with the ILECs with respect
to a particular target market or (ii) installing network infrastructure to
support local services in those markets.
LONG DISTANCE AND LOCAL CALL ROUTING
A typical local telephone call placed by an end user is routed to a central
office, which is generally less than three miles from the end user, where the
call is switched. The call is then sent to an "access tandem" which connects
several central offices. The call is then transmitted to the access tandem
serving the central office of the call recipient, then to the central office
serving the call recipient and on to the call recipient. A typical long distance
call follows the same routing as a local call, from the caller to the caller's
central office and then to the access tandem. However, a long distance call is
transmitted from the caller's access tandem to the POP of the caller's long
distance carrier. The long distance carrier then transmits the call to its POP
at the call recipient's location, then to the access tandem and central office
serving the call recipient and on to the call recipient.
The following diagram illustrates the general structure of an IXC long
distance network.
[DIAGRAM]
49
<PAGE> 51
MARKET OPPORTUNITY
The Company believes demand from IXCs and other communications entities and
from business and governmental end-users for advanced, high bandwidth voice,
data and video transmission capacity will increase over the next several years
due to regulatory and technological changes and other industry developments.
These anticipated changes and developments include: (i) continued growth in
demand for existing long distance and local exchange services, (ii) continued
growth in the capacity requirements of the Internet, data transmission and other
new technologies and applications, (iii) requirements of the Tier 1 carriers to
replace or augment portions of their older system and (iv) entry into long
distance and local exchange markets of new communications providers.
BASE GROWTH OF EXISTING PROVIDERS. Toll service revenues of long distance
carriers in the U.S. were approximately $82 billion in 1996, according to the
FCC. Based on FCC data, toll service revenues of long distance carriers grew at
a compound annual rate of approximately 8.5% during the period 1991 through
1996, while the toll service revenues of all non-Tier 1 long distance carriers,
many of which lease network capacity from facilities-based carriers such as the
Company, grew in the aggregate at a compound annual rate of over 23% during the
same period. The revenue increases were achieved against a backdrop of declining
unit prices for most telecommunications services, which suggests that the demand
for telecommunications bandwidth has increased at an even higher rate. The
Company believes that these growth trends generally will continue and that
non-facilities-based companies will need to either invest in network facilities
or lease high bandwidth network capacity in order to remain competitive.
According to the FCC, the 1996 aggregate revenues of all reporting LECs in
the U.S. approximated $101 billion. Based on FCC data, revenues of all reporting
LECs in the U.S. increased at a compound annual rate of approximately 3.3%
during the period 1991 through 1996. Until recently, there was virtually no
competition in local exchange markets. Several factors have served to promote
recent competition in the local market, including: (i) rapidly growing customer
demand for an alternative to the ILECs, spurred partly by the development of
competition in the long distance market; (ii) advances in the technology for
transmission of data and video, which require significant bandwidth capacity and
reliability; (iii) the development of fiber optics and digital electronic
technology, which reduced network construction costs while increasing
transmission speeds, bandwidth capacity and reliability as compared to
copper-based networks; (iv) the significant access charges IXCs are required to
pay to access the ILECs' networks; and (v) a willingness on the part of
legislators to enact, and regulators to enforce, legislation and regulations
permitting and promoting competition in the local exchange market. In
particular, the Telecom Act requires all major ILECs to "unbundle" their local
network offerings and allow other providers of telecommunications services to
interconnect with their facilities and equipment. Most significantly, ILECs are
required to complete local calls originated by a competitor's customers and
switched by the competitor and to deliver inbound local calls to the competitor
for termination to its customers, assuring customers of unimpaired local calling
capability.
ACCOMMODATION OF THE INTERNET AND OTHER NEW APPLICATIONS. The Company
believes additional network transmission capacity and faster response times will
be required to accommodate multimedia (voice, data and video) and other
potential high-bandwidth applications, such as increasing use of the Internet by
commercial enterprises, the deployment of corporate intranets and the use of
telecommunications infrastructure for providing cable television and other
entertainment services. The Company believes this growth will result in
increased demand for high-bandwidth dedicated circuits and other data
communications services the Company plans to offer (such as Frame Relay and
ATM).
AUGMENTATION OF OLDER SYSTEMS. Although AT&T, Sprint and MCI have begun to
upgrade their systems, the coast-to-coast fiber optic networks currently
operated by such carriers were constructed for the most part prior to 1990,
using asynchronous, non-SONET ring architecture. Most of these systems were
buried directly in the ground without protective conduit. The conversion of
these older systems to the use of SONET ring architecture requires more
bandwidth over additional route miles. Accordingly, the Company believes that
the Tier 1 carriers will generally need to replace or augment parts of their
networks to add more capacity, route diversity and redundancy to their systems
and to lower their overall operating costs. The Company believes that the older
systems operated by certain of the Tier 1 carriers generally face other
disadvantages when
50
<PAGE> 52
compared to newer networks, such as those being constructed by Qwest
Communications International, Inc., IXC Carrier and DTI, including: (i) lower
transmission speeds, lower overall capacity and shorter distances between
regeneration/amplifier facilities; (ii) more costly maintenance requirements;
(iii) greater susceptibility to system interruption from physical damage to the
network infrastructure; and (iv) greater difficulty in upgrading to higher
quality fiber.
CAPACITY REQUIRED BY NEW ENTRANTS. Competition and deregulation are
bringing new entrants into the long distance and local telecommunications
markets. The Company anticipates that this trend will accelerate as a result of
the Telecom Act. Upon meeting certain competitive conditions under the Telecom
Act, the RBOCs will be able to enter the long distance business and thus
position themselves as providers of single source service. The Telecom Act
similarly is eliminating barriers to entry in the local exchange market and also
enables other entities, including entities affiliated with power utilities and
ventures between ILECs and cable television companies, to provide an expanded
range of telecommunications services. As these entities emerge as long distance
and local exchange competitors, the Company believes they will need their own
facilities and additional high-bandwidth capacity to compete effectively with
facilities-based providers.
51
<PAGE> 53
BUSINESS
OVERVIEW
DTI is a facilities-based provider of long-haul and local
telecommunications services primarily to IXCs and other communications entities
on a wholesale basis ("carrier's carrier services"), as well as directly to
business and governmental end users ("end-user services"). DTI initially will
focus on carrier's carrier services because it believes that (i) the scope and
flexibility of its network design will be attractive to carrier customers, (ii)
revenues from carrier's carrier services can be achieved more rapidly than from
end-user services, and (iii) margins from carrier's carrier services will be
greater than from end-user services. DTI currently provides carrier's carrier
services under long-term contracts with AT&T, Sprint, MCI and IXC Carrier, Inc.,
and private line long-haul and local access services to targeted business and
governmental end-user customers ("end-user customers") in Missouri. The Company
is preparing to offer local switched services and data transmission services to
targeted end-user customers in Missouri in mid-1998. DTI intends to provide
local switched service capacity to its carriers' carrier customers on a
wholesale basis as it deploys its switches throughout the Midwest region.
DTI has completed construction of approximately 1,400 route miles of a
planned 2,000 route mile fiber optic network in the state of Missouri, including
an aggregate of approximately 500 local route miles in St. Louis, Kansas City
and four other population centers in Missouri with populations of over 70,000
people. DTI currently provides services over 750 route miles of its network. DTI
is expanding the DTI network to cover the Midwest region which is expected to
consist of approximately 7,700 route miles of fiber optic cable and 10 Nortel
DMS-500 switches. The Company has built the majority of its network facilities
by partnering with utility companies and state transportation departments, which
the Company believes has decreased the time and cost of construction of its
network.
DTI intends to route the long-haul portions of the DTI network near
secondary and tertiary cities and remote access tandems of ILECs in the Midwest
region. When completed, the DTI network will be interconnected to all major IXC
POPs and ILEC access tandems in the Midwest region, substantially through
DTI-owned facilities. Through this design, the Company believes it will be able
to offer carrier customers a means to deliver all of their customers' calls to
any state or area in the Midwest region by connecting to the DTI network at a
single location. The Company believes that this design will offer its carrier
customers greater reliability and accountability and less administrative burden
than if such customers were to utilize multiple carriers' networks to deliver
these calls. Through strategic routing and switch placement, DTI believes it can
leverage its long-haul capacity and routing to permit the Company to
cost-effectively construct local loops and pursue other revenue-generating
opportunities.
The Company's existing business consists primarily of the provision of
carrier's carrier services through dark fiber leases and wholesale network
capacity agreements. DTI provides these services to both facilities-based and
non-facilities-based carriers requiring long-haul transmission capacity, local
access, or both, to carry their own customers' long distance traffic. DTI also
currently offers private line services, which generally include the transport of
communications between points on its end-user customers' own networks or to the
facilities of a long distance carrier. The Company intends to offer local
switched services to targeted end-user customers in Missouri in mid-1998.
DTI employs a self-healing, SONET ring architecture throughout
substantially all of its network that allows for virtually instantaneous
rerouting in the event of a cut in the fiber ring. DTI's practice is to install
over 95% of the fiber in the DTI network underground, providing protection from
weather and other environmental hazards affecting the reliability of
communication connections. The DTI network will have both high-bandwidth
capacity and flexibility as a result of (i) the selective installation on each
route of between 48 and 288 strands of fiber optic cable incorporating Corning
glass, (ii) extra conduits in certain locations, (iii) high speed transmission
electronics equipment from Fujitsu and, along selected long-haul routes, dense
wavelength division multiplexing equipment from Ciena, and (iv) 10 strategically
located Nortel DMS-500 switches. The Ciena equipment also will give the DTI
network an open architecture, providing compatibility with the broad range of
transmission speeds and signal formats used by the existing transmission systems
of its carrier customers. The Company is currently in the process of deploying
its first Nortel
52
<PAGE> 54
DMS-500 switch in St. Louis. By mid-1998, the Company expects to have
substantially completed construction in Missouri. The Company has commenced
construction in Arkansas and, over the following 12 to 18 months, expects to
have commenced construction in Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Nebraska, Ohio, Oklahoma, Tennessee and Wisconsin.
The Company believes its strategic alliances and customer relationships
provide it with a cost advantage in the construction of its network. DTI has
successfully developed strategic alliances with utilities, state transportation
departments and other governmental authorities, as well as telecommunications
companies. Through these relationships, the Company has obtained strategic
rights-of-way and financing to assist in the construction of its network. For
example, in 1996, DTI entered into a joint venture with KLT, a subsidiary of
KCPL, to build a fiber optic network in the Kansas City metropolitan area using,
in part, the electrical conduits of KCPL in downtown Kansas City. In 1997, this
joint venture was merged into the Company in connection with KLT's commitment to
invest $45.0 million in the Company in exchange for voting preferred stock
convertible into 50% of the outstanding Common Stock after such conversion. In
1994, DTI entered into a 40-year agreement with the MHTC, granting to DTI the
exclusive right to build a long-haul, fiber optic network along the interstate
highway system in Missouri in exchange for long-haul telecommunications
services. In 1994, DTI also entered into an agreement with Union Electric,
granting to DTI the right to build in Union Electric's conduit in downtown St.
Louis and along Union Electric's rights-of-way elsewhere in portions of Missouri
and southern Illinois. In return, DTI is required to install and maintain fiber
optic network facilities and services to designated Union Electric sites. As of
December 31, 1997, the Company had received aggregate advance payments of
approximately $14.3 million under agreements with major telecommunications
companies such as Sprint and MCI and an end user. These payments have helped
defray the cost of construction of the DTI network.
BUSINESS STRATEGY
The Company's objective is to become a leading facilities-based provider of
communication services to other communications entities and end-user customers
in the Midwest region. To achieve this objective, the Company intends to:
LEVERAGE INTEGRATED LONG-HAUL AND LOCAL NETWORK DESIGN. The Company
believes that the strategic design of the DTI network will allow it to offer
reliable, high-capacity long-haul and local switched services to carrier and
end-user customers in the Midwest region who seek a competitive alternative to
incumbent providers of such services. The long-haul portions of the DTI network
will be strategically routed near secondary and tertiary markets and remote ILEC
access tandems in the Midwest region and, on selected routes, will use
high-capacity, dense wavelength division multiplexing equipment manufactured by
Ciena. Local network rings will be constructed near identified potential
end-user customers, ILEC access tandems and major IXC POPs and will be
integrated with long-haul routes through 10 strategically located switches. This
integrated design will permit the Company to offer carrier's carrier services
between all major IXC POPs and ILEC access tandems in the Midwest region.
Through this design, the Company believes it can also offer IXCs a means to
deliver all of their calls to any state or area of the Midwest region by
connecting to the DTI network at a single location, which the Company believes
will provide its IXC customers with greater reliability and accountability and
less administrative burden than if they had utilized multiple carriers'
networks.
STRATEGICALLY LOCATE AND EXPAND ITS NETWORK THROUGHOUT THE MIDWEST
REGION. The Company is constructing the DTI network in the Midwest region
because it believes that substantial unmet demand for additional IXC capacity
exists in such region, and that the secondary and tertiary markets located
between the major markets in the Midwest region are currently underserved. The
Company plans to expand its fiber optic telecommunications network outward from
Missouri into the remaining 13 states in the Midwest region. In general, new
network facilities will be constructed to allow interconnection with previously
completed portions of the DTI network and will be built first in those areas in
which IXCs have made prior commitments to purchase services over such
facilities. Clustering the DTI network buildout in the Midwest region will help
the Company to (i) take advantage of economies of scale in management,
construction, network operations, and sales and marketing, (ii) reduce capital
expenditures by optimizing the network's switching capacity through
53
<PAGE> 55
the use of fewer remote switches in strategically located metropolitan areas,
(iii) offer services cost-effectively to secondary and tertiary markets adjacent
to its existing networks and in markets in which the Company is less likely to
face significant competition from ILECs and other CLECs and (iv) offer reliable
connectivity on a regional basis. The Company recently entered into a letter of
intent with Black & Veatch LLP, the terms of which provide that (i) the parties
will undertake negotiations regarding an agreement pursuant to which Black &
Veatch would provide network construction management services to the Company in
connection with the build out of the planned DTI network, and (ii) during such
negotiations, Black & Veatch will provide certain preliminary planning services
to the Company. To complete the DTI network buildout, the Company may also enter
into dark fiber swaps with other telecommunications companies pursuant to which
the Company would exchange dark fiber along portions of the DTI network for dark
fiber of other telecommunications companies located along uncompleted portions
of the planned DTI network. In this manner, the Company believes that it would
be able to establish telecommunications facilities along the DTI network routes
more quickly than by constructing its own facilities.
POSITION ITSELF AS A LOW-COST PROVIDER OF TELECOMMUNICATIONS SERVICES. The
Company will strive to position itself as a low-cost provider of
telecommunications services by (i) developing and expanding strategic network
construction alliances, whereby the Company obtains commitments and advance
payments from other telecommunications carriers prior to construction on a given
route, (ii) taking advantage of the potential cost efficiencies of the DTI
network design, (iii) continuing to deploy advanced fiber optic network
technology, which the Company believes lowers construction, operating and
maintenance costs, and (iv) realizing cost efficiencies through existing and
additional rights-of-way agreements with utilities, state transportation
departments, other governmental authorities and other telecommunications
companies.
GROW CUSTOMER BASE. The Company intends to grow its carrier and end-user
customer base as it expands the DTI network, its product and service offerings,
and its sales and marketing infrastructure. Based upon its analysis of both the
capacity needs of other carriers and the locations of potential end-user
customers, the Company believes it can expand its customer base and increase its
revenues as it completes additional routes along the DTI network. Approximately
44% of the population of the Midwest region is located in counties in which the
DTI network will be located throughout the Midwest region. The Company will
target end-user customers located along the DTI network routes. The Company also
expects to grow its carrier and end-user customer base through the introduction
of new products and services, such as its carrier branded offering, IXC call
transport services, and local switched services. DTI intends to devote
significant resources to sales and marketing and customer service in order to
capture and retain customers as the DTI network expands throughout the Midwest
region.
PURSUE LOCAL SWITCHED SERVICES OPPORTUNITIES. DTI believes it can
cost-effectively pursue local switched services opportunities throughout the
Midwest region by constructing local fiber optic rings along its long-haul
routes and by leveraging the high-bandwidth capacity of the DTI network. The DTI
network's design will provide the Company with sufficient long-haul capacity to
offer local switched services to targeted end-user customers in secondary and
tertiary cities located near long-haul routes. The Company will also offer local
switched services to targeted end-user customers located near the Company's
local loops in metropolitan areas. DTI plans to offer a wide range of local
switched services, including Caller ID, Voice Mail and Centrex services, and
advanced data transmission services, such as ATM and Frame Relay, as it expands
its customer base and increases network traffic volume. The Company also intends
to provide local switched service capacity to its carrier's carrier customers on
a wholesale basis as it deploys its switches throughout the Midwest region.
CONTINUE TO DEVELOP AND EXPAND STRATEGIC ALLIANCES. The Company intends to
continue to develop and expand strategic alliances with utilities, such as KCPL
and Union Electric, state transportation departments, such as the MHTC, and
other governmental authorities. The Company believes that these alliances will
assist DTI in obtaining rights-of-way with preferable routing on a
cost-effective and timely basis. In addition, the Company expects to continue to
pursue dark fiber leases and wholesale network capacity agreements with other
telecommunications carriers to assist in the construction of the DTI network.
The Company believes that these customer relationships will assist DTI in (i)
lowering the net cost per fiber mile by sharing the cost
54
<PAGE> 56
of construction of the DTI network and (ii) securing significant advance payment
arrangements which are expected to continue to serve as a key source of
financing for the expansion of the DTI network.
LEVERAGE EXPERIENCED MANAGEMENT TEAM. The Company's management team
includes individuals with significant experience in the deployment and marketing
of telecommunications services. Prior to founding DTI in 1989, Mr. Richard D.
Weinstein, President and Chief Executive Officer of DTI, owned and managed
Digital Teleresources, Inc., a firm which designed, engineered and installed
telecommunications systems for large telecommunications companies, including SBC
and other Fortune 500 companies. Prior to joining DTI as Chief Financial
Officer, Robert F. McCormick served in various financial and strategic advisory
roles at Pacific Bell Communications, McCaw Cellular Communications, Inc. and
Cellular One. Jerome W. Sheehy, DTI's Vice President, Regulatory-Industry
Affairs, has over 42 years' experience in the telecommunications industry,
including 20 years at GTE.
THE DTI NETWORK
GENERAL. Currently, the DTI network is an exclusively fiber optic cable
communications system substantially all of which employs self-healing, SONET
ring architecture that allows for virtually instantaneous rerouting to minimize
downtime in the event of a cut in the fiber ring. The Company expects to install
its first switch on the DTI network in mid-1998. DTI's practice is to install
over 95% of the fiber in the DTI network underground, typically 36 to 48 inches
under the surface, providing protection from weather and other environmental
hazards affecting reliability of communication connections. The Company installs
in its network primarily single-mode fiber optic cable composed of Corning glass
fiber and Fujitsu high-bit-rate transmission electronics. Ciena's dense
wavelength division multiplexing equipment will be used on certain long-haul
routes such as the St. Louis to Kansas City route, thereby increasing fiber
capacity on these routes by up to 16-fold compared to conventional transmission
equipment. All fiber optic cable in the DTI network, including fiber in rural
areas, has at least 48 strands. In addition, in St. Louis and Kansas City, DTI
is installing 216 and 288 fiber strands, respectively. As part of its design,
the Company typically retains 50% or more of the capacity on each DTI network
route for its own use. On certain strategic routes, the DTI network also
includes one or two empty innerducts for maintenance and future growth purposes.
By using Ciena equipment conforming to SONET standards, the Company can also
maintain a multi-vendor/open architecture system which allows carrier customers
to connect to the DTI network with fiber optic signal transmission equipment
made by any of the various manufacturers without using additional conversion
equipment. These construction standards give the DTI network high transmission
capacity to meet future increases in call volume and the development of more
bandwidth-intensive voice, data and video telecommunication uses. The DTI
network's high capacity also allows it to be designed with fewer high cost
switches by taking advantage of this capacity to transport rural switched calls
to and from distant centralized switching facilities. All network operations are
currently controlled from a single network control center in suburban St. Louis,
Missouri. The Company is currently constructing a second control center in
Kansas City, Missouri that can serve as a backup network control center for the
DTI network.
The Company currently has approximately 1,400 route miles of fiber optic
cable in place in Missouri, of which approximately 900 route miles represent
long-haul segments, and approximately 500 route miles represent local loop
networks in the St. Louis and Kansas City metropolitan areas, as well as in
Jefferson City, Columbia, Mexico and Fulton, Missouri. DTI currently provides
services over 750 route miles of its network.
55
<PAGE> 57
The following diagram illustrates how the DTI network connects to the
facilities of ILECs and IXCs, as well as to end-user customers.
[DIAGRAM OF ILEC NETWORK]
NETWORK DESIGN. The DTI network is designed to include high-capacity (i)
interexchange long-haul routes between large metropolitan areas in the Midwest
region, (ii) local networks in such metropolitan areas, and (iii) local networks
in secondary and tertiary metropolitan areas located along such long-haul
routes. The long-haul route portions of the DTI network will generally be
located to allow the Company to more easily interconnect with major IXC POPS and
ILEC access tandems in secondary and tertiary markets and to more easily build
and operate local networks in such markets. The Company's use of the Ciena open
architecture, dense wavelength division multiplexing equipment on certain of its
long-haul routes will also give the DTI network the ability to interoperate with
its carrier customers' existing fiber optic transmission systems having a broad
range of transmission speeds and signal formats without the addition of
expensive conversion equipment by those carriers. Local network portions of the
DTI network in metropolitan areas are generally routed near major business
telecommunications users, metropolitan ILEC access tandems and central offices.
The Company intends to route its network to interconnect to all major IXC POPs
and ILEC access tandems in the Midwest region. Local networks in secondary and
tertiary markets will allow the Company to access markets that it believes are
currently underserved. Any ILEC access tandem in the Midwest region not
physically interconnected through DTI-owned facilities will be interconnected
through leased lines until there are sufficient customers to make construction
of a DTI-owned route to these access tandems economically feasible. DTI believes
the different elements of the DTI network in the Midwest region complement each
other and will create certain construction, operating and maintenance synergies.
DTI also believes its integrated long-haul and local network design will allow
the Company to offer its carrier and end-user customers private line and local
switched services at a lower cost by reducing the Company's use of ILEC and IXC
facilities to provide services to its customers.
SWITCHING CAPACITY. The Company intends to install 10 Nortel DMS-500
high-capacity switches in strategically located, geographically diverse
metropolitan areas to balance the expected traffic throughout the Midwest
region. When coupled with its integrated network design, this switch placement
will give DTI the ability to offer local switched service and long haul service
to all of DTI's end-user customers in the Midwest region. By using the expected
excess capacity on the DTI network, calls from diverse geographic regions in the
DTI network can be routed long distances from the originating point to one of
the Company's switches and on to their destination, reducing the number of
switches required and decreasing the cost and complexity of constructing,
operating and maintaining the DTI network. In addition, the strategic deployment
of switches is
56
<PAGE> 58
expected to enable the Company to: (i) allow the Company to offer switched
services on a more economical basis, (ii) offer custom calling features and
billing enhancements to all of its customers without involving the ILEC, and
(iii) allow the Company to sell its local switched service capacity to other
carriers on a wholesale basis. The Company estimates that the first switch will
be installed and fully operational in St. Louis in mid-1998 and that all 10
switches will be purchased, installed and fully integrated by the end of 1999.
HIGHWAY AND UTILITY RIGHTS-OF-WAY. Much of the currently completed DTI
network is located in rights-of-way obtained by DTI through strategic
relationships with utilities, state transportation departments and other
governmental authorities, as well as other telecommunications companies. The
Company currently has built or has rights-of-way to build approximately 2,250
route miles of the planned 7,700 total route miles that will make up the DTI
network. To build the long-haul portions of the DTI network between population
centers in Missouri, the Company has generally used rights-of-way in the median
of and along the interstate highway system.
A July 1994 agreement with the MHTC (the "MHTC Agreement") requires the
Company to install fiber optic cable and terminal equipment along the interstate
highway system in Missouri to allow the state to operate its Intelligent Vehicle
Highway System, a traffic information network designed to comply with the
federal Intermodal Surface Transportation Efficiency Act of 1991 by improving
mobility and reducing congestion on Missouri's highways. In exchange, the
40-year MHTC Agreement grants to the Company exclusive rights to all
telecommunications media, present and future, within the MHTC right-of-way on
highways covering over 1,200 route miles in Missouri and grants to the Company
the right to unregulated commercial use of the fiber optic network built for
MHTC. The Company must complete construction on an additional 800 miles by the
end of 1999 to maintain its exclusive rights to such additional routes.
Additionally, the Company was required to post a $250,000 performance and
payment bond under the terms of the MHTC Agreement. Due to the largely
uninterrupted medians and long contiguous stretches of the interstate highways,
the Company believes the MHTC Agreement allows it to install fiber optic cable
in a cost-effective manner. The Company's May 1997 agreement with the Department
of Transportation of the State of Arkansas grants to DTI the right, without
obligation, to install its network along 250 miles of the interstate and state
highway systems in Arkansas, as well as the right to expand its network onto
additional routes in the future. The agreement also provides that these rights
are exclusive to DTI, but it requires DTI to accommodate other carriers by
providing access along its Arkansas routes. In addition, if DTI does not
construct its network on any portion of certain routes, such routes or portions
of routes on which DTI does not install its network may be awarded to third
parties. DTI has submitted a proposal to the department of transportation of the
state of Kansas to enter into an agreement providing for rights-of-way
throughout the highway system in metropolitan Kansas City in exchange for fiber.
In order to build the local portions of the DTI network, including local
loops and access from the long-haul routes to other local service points on the
DTI network, the Company has relied on agreements with local governmental
authorities and utility companies. For example, the Company has an agreement
with Union Electric, a public electric utility which operates in eastern
Missouri and southern Illinois, pursuant to which DTI has the right to build
fiber optic facilities in the conduit of Union Electric in downtown St. Louis
and along its rights-of-way elsewhere. In addition, the Company has agreements
with municipalities in the St. Louis metropolitan area granting it the right to
construct its network in municipal rights-of-way. Each of these agreements
provides that in exchange for such rights-of-way, DTI will provide "in-kind"
dark or lighted fiber on routes built in these rights-of-way. DTI also has a
license from KCPL granting it the right to use conduits, poles, ducts, manholes
and rights-of-way owned by KCPL to construct the DTI network in the Kansas City
metropolitan area.
The Company will seek to obtain the rights-of-way that it needs for the
expansion of its network from other state highway departments, utilities or
pipeline companies and it may enter into joint ventures or other "in-kind"
transfers in order to obtain such rights. In addition, DTI may use available
public rights-of-way.
BUILD-OUT PLAN. The Company plans to construct a 14-state fiber optic
network that will consist of approximately 7,700 route miles of fiber optic
cable, Fujitsu and Ciena signal transmission equipment, and 10
57
<PAGE> 59
Nortel DMS-500 switches strategically located in larger metropolitan areas. The
Company recently entered into a letter of intent with Black & Veatch LLP, the
terms of which provide that (i) the parties will undertake negotiations
regarding an agreement pursuant to which Black & Veatch would provide network
construction management services to the Company in connection with the build out
of the planned DTI network, and (ii) during such negotiations, Black & Veatch
will provide certain preliminary planning services to the Company. The following
chart sets forth the planned fiber route miles:
<TABLE>
<CAPTION>
PLANNED
STATE ROUTE MILES
- ----- -----------
<S> <C>
Missouri................................................. 2,000
Kansas................................................... 260
Oklahoma................................................. 350
Arkansas................................................. 480
Tennessee................................................ 290
Kentucky................................................. 250
Illinois................................................. 1,080
Iowa..................................................... 800
Nebraska................................................. 125
Indiana.................................................. 330
Ohio..................................................... 160
Michigan................................................. 480
Wisconsin................................................ 380
Minnesota................................................ 60
Customer drop routes..................................... 655
-----
Total.................................................... 7,700
</TABLE>
To complete the DTI network buildout, the Company may enter into dark fiber
swaps with other telecommunications companies pursuant to which the Company
would exchange dark fiber along portions of the DTI network for dark fiber of
other telecommunications companies located along uncompleted portions of the
planned DTI network. In this manner, the Company believes that it would be able
to establish telecommunications facilities along the DTI network routes more
quickly than by constructing its own facilities.
The Company has entered into certain agreements that require it to
construct network facilities. The MHTC Agreement requires the Company to build
1,200 miles of fiber optic network along Missouri's interstate highway system by
the end of 1998. The Company has completed construction of 1,400 miles required
by the MHTC Agreement and expects to complete construction of the remaining
required portion by the end of year deadline. The Company must complete
construction on an additional 800 miles by the end of 1999 to maintain its
exclusive rights to such routes. An agreement between the Company and Union
Electric requires it to construct a fiber optic network linking Union Electric's
80-plus sites throughout the states of Missouri and Illinois. As of December 31,
1997, the Company had completed approximately 70% of this construction for Union
Electric and expects completion of all such construction by the end of 1998.
The Company estimates that total capital expenditures, including the total
cost to construct and activate the DTI network, will be approximately $526.4
million. Of this amount, the Company had already expended approximately $57.2
million as of December 31, 1997. The Company anticipates total capital
expenditures of approximately $30.0 million in the remaining two quarters of
fiscal 1998 and $283.9 million in fiscal 1999. DTI's contract with Nortel
requires the Company to purchase five DMS-500 switches by October 1998 and an
additional five DMS-500 switches by October 1999. Estimated total expenditures
for the remaining two quarters of fiscal 1998 include a portion of the Company's
existing commitments of $23.7 million, which includes the purchase of one Nortel
DMS-500 switch. Estimated total expenditures through fiscal 1999 include
approximately $149.8 million for the purchase of electronic equipment, including
the remaining nine Nortel DMS-500 switches.
58
<PAGE> 60
The Company may pursue construction outside the Midwest region to take
advantage of market opportunities as they arise from time to time. However, the
Company expects that the telecommunications providers which would be served by
such projects would finance the construction costs for such projects through
dark fiber leases and similar self-financing arrangements. Such projects might
also take the form of fiber swaps in which the Company would receive strands of
dark fiber along routes inside or outside the Midwest region from other
telecommunications carriers. In exchange, the Company might provide fiber along
the DTI network routes or construct fiber optic facilities along routes outside
the Midwest region for use by these carriers. The Company expects that it would
own and maintain any such facilities and retain fiber for its own use in such
facilities.
PRODUCTS AND SERVICES
The Company currently offers carrier's carrier and end-user private line
and long-haul services and, after the addition of switches to the DTI network,
will also offer local switched services and data transmission services.
CARRIER'S CARRIER SERVICES
"Carrier's carrier services" are generally the high capacity transmission
services used by IXCs, ILECs and CLECs to transmit telecommunications traffic.
Customers using carrier's carrier services include (i) facilities-based carriers
that require transmission capacity where they have geographic gaps in their
facilities, need additional capacity or require alternative routing and (ii)
non-facilities-based carriers requiring transmission capacity to carry their
customers' telecommunications traffic. Carrier's carrier service is a wholesale
pricing business characterized by margins higher than are typically achieved
through end-user services. This is primarily because these services can be
established more quickly and at lower cost than is generally necessary to
provide end-user or local switched services. The Company currently has dark
fiber leases and wholesale network capacity agreements in place and expects to
offer carrier branded products and IXC call transport services in the future.
The Company's present and expected future carrier's carrier services are set
forth below.
Dark Fiber Leases. Through dark fiber leases, the Company leases specified
strands of optical fiber (which are used exclusively by the carrier customer),
while the carrier customer is responsible for providing the electronic equipment
necessary to transmit communications along the fiber. Dark fiber leases
typically have terms of 20 years and require substantial advance payments and
additional fixed annual maintenance payments over the term of the lease. Uses of
dark fiber leases by an IXC include long-haul transport, connection of IXC POPs
to ILEC access tandems and the connection of IXC POPs to each other. Uses of
dark fiber leases by an ILEC include connection of its central offices to other
central offices or access tandems. An ILEC may also use such leases as a cost
effective way to upgrade its network facilities. A CLEC may use dark fiber
leases as a way of "filling out" its network. DTI's dark fiber lease customers
include IXC Carrier, United Telephone and MCI.
Wholesale Network Capacity Agreements. Through wholesale network capacity
agreements, the Company provides carriers with bandwidth capacity on the DTI
network. The carrier customer in a wholesale network capacity agreement does not
have exclusive use of any particular strand of fiber, but instead has the right
to transmit a certain amount of bandwidth along the DTI network. DTI provides
the electronic equipment to transmit the signals. Wholesale network capacity
agreements typically have terms ranging from five to 20 years, require the
customer to pay for such capacity regardless of level of usage, and require
fixed monthly payments over the term of the agreement. Wholesale network
capacity agreements are marketed to ILECs, CLECs and IXCs for the same uses as
dark fiber leases but offer an alternative for customers who (i) do not want or
need the capacity of one or more entire dark fibers, or (ii) do not wish to
provide and maintain the fiber optic transmission equipment necessary for the
operation of dark fibers. DTI offers some customers the right to switch their
service from wholesale network capacity agreements to dark fiber leases. DTI
customers with wholesale network capacity agreements include AT&T, MCI, WorldCom
and Ameritech Cellular.
59
<PAGE> 61
Carrier Branded Offerings. DTI plans to offer in the future any of its
services to other carriers for resale under that carrier's own name, without
identification of DTI as a service provider. For example, a private line could
be leased to an IXC to transmit the traffic of its large business customers
which are located on or near the DTI network from the premises of such customers
to the IXC's POPs, using the DTI network exclusively. Currently, when an IXC
offers long distance service to a major customer, it generally uses the ILEC
network facilities to transmit calls from the customer's premises to the ILEC
access tandem, for which the ILEC charges the IXC an access fee, and then uses
the ILEC network facilities or other leased facilities to transmit the call to
the IXC's local POP. For such major customers, the IXC generally does not charge
separately for the access charges or other payments necessary to transport such
call to the IXC's POP, and instead offers such transport as part of the IXC's
branded long distance service. For the IXC's customers who are on or near the
DTI network, DTI will be able to offer the IXC an alternative mode of transport
to the IXC's POP, using DTI network facilities exclusively. This service could
be offered to IXCs on a contract with a term of years, on a take or pay basis
and provide for fixed monthly payments. The Company believes its cost structure
will allow it to compete effectively with ILECs for this service. In addition,
the Company will offer its switching capacity to all carriers on a wholesale
basis, as well as offer all of its services to non-facilities-based resellers of
telecommunications services.
IXC Call Transport Service. In the future, DTI intends to offer to IXCs the
ability to deliver all in-bound long distance calls of such IXC to any ILEC
access tandem serving a call recipient in the Midwest region. DTI would be able
to offer this service because (i) its network will be physically interconnected
with all major IXC POPs, and (ii) the DTI network will be interconnected through
its own or leased facilities to every access tandem in the Midwest region, which
will allow DTI to reach all access tandems serving call recipients in such
region. Currently, IXCs have to provide for the transport between each of their
POPs and from each of those POPs to each of the access tandems in the areas
adjacent to such POPs, which can involve the use of multiple networks and
carriers. DTI believes that its method of transporting an IXC's traffic directly
to access tandems would be attractive to an IXC because it (i) should reduce the
administrative burden on the IXC of terminating such calls, because the IXC will
have to contract with only one carrier, (ii) should result in greater
reliability, because the calls are terminated over a newer system, with fewer
potential points of failure and (iii) should result in greater accountability,
because fewer telecommunications companies may be involved. The Company expects
that it would charge the IXC for its call transport services on a per-call, per-
minute basis, with the per-minute fee dependent on the distance the call is
transported by DTI.
END-USER SERVICES
End-user services are telecommunications services provided to business and
governmental end users. The Company currently provides private line services
connecting certain points on a given end user's private telecommunications
network and in the past has established connections between such private network
and the facilities of that end user's long distance service provider.
Private Line Services. A private line is an unswitched, generally
non-exclusive, lighted telecommunications transmission circuit used to transport
data, voice and video communications. The customer may use a private line for
communications between otherwise unconnected points on its internal network or
to connect its facilities to a switched IXC. Private line calls are generally
routed by a customer through the customer's Private Branch Exchange ("PBX")
facilities to a receiving terminal on DTI's network. DTI then transmits the
signals over the DTI network to the customer's terminal in the call recipient's
area or to the POP for the customer's long distance provider. For example, the
Company has established private line bypass services for a major retailer and a
major hospital in the St. Louis metropolitan area. The Company's current private
line service agreements have terms ranging from three to seven years and
typically require a one-time installation charge as well as fixed monthly
payments throughout the term of the agreement regardless of level of usage.
Local Switched Services. Through the addition of high-capacity switches at
strategic points on the DTI network, the Company in the future will have the
capacity to provide local switched services connecting its customers with other
end users either on the DTI network or on the networks of other local service
providers, and to long distance providers serving the call recipient. As a part
of providing local switched services, the Company intends to offer a wide range
of services and features including Caller ID, Voice Mail and Centrex
60
<PAGE> 62
services. All long-haul and local telecommunications services in the Midwest
region would be charged to the customer on one consolidated bill. As a provider
of local switched service, the Company expects to receive subscriber-paid access
charges based on a flat-rate or per-minute-of-use basis, or both, and would be
based on either a month-to-month or minimum term of years, based on the cost
incurred by the Company in establishing the services. The Company would also
receive IXC-paid per-minute access charges for completing the IXC's connection
to users on the DTI network, and the LEC-paid access charges for terminating the
competing LEC's local calls to users on the DTI network. The Company completed
installation of the first switch in January 1998 and estimates that the
remaining nine will be in place and operational by the end of 1999.
Data Transmission Services. The Company anticipates installing the
equipment and transmission capacity necessary to offer high speed data
transmission services to its customers. These services would include ATM and
Frame-Relay transmission methods that provide high-speed transmission of data.
The Company will offer these services to end users as well as to carriers for
resale to end users, with pricing on a flat-rate or measured basis over terms
ranging from month-to-month to one to three years.
SALES AND MARKETING
The Company's sales and marketing staff is currently organized into two
groups: carrier's carrier services and end-user services. DTI currently has one
person focusing solely on carrier's carrier services and five direct sales and
marketing personnel pursuing sales of end-user services. Sales personnel are
compensated through a combination of salary and commissions. The Company plans
to significantly expand its sales and marketing activities. By mid-1999, DTI
intends to hire an additional 13 and 38 persons to focus on sales to carrier and
end-user customers, respectively. The Company currently has a sales office in
St. Louis and Springfield, Missouri and expects to open sales locations in
Kansas City and in Illinois by mid-1999. DTI also plans to hire additional
personnel (not including additional carrier's carrier and end-user sales
personnel) to form a separate marketing force to implement its marketing
strategies, including those relating to its carrier branded offerings, IXC call
transport services, local switched services and data transmission services.
CARRIER'S CARRIER SERVICES. DTI's carrier's carrier services are marketed
and sold to facilities-based and nonfacilities-based carriers that require
capacity in the form of dark fiber leases and wholesale network capacity
agreements to provide added capacity in markets they currently serve, bridge
geographic gaps in their facilities or require geographically different routing
of their long distance or local traffic. The Company relies on direct selling to
other carriers on a wholesale basis. DTI's sales efforts also emphasize
providing continued customer support services to its existing customers. The
Company intends to distinguish itself in the carrier's carrier market on the
basis of pricing, quality, availability of capacity and flexibility and range of
services.
The Company's current focus in its carrier's carrier business is on selling
private line services to ILECs, CLECs and IXCs, including those sold as part of
a carrier branded offering. Upon commencement of the provision of switched
services, which DTI expects will occur in Missouri in mid-1998, the Company will
expand its sales and marketing efforts to include IXC call transport services.
The Company also intends to provide local switched service capacity to its
carrier's carrier customers on a wholesale basis as it deploys switches
throughout the Midwest region. DTI does not currently anticipate offering
switched long distance services under a Company brand.
The Company has recently hired a carrier's carrier sales manager with over
three years of experience in the carrier's carrier market to head its carrier's
carrier sales organization and plans to hire additional experienced sales
representatives familiar with the carrier's carrier market. DTI intends to
create a dedicated sales force organized into carrier-by-carrier account teams
responsible for all aspects of identifying, gaining and retaining carrier
customers.
END-USER SERVICES. Through its direct sales personnel, DTI markets and
sells its end-user services to business and governmental end users that require
private line services to transport an end user's private telecommunications
network among multiple office sites or data centers and between the end user's
private network and its long distance provider. End-user sales generally are
project-driven and typically involve sales cycles of two to six months. In
direct sales to end users, DTI sales personnel call on prospective customers
61
<PAGE> 63
and, as the Company expands its end-user service offerings, existing customers
whose premises are located on or near the DTI network. For customers that are
not located on the local rings of the DTI network, the Company will consider
leasing circuits from the local ILEC or other telecommunications company or, if
necessary, build out its network directly to such customers.
The Company intends to distinguish itself to end-users on the basis of
pricing, customer responsiveness and creative product implementation. In
addition to hiring additional personnel and opening two new sales offices, DTI
plans to organize its direct sales force by state and, as the DTI network and
the Company's addressable target market expands, by region. Senior sales
management intends to pursue large business customers as reference accounts in
each market served by the DTI network, often offering a deeper discount than
that available to smaller users. Once a reference account in a market is
established, the Company's sales staff will pursue other large and small
end-users, using the visible reference account to add credibility and generate
additional end-user sales. As the Company enters into more interconnection
agreements with the ILECs, it will consider using the ILECs' unbundled local
loops to expand its small business customer base.
COMPETITION
The telecommunications industry is highly competitive. The Company competes
and expects to compete with numerous established facilities-based IXCs, ILECs
and CLECs throughout the Midwest region. These competitors have substantially
greater financial and technical resources, long-standing relationships with
their customers and the potential to subsidize competitive services from less
competitive service revenues. DTI is aware that other facilities-based providers
of local and long distance telecommunications services are planning and
constructing additional networks that, if and when completed, could employ
advanced fiber optic technology similar to the DTI network. Such competing
networks may also have similar operating capability to that of the DTI network
and be positioned geographically to compete directly with the DTI network for
many of the same customers along a significant portion of the same routes.
Unlike certain of the Company's competitors, who are constructing or have
announced plans to construct nationwide fiber optic networks, DTI is deploying a
network design that it believes will allow it to address secondary and tertiary
markets located along the DTI network's long-haul routes, which markets the
Company believes are underserved by existing carriers and are not expected to be
the primary targets of such newly constructed long distance networks.
The Company competes primarily on the basis of price, transmission quality,
reliability and customer service and support. The Company's competitors in
carrier's carrier services include many large and small IXCs, and the Company
competes with both LECs and IXCs in its end-user business. In the carrier's
carrier services market, the Company's principal competitors in Missouri are IXC
Carrier and WorldCom. In the end-user private line services market, the
Company's principal competitors in Missouri are SBC, GTE and United Telephone.
As the DTI network expands throughout the Midwest region, the Company will face
new competitors in various areas of the region, including IXCs such as AT&T,
Sprint and MCI. In the local exchange market, the Company faces or expects to
face competition from ILECs and other competitive providers, including
non-facilities based providers, and, as the local access markets become opened
to IXCs under the Telecom Act, from long distance providers. AT&T, Worldcom, MCI
and Sprint, among other carriers, have each indicated their intention to begin
offering local telecommunications services in major U.S. markets using their own
facilities or by resale of the ILECs' or other providers' services. In fact,
certain competitors, including MCI, Sprint and AT&T, have entered into
interconnection agreements with Ameritech with respect to the States of Illinois
and Michigan. These competitors either have begun or will likely begin offering
local exchange service in those states, subject to certain restrictions
contained in the Telecom Act. See "-- Regulatory Matters."
Some major long distance and local telecommunications service providers
have also recently indicated a willingness to consolidate their operations to
offer a joint long distance and local package of telecommunications services.
WorldCom, together with its wholly owned subsidiaries MFS Communications and
Brooks Fiber Properties, Inc., currently provides both local exchange and long
distance telecommunications services throughout the United States. Unlike
WorldCom and MFS, however, DTI's network is designed to reach secondary and
tertiary markets, which are substantially bypassed by WorldCom's long-haul and
MFS Communications' local exchange networks. WorldCom has also announced its
agreement to acquire MCI. In
62
<PAGE> 64
addition, AT&T announced its agreement to acquire Teleport Communications Group,
Inc., a facilities-based CLEC with networks in operation in 57 markets in the
United States, and Qwest Communications Inc., a communications provider building
a 16,000-mile fiber optic network in the United States, announced its agreement
to acquire LCI International Inc., a retail long distance provider, which
acquisition would create the nation's fifth largest long distance company. The
Company also believes that high initial network cost and low marginal costs of
carrying long distance traffic have led to a trend among non-facilities-based
carriers to consolidate in order to achieve economies of scale. Such
consolidation among significant telecommunications carriers could result in
larger, better capitalized competitors that can offer a "one-stop shopping"
combination of long distance and local switched services in many of DTI's target
markets.
Certain companies have recently announced efforts to use Internet
technologies to supply telecommunications services, potentially leading to a
lower cost of supplying these services and therefore increased pressure on IXCs
and other telecommunications companies to reduce their prices. There can be no
assurance that the Company's IXC and other carrier customers will not experience
substantial decreases in call volume or pricing due to competition from
Internet-based telecommunications, which could lead to a decreased need for the
Company's services, or a reduction in the amount these companies are willing or
able to pay for the Company's services. There can also be no assurance that the
Company will be able to offer its telecommunications services to end users at a
price which is competitive with the Internet-based telecommunications services
offered by these companies. The Company does not currently market to ISP's and
therefore may not realize any revenues from the Internet-based
telecommunications market. If the Company does commence marketing to ISP's,
there can be no assurance that it will be able to do so successfully, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition to IXCs and LECs, entities potentially capable of offering
local switched services in competition with the DTI network include cable
television companies, electric utilities, microwave carriers, wireless telephone
system operators and large subscribers who build private networks. Previous
impediments to certain utility companies entering telecommunications markets
under the Public Utility Holding Company Act of 1935 were also removed by the
Telecom Act, at the same time creating both a new competitive threat and a
source of strategic business and customer relationships for DTI.
In the future, the Company may be subject to more intense competition due
to the development of new technologies, an increased supply of domestic and
international transmission capacity, the consolidation in the industry among
local and long distance service providers, and the effects of deregulation
resulting from the Telecom Act. The telecommunications industry is experiencing
a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity for
services similar to those provided by the Company. For instance, recent
technological advances permit substantial increases in transmission capacity of
both new and existing fiber, and the introduction of new products or the
emergence of new technologies may reduce the cost or increase the supply of
certain services similar to those provided by the Company. The Company cannot
predict which of many possible future product and service offerings will be
crucial to maintaining its competitive position or what expenditures will be
required to profitably develop and provide such products and services.
The Company believes its existing and planned rights-of-way along
interstate highway systems and public utility infrastructures play and will
continue to play a significant role in achieving its business objectives.
However, there can be no assurance that competitors will not obtain rights to
use the same or similar rights-of-way for expansion of their communications
networks.
Many of the Company's competitors and potential competitors have financial,
personnel, marketing and other resources significantly greater than those of the
Company, as well as other competitive advantages. A continuing trend toward
business combinations and alliances in the telecommunications industry may
increase the resources available to DTI's competitors and create significant new
competitors. The ability of DTI to compete effectively will depend upon, among
other things, its ability to deploy and enhance the DTI network throughout the
Midwest region and to maintain high quality services at prices equal to or below
those charged by its competitors. There can be no assurance that the Company
will be able to compete successfully with existing competitors or new entrants
in the markets for carrier's carrier and end-user services and any of the
63
<PAGE> 65
other services DTI plans to offer in the future. Failure of the Company to do so
would have a material adverse effect on the Company's business, financial
condition, results of operations and business prospects. See "Risk Factors --
Competition."
REGULATORY MATTERS
GENERAL REGULATORY ENVIRONMENT. The Company's operations are subject to
extensive Federal and state regulation. Carrier's carrier and end-user services
are subject to the provisions of the Communications Act of 1934, as amended,
including the Telecom Act, and the FCC regulations thereunder, as well as the
applicable laws and regulations of the various states, including regulation by
public utility commissions and other state agencies. Federal laws and FCC
regulations apply to interstate telecommunications, while state regulatory
authorities have jurisdiction over telecommunications both originating and
terminating within the state. The regulation of the telecommunications industry
is changing rapidly, and the regulatory environment varies substantially from
state to state. Moreover, as deregulation at the Federal level occurs, some
states are reassessing the level and scope of regulation that may be applicable
to telecommunications service providers, such as the Company. All of the
Company's operations are also subject to a variety of environmental, safety,
health and other governmental regulations. There can be no assurance that future
regulatory, judicial or legislative activities will not have a material adverse
effect on the Company, or that domestic regulators or third parties will not
raise material issues with regard to the Company's compliance or noncompliance
with applicable regulations.
A recent Federal legislative change, the Telecom Act, may have potentially
significant effects on the operations of the Company. The Telecom Act, among
other things, allows the RBOCs to enter the long distance business after meeting
certain competitive market conditions, and enables other entities, including
entities affiliated with power utilities and ventures between ILECs and cable
television companies, to provide an expanded range of telecommunications
services. The General Telephone Operating Companies may enter the long distance
markets without meeting these FCC criteria. Entry of such companies into the
long distance business would result in substantial competition for carrier's
carrier service customers, and may have a material adverse effect on the Company
and such customers. However, the Company believes the RBOCs' and other
companies' participation in the market will provide opportunities for the
Company to lease dark fiber or sell wholesale network capacity.
Under the Telecom Act, the RBOCs may immediately provide long distance
service outside those states in which they provide local exchange service
("out-of-region" service), and long distance service within the regions in which
they provide local exchange service ("in-region" service) upon meeting certain
conditions. The General Telephone Operating Companies may enter the long
distance market without regard to limitations by region. The Telecom Act does,
however, impose certain restrictions on, among others, the RBOCs and General
Telephone Operating Companies in connection with their provision of long
distance services. Out-of-region services by RBOCs are subject to receipt of any
necessary state and/or Federal regulatory approvals that are otherwise
applicable to the provision of intrastate and/or interstate long distance
service. In-region services by RBOCs are subject to specific FCC approval and
satisfaction of other conditions, including a checklist of pro-competitive
requirements. On December 31, 1997, the U.S. District Court, Northern District
of Texas (Wichita Falls) ("Court"), in SBC Communications, Inc., v. FCC and U.S.
("SBC Communications Case"), overturned as unconstitutional the provisions of
the Telecom Act which prohibited RBOCs from providing inter-LATA long distance
services within their own region without demonstrating that the local exchange
market was opened to local competition. The decision, however, affects only SBC
Communications, Inc. and U.S. West, Inc. Nonetheless, other RBOCs may use the
decision to petition courts in their operating regions to obtain similar
rulings. On January 2, 1998, AT&T, MCI and other intervenors in SBC
Communications Case filed a petition for stay with the Court. On January 5,
1997, the FCC also filed a petition for stay of the decision in the Court. On
February, 11, 1998, the Court temporarily stayed the decision in the SBC
Communications Case, which places those provisions of the Telecom Act which had
been found unconstitutional back into effect and forecloses, temporarily, the
RBOCs from providing inter-LATA long distance service within their own service
regions without FCC approval. The RBOCs may provide in-region long distance
services only through separate subsidiaries with separate books
64
<PAGE> 66
and records, financing, management and employees, and all affiliate transactions
must be conducted on an arm's length and nondiscriminatory basis. The RBOCs are
also prohibited from jointly marketing local and long distance services,
equipment and certain information services unless competitors are permitted to
offer similar packages of local and long distance services in their market.
Further, the RBOCs must obtain in-region long distance authority before jointly
marketing local and long distance services in a particular state. Additionally,
AT&T and other major carriers serving more than 5% of presubscribed long
distance access lines in the United States are also restricted from packaging
other long distance services and local services provided over RBOC facilities.
The General Telephone Operating Companies are subject to the provisions of the
Telecom Act that impose interconnection and other requirements on ILECs. General
Telephone Operating Companies providing long distance services must obtain
regulatory approvals otherwise applicable to the provision of long distance
services.
FEDERAL REGULATION. The FCC classifies the Company as a non-dominant
carrier. Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges, practices or classifications of non-dominant
carriers. However, the FCC has the power to impose more stringent regulation
requirements on the Company and to change its regulatory classification. In the
current regulatory atmosphere, the Company believes the FCC is unlikely to do so
with respect to the Company's service offerings.
The FCC regulates many of the charges, practices and classifications of
dominant carriers to a greater degree than non-dominant carriers. Among domestic
carriers, large ILECs and the RBOCs are currently considered dominant carriers
for the provision of interstate access services, while all other interstate
service providers are considered non-dominant carriers. On April 18, 1997, the
FCC ordered that the RBOCs and independent CLECs offering domestic interstate
inter-LATA services, in-region or out-of-region, be regulated as non-dominant
carriers. However, such services offered in-region must be offered in compliance
with the structural separation requirements mentioned above. AT&T was classified
as a dominant carrier, but AT&T successfully petitioned the FCC for non-dominant
status in the domestic interstate interexchange market in October 1995 and in
the international market in May 1996. Therefore, certain pricing restrictions
that once applied to AT&T have been eliminated. A number of parties have,
however, sought the FCC's reconsideration of AT&T's status. The Company is
unable to predict the outcome of these proceedings on its operations.
As a non-dominant carrier, the Company may install and operate wireline
facilities for the transmission of domestic interstate communications without
prior FCC authorization, but must obtain all necessary authorizations from the
FCC for use of any radio frequencies. Non-dominant carriers are required to
obtain prior FCC authorization to provide international telecommunications;
however the Company currently does not and has no intent to provide
international services. The FCC also must provide prior approval of certain
transfers of control and assignments of operating authorizations. Non-dominant
carriers are required to file periodic reports with the FCC concerning their
interstate circuits and deployment of network facilities. The Company is
required to offer its interstate services on a nondiscriminatory basis, at just
and reasonable rates, and is subject to FCC complaint procedures. While the FCC
generally has chosen not to exercise direct oversight over cost justification or
levels of charges for services of non-dominant carriers, the FCC acts upon
complaints against such carriers for failure to comply with statutory
obligations or with the FCC's rules, regulations and policies. The Company could
be subject to legal actions seeking damages, assessment of monetary forfeitures
and/or injunctive relief filed by any party claiming to have been injured by the
Company's practices. The Company cannot predict either the likelihood of the
filing of any such complaints or the results if filed.
Under existing regulations, non-dominant carriers are required to file with
the FCC tariffs listing the rates, terms and conditions of both interstate and
international services provided by the carrier. On October 29, 1996, the FCC
adopted an order in which it eliminated, as of September 1997, the requirement
that non-dominant interstate carriers such as the Company maintain tariffs on
file with the FCC for domestic interstate services, and in fact prohibited the
filing of such tariffs. Such carriers were given the option to cease filing
tariffs during a nine-month transition period that concludes on September 22,
1997. The FCC's order was issued pursuant to authority granted to the FCC in the
Telecom Act to "forbear" from regulating any telecommunications service provider
if the FCC determines that the public interest will be served. However, on
February 19, 1997, the United States Court of Appeals for the District of
Columbia Circuit suspended the FCC's order pending further expedited judicial
review and/or FCC reconsideration. In August 1997, the FCC
65
<PAGE> 67
issued an order on reconsideration in which it affirmed its decision to impose
complete or mandatory detariffing, although it decided to allow optional or
permissive tariffing in certain limited circumstances (including interstate,
domestic, interexchange dial-around services, which end users access by dialing
a carrier's 10XXX access code). This order also remains subject to the Court of
Appeals' stay pending further judicial review. The Company cannot predict the
ultimate outcome of this or other proceedings on its service offerings or
operations. The Company has filed a tariff with the FCC.
On May 8, 1997, the FCC released an order intended to reform its system of
interstate access charges to make that regime compatible with the
pro-competitive deregulatory framework of the Telecom Act. Access service is the
use of local exchange facilities for the origination and termination of
interexchange communications. The FCC's historic access charge rules were
formulated largely in anticipation of the 1984 divestiture of AT&T and the
emergence of long distance competition, and were designated to replace piecemeal
arrangements for compensating ILECs for use of their networks for access, to
ensure that all long distance companies would be able to originate and terminate
long distance traffic at just, reasonable, and non-discriminatory rates, and to
ensure that access charge revenues would be sufficient to provide certain levels
of subsidy to local exchange service. While there has been pressure on the FCC
historically to revisit its access pricing rules, the Telecom Act has made
access reform timely. The FCC's recent access reform order adopts various
changes to its rules and policies governing interstate access service pricing
designed to move access charges, over time, to more economically efficient
levels and rate structures. Among other things, the FCC modified rate structures
for certain non-traffic sensitive access rate elements, moving some costs from a
per-minute-of-use basis to flat-rate recovery, including one new flat rate
element; changed its structure for interstate transport services; and affirmed
that ISPs may not be assessed interstate access charges. In response to claims
that existing access charge levels are excessive, the FCC stated that it would
rely on market forces first to drive prices for interstate access to levels that
would be achieved through competition but that a "prescriptive" approach,
specifying the nature and timing of changes to existing access rate levels,
might be adopted in the absence of competition. Though the Company believes that
access reform through lowering and/or eliminating excessive access services
charges will have a positive effect on its services offerings and operations, it
cannot predict how or when such benefits may present themselves, or the outcome
of the pending judicial appeals or petitions for FCC reconsideration.
On October 15, 1996, the U.S. Court of Appeals for the Eighth Circuit
issued a stay of the implementation of certain of the FCC's rules and on July
18, 1997, the Court issued its decision finding that the FCC lacked statutory
authority under the Telecom Act for certain of its rules. In particular, the
Court found that the FCC was not empowered to establish the pricing standards
governing unbundled local network elements or wholesale local services of the
ILECs. The Court also struck down other FCC rules, including one that would have
enabled new entrants to "pick and choose" from provisions of established
interconnection agreements between the ILECs and other carriers. The Court
rejected certain other objections to the FCC rules brought by the ILECs or the
states, including challenges to the FCC's definition of unbundled elements, and
to the FCC's rules allowing new competitors to create their own networks by
combining ILEC network elements together without adding additional facilities of
their own. On October 14, 1997, the Eighth Circuit ruled in favor of those ILECs
and substantially modified its July 18, 1997 decision. The Eighth Circuit ruled
that ILECs cannot be compelled to "combine" two or more unbundled elements into
"platforms" or combinations, finding that IXCs must either combine the elements
themselves, or purchase entire retail services at the applicable wholesale
discounts if they wish to offer local services to their customers. The latter
omission was the subject of petitions for reconsideration filed with the Eighth
Circuit by ILECs.
The overall impact of the Eighth Circuit's decision is to materially reduce
the role of the FCC in fostering local competition, including its ability to
take enforcement action if the Telecom Act is violated, and increase the role of
state utility commissions. The Supreme Court recently announced that it would
review the Eighth Circuit's decision. Meanwhile, certain state commissions have
asserted that they will be active in promoting local telephone competition using
the authority they have under the ruling, lessening the significance of the
reduced FCC role. At this time the impact of the Eighth Circuit's decision
cannot be evaluated, but there can be no assurance that the Eighth Circuit's
decision and related developments will not have a material adverse effect on the
Company. Furthermore, other FCC rules related to local telephone competition
remain the
66
<PAGE> 68
subject of legal challenges, and there can be no assurance that decisions
affecting those rules will not be adverse to companies seeking to enter the
local telephone market.
The FCC also released a companion order on universal service reform on May
8, 1997. The universal availability of basic telecommunications service at
affordable prices has been a fundamental element of U.S. telecommunications
policy since enactment of the Communications Act of 1934. The current system of
universal service is based on the indirect subsidization of ILEC pricing, funded
as part of a system of direct charges on some ILEC customers, including IXCs
such as the Company, and above-cost charges for certain ILEC services such as
local business rates and access charges. In accordance with the Telecom Act, the
FCC adopted plans to implement the recommendations of a Federal-State Joint
Board to preserve universal service, including a definition of services to be
supported, and defining carriers eligible for contributing to and receiving from
universal service subsidies. The FCC ruled, among other things, that:
contributions to universal service funding be based on all IXCs' gross revenues
from both interstate and international telecommunications services; only common
carriers providing a full complement of defined local services be eligible for
support; and up to $2.3 billion in new annual subsidies for discounted
telecommunications services used by schools, libraries, and rural health care
providers be funded by an assessment on total interstate and intrastate revenues
of all IXCs. The FCC stated that it intends to study the mechanism for continued
support of universal service in high cost areas in a subsequent proceeding. The
Company is unable to predict the outcome of these proceedings or of any judicial
appeal or petition for FCC reconsideration on its operations.
On April 11, 1997, the FCC released an order requiring that all carriers
transition from three-digit to four-digit Carrier Identification Codes ("CICs")
by January 1, 1998. CICs are the suffix of a carrier's Carrier Access Code
("CAC"), and the transition will expand CACs from five (10XXX) to seven digit
(101XXXX). These codes permit customers to reach their carrier of choice from
any telephone. In response to petitions for reconsideration of this design,
arguing in part that this short transition (following the FCC's proposal for a
six year transition) does not permit carriers sufficient time to make necessary
hardware and software upgrades or to educate their customers regarding the need
to dial additional digits to reach their carrier of choice, on October 20, 1997
the FCC modified its decision. The FCC has created a "two step" end to the
transaction in which three and four digit Feature Group D CICs co-exist. By
January 1, 1998, all LECs that provide equal access must have completed switch
changes to recognize four digit CICs (First Phase). The second phase ends June
30, 1998 on which date only four digit CICs and seven digit CACs will be
recognized.
STATE REGULATION. The Company is also subject to various state laws and
regulations. Most public utilities commissions require providers such as the
Company to obtain authority from the commission prior to the initiation of
service. In most states, including the 14 states in the Midwest region, the
Company also is required to file tariffs setting forth the terms, conditions and
prices for services that are classified as intrastate. The Company also is
required to update or amend its tariffs when it adjusts its rates or adds new
products, and is subject to various reporting and record-keeping requirements.
Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence by carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply with
state law and/or the rules, regulations and policies of state regulatory
authorities. Fines or other penalties also may be imposed for such violations.
There can be no assurance that state utilities commissions or third parties will
not raise issues with regard to the Company's compliance with applicable laws or
regulations.
The Company has all necessary authority to offer local and interstate and
intrastate long-haul services in Missouri. The Company is authorized to provide
intrastate long-haul service in Illinois. The Company will seek authority in
other states as and when needed as a result of its network build-out.
Many issues remain open regarding how new local telephone carriers will be
regulated at the state level. For example, although the Telecom Act preempts the
ability of states to forbid local service competition, the Telecom Act preserves
the ability of states to impose reasonable terms and conditions of service and
other regulatory requirements. However, these statutes and related questions
arising from the Telecom Act will be
67
<PAGE> 69
elaborated through rules and policy decisions made by PUCs in the process of
addressing local service competition issues.
The Company also will be heavily affected by state PUC decisions related to
the ILECs. For example, PUCs have significant responsibility under the Telecom
Act to oversee relationships between ILEC's and their new competitors with
respect to such competitors' use of the ILEC's network elements and wholesale
local services. PUCs arbitrate interconnection agreements between the ILECs and
new competitors such as the Company when necessary. PUCs are considering ILEC
pricing issues in major proceedings now underway. PUCs will also determine how
competitors can take advantage of the terms and conditions of interconnection
agreements that ILECs reach with other carriers. It is too early to evaluate how
these matters will be resolved, or their impact on the ability of the Company to
pursue its business plan.
States also regulate the intrastate carrier's carrier services of the
ILECs. The Company is required to pay such access charges to originate and
terminate its intrastate long distance traffic. The Company could be adversely
affected by high access charges, particularly to the extent that the ILECs do
not incur the same level of costs with respect to their own intrastate long
distance services. A related issue is use by certain ILECs, with the approval of
PUCs, of extended local area calling that converts otherwise competitive
intrastate toll service to local service. States also are or will be addressing
various intraLATA dialing parity issues that may affect competition. It is
unclear whether state utility commissions will adopt changes in their rules
governing intrastate access charges similar to those recently approved by the
FCC for interstate access or whether the outcome of currently pending litigation
will give PUCs the power to set such access charges. The Company's business
could be adversely affected by such changes.
The Company also will be affected by how states regulate the retail prices
of the ILECs with which it competes. The Company believes that, as the degree of
intrastate competition increases, the states will offer the ILECs increasing
pricing flexibility. This flexibility may present the ILECs with an opportunity
to subsidize services that compete with the Company's services with revenues
generated from non-competitive services, thereby allowing ILECs to offer
competitive services at lower prices than they otherwise could. The Company
cannot predict the extent to which this may occur or its impact on the Company's
business.
Those states that permit the offering of intrastate/intra-LATA service by
IXCs generally require that end users desiring to use such services dial special
access codes. Regulatory agencies in a number of states have issued decisions
that would permit the Company and other IXCs to provide intra-LATA calling on a
1 + basis. Further, the Telecom Act requires in most cases that the RBOCs
provide such dialing parity coincident to their providing in-region inter-LATA
services. The Company expects to benefit from the ability to offer 1 +
intra-LATA services in states that allow this type of dialing parity.
LOCAL REGULATION. The Company is occasionally required to obtain street use
and construction permits and licenses and/or franchises to install and expand
its fiber optic network using municipal rights-of-way. Termination of the
existing license agreements prior to their expiration dates or a failure to
renew the license agreements and a requirement that the Company remove its
facilities or abandon its network in place could have a material adverse effect
on the Company. In some municipalities where the Company has installed or
anticipates constructing networks, it will be required to pay license fees based
on a percentage of gross revenue or on a per linear foot basis. There can be no
assurance that, following the expiration of existing licenses, fees will remain
at their current levels. In addition, the Company could be at a competitive
disadvantage if its competitors do not pay the same level of fees as the
Company. However, the Telecom Act requires municipalities to manage public
rights-of-way in a competitively neutral and nondiscriminatory manner.
PROPERTIES
The Company's network in progress and its fiber optic cable, transmission
equipment and other component assets are the principal properties owned by the
Company. The Company's installed fiber optic cable is laid under the various
rights-of-way held by the Company. Other fixed assets are located at various
leased locations in geographic areas served by the Company.
68
<PAGE> 70
The Company's executive, administrative and sales offices and its Network
Management Center are located at its principal office at 11111 Dorsett Road,
Maryland Heights, Missouri 63043, and its telephone number is (314) 253-6600.
The Company leases this space from Mr. Weinstein at market rates under an
agreement that expires on December 31, 1998. See "Certain Relationships and
Related Transactions."
EMPLOYEES
At December 31, 1997, the Company had 23 full-time employees. None of the
Company's employees is represented by a union or covered by a collective
bargaining agreement. The Company believes its relations with its employees are
good. In connection with the construction and maintenance of its fiber optic
network, the Company uses third-party contractors, some of whose employees may
be represented by unions or covered by collective bargaining agreements.
LEGAL PROCEEDINGS
On June 20, 1995, the Company and Mr. Weinstein were named as defendants in
a suit brought in the Circuit Court of St. Louis County, Missouri, in a matter
styled Alfred H. Frank v. Richard D. Weinstein and Digital Teleport, Inc. The
plaintiff alleges that (i) he entered into an oral contract with the defendants
pursuant to which he was to receive 40% of the Common Stock, (ii) he provided
services to DTI, for which he was not and should be compensated, and (iii) the
defendants misrepresented certain facts to the plaintiff in order to induce him
to loan money and provide services to the defendants. Based on these
allegations, the plaintiff is suing for breach of contract, quantum meruit and
fraud and is seeking actual monetary damages, punitive damages and a percentage
of the common stock of the Company. The Company and Mr. Weinstein believe the
plaintiff's claims are without merit and intend to defend themselves vigorously.
It is not possible to determine what impact, if any, an unfavorable outcome
in the Frank litigation would have on the financial condition, results of
operations or cash flows of the Company. Mr. Weinstein has agreed personally to
indemnify DTI against any and all losses resulting from any judgments and awards
rendered against the Company in this litigation. Mr. Weinstein has also agreed
personally to indemnify KLT against any and all losses resulting from any
judgments and awards rendered against the Company in this litigation and has
pledged his Common Stock in the Company in favor of KLT to secure such
obligation. See "Certain Relationships and Related Transactions."
From time to time, the Company is named as a defendant in routine lawsuits
incidental to its business. Based on the information currently available, the
Company believes that none of such current proceedings, individually or in the
aggregate, will have a material adverse effect on the Company.
69
<PAGE> 71
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
Richard D. Weinstein(1)........... 45 President, Chief Executive Officer and Secretary; Director
Robert F. McCormick............... 49 Chief Financial Officer
Jerome W. Sheehy.................. 66 Vice President, Regulatory -- Industry Affairs; Director
NON-MANAGEMENT DIRECTORS
Ronald G. Wasson(1)............... 53 Director
Bernard J. Beaudoin............... 57 Director
James V. O'Donnell................ 47 Director
Kenneth V. Hager.................. 46 Director
</TABLE>
- -------------------------
(1) Member of Compensation Committee
RICHARD D. WEINSTEIN is President, Chief Executive Officer and Secretary of
the Company, which he founded in 1989. Prior to 1989, Mr. Weinstein owned and
managed Digital Teleresources, Inc., a firm which consulted, designed,
engineered and installed telecommunications systems. That company focused on
providing private microwave networks for ILEC bypass purposes to Fortune 500
companies such as General Dynamics, May Department Stores and Boatmen's
Bancshares (now NationsBank), as well as various cellular and health care firms.
In this capacity, Mr. Weinstein worked closely with SBC's deregulated marketing
subsidiary. Prior to 1984, Mr. Weinstein's consulting efforts were focused on
early wireless services, particularly paging and mobile telephone providers and
end users. Mr. Weinstein also owned and operated a distributor of Motorola
microwave equipment from 1986 to 1991.
ROBERT F. MCCORMICK became the Chief Financial Officer of DTI in September
1997. He served as Vice President, Finance, at Pacific Bell Communications from
March 1996 to September 1996. From 1993 to 1996, Mr. McCormick was a principal
in Strategic Planning Associates, a Seattle-based consulting firm focusing on
the strategic, financial and operating development of several technology-based
companies. Mr. McCormick served as the President of SMI, a national real estate
services company managing commercial properties, from 1990 to 1993. Between 1988
and 1990, he was Vice President, Finance and Operations (Western Region), of
McCaw Cellular Communications, Inc. From 1986 to 1988, he was Vice President,
Finance and Chief Financial Officer of American Cellular Communications Company.
From 1984 to 1986, he was Vice President, Finance and Corporate Development, of
Cellular One in Washington D.C.
JEROME W. SHEEHY has been the Company's Vice President,
Regulatory -- Industry Affairs, since November 1997 and Vice President,
Inter-Carrier Support, from February 1997 to November 1997. Mr. Sheehy has also
been a director of DTI since September 1997. Prior to joining DTI, Mr. Sheehy
was employed in the telecommunications industry for 42 years, of which 20 years
were spent with GTE in many capacities including installation, sales, public
relations, manager of carrier markets support.
Non-Management Directors
RONALD G. WASSON has been a director of DTI since March 1997. He is
currently President and Director of KLT Inc., a wholly owned subsidiary of
Kansas City Power & Light Company. He is also President of KLT Gas and KLT
Telecom Inc., and serves as director of KLT Power and KLT Energy Services, all
of which are subsidiaries of KLT Inc. Mr. Wasson joined KCPL in 1966 as Power
Sales Engineer and held various positions in marketing, engineering, corporate
planning and economic controls until 1977. After working briefly for R.W. Beck
and Associates as a Principal Engineer, he rejoined KCPL in 1979 in the
Operational Analysis and Development Department as a Management Analyst. In
1980, he was appointed Manager of Fossil Fuels, became Vice President of
Purchasing in 1983, Vice President of Administrative Services in 1986
70
<PAGE> 72
and Senior Vice President of Administration and Technical Services in 1991.
Effective January 1995, he transferred to KLT Inc. as Executive Vice President
until he was named to his current position as President in November 1996. Mr.
Wasson also serves on the Board of Directors of Junior Achievement of
Mid-America and the Board of Governors for the American Royal Association in
Kansas City, Missouri.
BERNARD J. BEAUDOIN has been a director of DTI since October 1997. He is
currently the Executive Vice President and Chief Financial Officer of KCPL. KLT
is an indirect wholly owned subsidiary of KCPL. Mr. Beaudoin joined KCPL in 1980
as Manager of Corporate Planning. Previously he was with the New England
Electric System, where he was Director of Economic Planning. At KCPL, he was
named director of Corporate Planning and Finance in 1983 and promoted to Vice
President of Finance in 1984. He became Chief Financial Officer in 1989, Senior
Vice President in 1991 and Senior Vice President -- Finance and Business
Development in 1994. Effective January 1995, he transferred to full-time KLT
Inc. employment as President. He was named to his current position with KCPL in
1996. Mr. Beaudoin also serves as Chairman of the Board of Directors of
Carondelet Health, a holding company for a variety of health provider services.
JAMES V. O'DONNELL has been a director of DTI since November 1997. Since
1988, he has been the President of Bush-O'Donnell & Co., Inc., a funds
management and investment banking firm. From 1974 through 1988, Mr. O'Donnell
served as an associate in the St. Louis office of Goldman, Sachs & Co. Mr.
O'Donnell serves as Chairman of the Board of The Benjamin Ansehl Company of St.
Louis and as President of National Automobile and Casualty Insurance Company of
Pasadena, California. He is also a director of certain privately held companies
and serves on the Board of Trustees of Washington University in St. Louis.
KENNETH V. HAGER has been a director of DTI since November 1997. Mr. Hager
has been employed by DST Systems, Inc. since 1988 and is currently its Vice
President, Chief Financial Officer and Treasurer. DST Systems, Inc. is a
provider of information processing and computer software services and products,
primarily to mutual funds, insurance companies, banks and other financial
services organizations. Since 1980, Mr. Hager has been a member of the Board of
Directors of the American Cancer Society -- Kansas City Unit, and is the current
Chairman of the Society's Metropolitan Kansas City Coordinating Council. Mr.
Hager also serves on the Board of Directors of the Greater Kansas City Sports
Commission and is a member of the Accounting and Information Systems Advisory
Council for the University of Kansas School of Business.
Officers are elected by and serve at the discretion of the Board of
Directors. There are no family relationships among the directors and executive
officers of the Company.
The Board of Directors has a Compensation Committee comprised of Messrs.
Wasson (Chairman) and Weinstein.
A Shareholders' Agreement, as amended (the "Shareholders' Agreement"),
dated as of March 12, 1997 among the Company, Mr. Weinstein and KLT, provides
for a Board of Directors consisting of six directors, at least two of whom must
not be affiliated with either the Company or KLT, and Mr. Weinstein and KLT will
each have the right to designate three directors. At the present time there are
no vacancies. Mr. Weinstein has served as a director since the formation of the
Company in June 1989. Messrs. Wasson and Sheehy have served as directors since
March 1997 and September, 1997, respectively. Mr. Beaudoin has served as a
director since October 1997. Messrs. O'Donnell and Hager have served as
directors since November 1997. The current directors have been elected to serve
until the expiration of the term to which he has been elected and until their
respective successors are elected and qualified or until the earlier of their
death, resignation or removal.
Pursuant to the Shareholders' Agreement, directors who are not affiliates
(as defined in the Shareholders' Agreement) of either Mr. Weinstein, the Company
or KLT are paid a $20,000 annual retainer fee payable in quarterly installments.
All directors are reimbursed for expenses incurred in connection with attending
Board and committee meetings. The Company has also granted options to purchase
150,000 shares under the Plan to each of Messrs. O'Donnell and Hager, its
non-affiliated directors.
71
<PAGE> 73
EXECUTIVE COMPENSATION
The following table sets forth certain summary information for the fiscal
years ended June 30, 1997 and 1996 concerning the compensation earned by the
Chief Executive Officer during such fiscal years for services in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION OTHER ANNUAL SECURITIES ALL OTHER
NAME AND -------------------- COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#) ($)
------------------ ---- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Weinstein,............ 1997 $69,231 -- -- -- --
President, Chief Executive 1996 -- -- -- -- --
Officer and Secretary 1995 -- -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
As a condition of the KLT Investment, the Company and Mr. Weinstein entered
into an employment agreement (the "Weinstein Employment Agreement"), which
provides that Mr. Weinstein will serve as the Company's President and Chief
Executive Officer and in such other capacities as the Board may determine
through January 1, 2000. For the duration of the lease of the Company's
headquarters entered into as of December 31, 1996 by and among Mr. Weinstein,
his wife and the Company (the "Lease Agreement"), Mr. Weinstein will be
compensated at the rate of $150,000 per year, and $200,000 per year after the
termination of such Lease Agreement, in addition to group health or other
benefits generally provided to other Company employees. The Weinstein Employment
Agreement may be terminated in connection with the disability of Mr. Weinstein,
for "cause" as defined therein or by either party upon 90 days prior written
notice; provided that Mr. Weinstein shall maintain certain rights to his annual
compensation after any such termination. During its term and for two years
thereafter, the Weinstein Employment Agreement restricts the ability of Mr.
Weinstein to compete with the Company as an employee of or investor in another
company in the Midwest region. The Weinstein Employment Agreement also imposes
on Mr. Weinstein certain non-solicitation restrictions with respect to Company
employees, customers and clients.
In September 1997, the Company and Mr. McCormick entered into an employment
agreement (the "McCormick Employment Agreement") which provides that Mr.
McCormick will serve as Vice President and Chief Financial Officer of the
Company and in such other capacities as the Board may determine through
September 2000. For the duration of the McCormick Employment Agreement, Mr.
McCormick will be compensated at the rate of $160,000 per year, in addition to
group health or other benefits generally provided to other Company employees. In
addition, Mr. McCormick may be entitled to an annual bonus in an amount up to
30% of his annual base salary upon the achievement of certain performance goals.
The Company has granted Mr. McCormick "incentive stock options" to purchase
300,000 shares of Common Stock at an exercise price of $1.50 per share and is
obligated to grant options for an additional 150,000 shares of Common Stock upon
the consummation of an initial public offering of Common Stock at an exercise
price equal to the initial offering price of the Common Stock. The Company has
also paid to Mr. McCormick $65,000, as a result of the Private Offering, which
it agreed to pay upon the consummation of a high yield debt offering with net
proceeds to the Company of at least $150.0 million. The Company may terminate
the McCormick Employment Agreement upon the disability of Mr. McCormick, for
"cause" as defined therein or upon written notice; provided that Mr. McCormick
shall maintain certain rights to his annual compensation after such termination.
In the event of a change of control of the Company, Mr. McCormick is entitled to
receive his base salary and the prorated average of his prior bonuses for the
remainder of the term of such agreement, plus an additional payment of $160,000.
During its term and for one year thereafter, the McCormick Employment Agreement
restricts the ability of Mr. McCormick to compete with the Company as a
principal, employee, partner or consultant in the Midwest. The McCormick
Employment Agreement also imposes on Mr. McCormick certain confidentiality
obligations and proprietary and non-solicitation restrictions with respect to
Company employees, customers and clients.
72
<PAGE> 74
INCENTIVE AWARD PLAN
The Company's 1997 Long-Term Incentive Award Plan (the "Plan") was adopted
by the Company's Board of Directors in December 1997. A total of 3,000,000
shares of Common Stock of the Company have been reserved for issuance under the
Plan. Pursuant to the McCormick Employment Agreement, the Company has granted
options to purchase 300,000 shares of Common Stock to Mr. McCormick at an
exercise price of $1.50 per share. Upon consummation of an initial public
offering of Common Stock, Mr. McCormick will also be entitled to receive under
the Plan options to purchase an additional 150,000 shares of Common Stock at an
exercise price equal to the initial offering price of the Common Stock. See
"-- Employment Agreements." The Company has granted options to purchase 150,000
shares of Common Stock to each of the Company's non-affiliated directors. No
other options or other awards have been granted under the Plan. The Plan will
terminate in December 2007, unless sooner terminated by the Board of Directors.
The Plan provides for grants of "incentive stock options," within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to
employees (including employee directors) and grants of nonqualified options to
employees and directors. The Plan also allows for the grant of stock
appreciation rights, restricted shares and performance shares to employees. The
Plan will be administered by a committee designated by the Board of Directors.
Messrs. Wasson and Weinstein comprise the current committee. The exercise price
of incentive stock options granted under the Plan must not be less than the fair
market value of the Common Stock on the date of grant. With respect to any
optionee who owns stock representing more than 10% of the voting power of all
classes of the Company's outstanding capital stock, the exercise price of any
incentive stock option must be equal to at least 110% of the fair market value
of the Common Stock on the date of grant, and the term of the option must not
exceed five years. The terms of all other options may not exceed ten years. To
the extent that the aggregate fair market value of Common Stock (determined as
of the date of the option grant) for options which would otherwise be incentive
stock options may for the first time become exercisable by any individual in any
calendar year exceeds $100,000, such options shall be non-qualified stock
options.
73
<PAGE> 75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 31, 1996, Mr. Weinstein, Mr. Weinstein's wife and the Company
formalized a lease with respect to the principal executive offices of the
Company (the "Lease Agreement"). The lease pertains to 10,000 of the 14,400
square feet available in such building and provides for monthly lease payments
of $6,250, terminating on December 31, 1998. The Company believes that the terms
of the current Lease Agreement are comparable to those which would be available
to an unaffiliated entity on the basis of an arm's-length negotiation. The
Shareholders' Agreement also requires that if Mr. Weinstein proposes to build or
obtain ownership of a new building to house the operations of the Company, Mr.
Weinstein will first offer to the Company the opportunity to build or own such
building. If the Company declines to exercise this right, then the rent the
Company would pay for occupying such building would be 80% of the market
appraised rate for such space.
Effective July 1996, the Company formed a joint venture with KLT to
develop, construct and operate a network in the Kansas City metropolitan area,
using in part the electrical duct system and certain other real estate owned by
KCPL and licensed to the joint venture. In March 1997, KLT became a strategic
investor in DTI when it entered into an agreement with DTI (the "KLT Agreement")
pursuant to which KLT committed to make an equity investment of up to $45.0
million in preferred stock of the Company. On March 12, 1997, pursuant to the
KLT Agreement, the Company issued 15,100 shares of Series A Preferred Stock to
KLT in exchange for the retirement of the then-outstanding indebtedness of the
Company to KLT, KLT's interest in the joint venture and cash, which
consideration was valued in the aggregate at approximately $21.9 million, net of
transactions costs. In June 1997, DTI issued an additional 3,400 shares of
Series A Preferred Stock to KLT for a cash payment of $5.1 million. In September
and October 1997, DTI issued the remaining 11,500 shares of Series A Preferred
Stock to KLT for aggregate cash payments of approximately $17.3 million. See
Note 13 of the notes to the consolidated financial statements and Note 7 of the
notes to the unaudited consolidated financial statements. Each share of Series A
Preferred Stock of the Company is entitled to the number of votes equal to the
number of shares into which such share of Series A Preferred Stock is
convertible with respect to any and all matters presented to the stockholders of
the Company for their action or consideration. Except for any amendments
affecting the rights and obligations of holders of Series A Preferred Stock,
with respect to which such holders vote separately as a class, or as otherwise
provided by law, holders of Series A Preferred Stock vote together with the
holders of the Common Stock as a single class. Pursuant to the KLT Agreement,
KLT has the right of first offer concerning energy services rights and contracts
involving DTI. In connection with the issuance of the Series A Preferred Stock,
Mr. Weinstein has guaranteed to KLT the performance by the Company of its
obligations under the KLT Agreement, including without limitation,
representations and warranties under such agreement. Mr. Weinstein has pledged
his Common Stock to secure such guarantee. Such obligations to KLT are
subordinated to Mr. Weinstein's obligations to hold the Company and KLT harmless
for any losses resulting from judgments and awards rendered against Digital
Teleport or the Company in the matter of Alfred H. Frank v. Richard D. Weinstein
and Digital Teleport, Inc. See "Business -- Legal Proceedings." Mr. Weinstein
has pledged his shares of Common Stock to KLT, which has agreed to reimburse the
Company and Digital Teleport for losses incurred by them in connection with the
Frank litigation to the extent of any proceeds KLT receives from Weinstein
pursuant to such pledge, less KLT's costs in pursuing such claim against
Weinstein. KLT has also agreed to bear one-half of any such losses. After such
claims related to the Frank litigation are resolved, KLT may exercise on the
pledge of Weinstein's shares to fulfill any amounts owing to KLT pursuant to
Weinstein's guarantee of the Company's obligations under the KLT Agreement. Mr.
Beaudoin is the Executive Vice President and Chief Financial Officer of KCPL.
Mr. Wasson is the President and a director of KLT Inc., a wholly owned
subsidiary of KCPL and parent corporation of KLT.
74
<PAGE> 76
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the outstanding Common Stock of DTI as of March 31, 1998 by each
person or entity who is known by the Company to beneficially own 5% or more of
the Common Stock, which includes the Company's President and Chief Executive
Officer, each of the Company's directors and all of the Company's directors and
executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY COMMON STOCK
NAME OF BENEFICIAL OWNER OWNED OUTSTANDING(A)
------------------------ ---------------- --------------
<S> <C> <C>
Richard D. Weinstein........................................ 30,000,000 50.0%
11111 Dorsett Road
Maryland Heights, Missouri 63043
KLT Telecom Inc............................................. 30,000,000 50.0%
1201 Walnut Avenue
Kansas City, Missouri 64141
Ronald G. Wasson(b)......................................... 30,000,000 50.0%
Bernard J. Beaudoin(b)...................................... 30,000,000 50.0%
James V. O'Donnell.......................................... -- --
Jerome W. Sheehy............................................ -- --
Kenneth V. Hager............................................ -- --
Directors and executive officers as a group (8 persons)..... 60,000,000(c) 100.0%(c)
</TABLE>
- -------------------------
(a) Reflects Common Stock outstanding after giving effect to the conversion of
all outstanding shares of the Series A Preferred Stock into Common Stock.
(b) Each of Messrs. Wasson and Beaudoin disclaims beneficial ownership of shares
held by KLT.
(c) Does not include options to purchase an aggregate of 750,000 shares of
Common Stock which the Company is obligated to or will grant under the Plan
and which are not exercisable within 60 days of the date of the Private
Offering Memorandum. See "Management -- Incentive Award Plan."
75
<PAGE> 77
DESCRIPTION OF THE NOTES
The Private Notes were, and the Exchange Notes will be, issued under the
Indenture dated as of February 23, 1998 between the Company, as issuer, and The
Bank of New York, as trustee (the "Trustee"). Upon the issuance of the Exchange
Notes, the Indenture will be subject to the Trust Indenture Act of 1939, as
amended (the "TIA"). The following summary of certain provisions of the Exchange
Notes and the Indenture does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Exchange Notes
and the Indenture, including the definitions of certain terms contained therein
and those terms made part of the Indenture through the incorporation by
reference of the TIA. The Indenture has been filed as an exhibit to the
Registration Statement, of which this Prospectus is a part, and copies of the
Indenture are available upon request from the Company or the Trustee. For
definitions of certain capitalized terms used in this summary, see "-- Certain
Definitions" below. Capitalized terms used herein but not defined have the
meanings attributed to them in the Exchange Notes or the Indenture.
GENERAL
The Exchange Notes will be general unsecured obligations of the Company,
limited to $506,000,000 aggregate principal amount at maturity, and will mature
on March 1, 2008. The Exchange Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 principal amount at maturity
and integral multiples thereof. The issue price of the Private Notes (for
purposes of calculating Accreted Value) was $543.92 per $1,000 principal amount
at maturity of the Private Notes. Payments in respect of the Exchange Notes will
be made, and the Exchange Notes will be transferable, at the office or agency of
the Company in The City of New York maintained for such purposes (which
initially will be the office of the Trustee located at 101 Barclay Street, New
York, New York 10286). See "Book-Entry: Delivery and Form." No service charge
will be made for any transfer, exchange or redemption of Exchange Notes, except
in certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith. (Sections 202 and 305)
INTEREST
The Exchange Notes will be issued at a substantial discount from their
principal amount at maturity. Although for federal income tax purposes a
significant amount of original interest discount, taxable as ordinary income,
will be recognized by a holder as such discount accrues from the date of the
Indenture, no cash interest will be payable on the Exchange Notes prior to March
1, 2003. Thereafter, cash interest on the Exchange Notes will accrue at the rate
of 12 1/2% per annum and will be payable in cash semiannually in arrears on
March 1 and September 1 of each year (each an "Interest Payment Date"),
commencing September 1, 2003, to holders of record of Exchange Notes on the
February 15 and August 15 immediately preceding such Interest Payment Date. The
cash interest payable on each Interest Payment Date will be calculated from the
most recent Interest Payment Date to which cash interest has been paid or duly
provided for or, if no cash interest has been paid or duly provided for, from
March 1, 2003. Based on the foregoing, the yield to maturity of each Exchange
Note will be 12 1/2% (computed on a semiannual bond equivalent basis, without
giving effect to any allocation of net proceeds of the Private Offering to the
Warrants). Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. If the Company defaults on any payment of principal,
whether at maturity, redemption or otherwise, interest will continue to accrue
and, to the extent permitted by law, cash interest will accrue on overdue
installments of interest at the rate of interest borne by the Notes. (Sections
301, 307 and 310)
The circumstances under which the Company may be required to pay additional
interest in cash on the Private Notes are described above under "The Exchange
Offer -- Purpose and Effect of the Exchange Offer."
RANKING
The Indebtedness evidenced by the Exchange Notes will rank pari passu in
right of payment with all other future unsecured senior indebtedness of the
Company and senior in right of payment to all existing and future obligations of
the Company expressly subordinated in right of payment to the Exchange Notes. As
of
76
<PAGE> 78
December 31, 1997, on a pro forma basis after giving effect to the Private
Offering and the use of the net proceeds therefrom, there would have been $0 of
Indebtedness of the Company outstanding other than the Private Notes. Subject to
certain limitations, the Company and its Restricted Subsidiaries may incur
additional Indebtedness in the future, including secured Indebtedness. See "Risk
Factors -- High Leverage; Ability to Service Indebtedness; Restrictive
Covenants" and "-- Holding Company Structure; Priority of Secured Debt."
The Company is a holding company with no direct operations and no
significant assets other than the stock of Digital Teleport. The Company will be
dependent on the cash flow of Digital Teleport to meet its obligations,
including the payment of interest and principal on the Exchange Notes. Digital
Teleport is a separate legal entity that has no obligation to pay any amounts
due pursuant to the Notes or to make any funds available therefor, whether by
dividends, loans or other payments. Because Digital Teleport will not guarantee
the payment of the principal or interest on the Exchange Notes, any right of the
Company to receive assets of Digital Teleport upon its liquidation or
reorganization (and the consequent right of holders of the Exchange Notes to
participate in the distribution or realize proceeds from those assets) will be
effectively subordinated to the claims of the creditors of Digital Teleport
(including trade creditors and holders of indebtedness of such subsidiary),
except if and to the extent the Company is itself a creditor of Digital
Teleport, in which case the claims of the Company would still be effectively
subordinated to any security interest in the assets of Digital Teleport held by
other creditors. As of December 31, 1997, on a pro forma basis after giving
effect to the Private Offering, Digital Teleport would have had aggregate
liabilities of approximately $22.1 million, including approximately $14.3
million of deferred revenues. Subject to certain limitations, the Company and
its Restricted Subsidiaries may incur additional Indebtedness in the future. For
a discussion of certain adverse consequences of the Company being a holding
company and of the terms and certain existing and potential future indebtedness
of the Company and its subsidiaries, see "Risk Factors -- Holding Company
Structure; Priority of Secured Debt."
SINKING FUND
The Exchange Notes will not be entitled to the benefit of any sinking fund.
REDEMPTION
The Exchange Notes will be redeemable, at the option of the Company, as a
whole or from time to time in part, at any time on or after March 1, 2003 on not
less than 30 nor more than 60 days' prior notice at the redemption prices
(expressed as percentages of principal amount at maturity) set forth below,
together with accrued interest, if any, to the redemption date, if redeemed
during the 12-month period beginning on March 1 of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on a relevant Interest Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2003........................................................ 106.25%
2004........................................................ 104.17
2005........................................................ 102.08
2006 and thereafter......................................... 100.00
</TABLE>
(Sections 1101, 1102)
At any time or from time to time on or prior to March 1, 2001 the Company
may redeem within 60 days of one or more Public Equity Offerings up to 33 1/3%
of the aggregate principal amount at maturity of the originally issued Notes
with the net proceeds of such offering at a redemption price equal to 112.5% of
the Accreted Value (determined at the redemption date); provided that
immediately after giving effect to any such redemption, at least 66 2/3% of the
aggregate principal amount at maturity of the originally issued Notes remains
outstanding. (Section 1102)
77
<PAGE> 79
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by such method as the Trustee will deem fair and appropriate;
provided, however, that no such partial redemption will reduce the principal
amount at maturity of a Note not redeemed to less than $1,000. Notice of
redemption will be mailed, first-class postage prepaid, at least 30 but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address. On and after the redemption date, original issue
discount, on or prior to March 1, 2003, and cash interest, after March 1, 2003,
will cease to accrue on Notes or portions thereof called for redemption and
accepted for payment. (Sections 1103, 1104, 1106 and 1107)
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, incur any Indebtedness (including any Acquired
Indebtedness) other than Permitted Indebtedness; provided that the Company may
Incur Indebtedness if and at the time of such incurrence (i) the Consolidated
Indebtedness to Consolidated Operating Cash Flow Ratio would have been less than
or equal to 5.5 to 1.0, for Indebtedness incurred on or prior to December 31,
2000, or less than or equal to 5.0 to 1.0, for Indebtedness incurred thereafter
and (ii) no Default or Event of Default shall have occurred and be continuing or
occurs as a consequence of the actions set forth in this covenant. (Section
1008)
In making the foregoing calculation, (A) pro forma effect will be given to:
(i) the incurrence or repayment of any Indebtedness to be incurred or repaid on
the date of the incurrence of such Indebtedness and (ii) the acquisition
(whether by purchase, merger or otherwise) or disposition (whether by sale,
merger or otherwise) of any company, entity or business acquired or disposed of
by the Company or its Restricted Subsidiaries, as the case may be, since the
beginning of the Four Quarter Period (as defined under the "Consolidated
Indebtedness to Consolidated Operating Cash Flow Ratio" definition) through the
date of the incurrence of such Indebtedness (the "Reference Period"), as if it
had occurred on the first day of such Reference Period and (B) the aggregate
amount of Indebtedness outstanding as of the end of the Reference Period will be
deemed to include an amount of funds equal to the average daily balance of
Indebtedness outstanding during the Reference Period under any revolving credit
or similar facilities of the Company and its Restricted Subsidiaries. (Section
1008)
For the purposes of determining compliance with this covenant, in the event
that an item of Indebtedness or any portion thereof meets the criteria of more
than one of the types of Indebtedness the Company and the Restricted
Subsidiaries are permitted to incur, the Company will have the right, in its
sole discretion, to classify such item of Indebtedness or portion thereof at the
time of its incurrence and will only be required to include the amount and type
of such Indebtedness or portion thereof under the clause permitting the
Indebtedness as so classified.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of its Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire such shares of Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of its Capital Stock or any Capital
Stock of any of its Affiliates (other than Capital Stock of any Wholly
Owned Restricted Subsidiary) or any options, warrants or other rights to
acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) make any Investment (other than any Permitted Investment); or
78
<PAGE> 80
(v) declare or pay any dividend or distribution on any Capital Stock
of any Restricted Subsidiary to any Person (other than any of its Wholly
Owned Restricted Subsidiaries) other than pro rata dividends or
distributions on a class of Voting Stock of any Restricted Subsidiary, the
majority of which is owned by the Company or a Wholly Owned Restricted
Subsidiary; provided that no Restricted Subsidiary shall declare or pay
such pro rata dividends or distributions on its Voting Stock to any Person
(other than the Company or a Wholly Owned Restricted Subsidiary) at a time
when it has outstanding Indebtedness owed to the Company or another
Restricted Subsidiary;
(such payments or other actions described in (but not excluded from) clauses (i)
through (v) are collectively referred to as "Restricted Payments"), unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, as
determined by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution), (1) no Default or Event of Default shall
have occurred and be continuing, (2) the Company could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Indebtedness" covenant and (3) the aggregate amount of all
Restricted Payments declared or made after the date of the Indenture shall not
exceed the sum of:
(A) the remainder of (x) cumulative Consolidated Operating Cash Flow
of the Company during the period (taken as a single accounting period)
beginning on the first day of the fiscal quarter of the Company beginning
after the date of the Indenture and ending on the last day of the last full
fiscal quarter immediately preceding the date of such Restricted Payment
for which quarterly or annual consolidated financial statements of the
Company are available minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense of the Company during such period; plus
(B) the aggregate Net Cash Proceeds and fair market value of
Telecommunications Assets or Voting Stock of a Person that becomes a
Restricted Subsidiary the assets of which consist primarily of
Telecommunications Assets received by the Company after the date of the
Indenture as capital contributions or from the issuance or sale (other than
to any Subsidiary) of shares of Qualified Capital Stock of the Company
(including upon the exercise of options, warrants or rights) or warrants,
options or rights to purchase shares of Qualified Capital Stock of the
Company; plus
(C) the aggregate Net Cash Proceeds and fair market value of
Telecommunications Assets or Voting Stock of a Person that becomes a
Restricted Subsidiary the assets of which consist primarily of
Telecommunications Assets received by the Company after the date of the
Indenture from the issuance or sale (other than to any Subsidiary) of debt
securities or Redeemable Capital Stock that have been converted into or
exchanged for Qualified Capital Stock of the Company, together with the
aggregate Net Cash Proceeds and fair market value of Telecommunications
Assets or Voting Stock of a Person that becomes a Restricted Subsidiary the
assets of which consist primarily of Telecommunications Assets received by
the Company at the time of such conversion or exchange; plus
(D) to the extent not otherwise included in the Consolidated Operating
Cash Flow of the Company, an amount equal to the sum of (i) the net
reduction in Investments in any Person (other than Permitted Investments)
resulting from the payment in cash of dividends, repayments of loans or
advances or other transfers of assets, in each case to the Company or any
Restricted Subsidiary after the date of the Indenture from such Person and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of any Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary; provided, however, that in the case of (i) or (ii)
above the foregoing sum shall not exceed the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
79
<PAGE> 81
(b) Notwithstanding paragraph (a) above, the Company and any Restricted
Subsidiary may take the following actions so long as (with respect to clauses
(ii), (iii), (iv) and (v) below) no Default or Event of Default shall have
occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such dividend would
have complied with the provisions of paragraph (a) above and such payment
will be deemed to have been paid on such date of declaration for purposes
of the calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the Net Cash Proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for or
out of the Net Cash Proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of shares of Qualified Capital
Stock of the Company;
(iv) the purchase of any Subordinated Indebtedness at a purchase price
not greater than 101% of the principal amount thereof in the event of a
Change of Control in accordance with provisions similar to the "Purchase of
Notes upon a Change of Control" covenant; provided that prior to such
purchase the Company has made the Change of Control Offer as provided in
such covenant with respect to the Notes and has purchased all Notes validly
tendered for payment in connection with such Change of Control Offer;
(v) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out
of the net cash proceeds of a substantially concurrent incurrence (other
than to a Subsidiary) of, new Subordinated Indebtedness so long as (A) the
principal amount of such new Subordinated Indebtedness does not exceed the
principal amount (or, if such Subordinated Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as
of the date of determination) of the Subordinated Indebtedness being so
purchased, redeemed, defeased, acquired or retired, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of such Subordinated Indebtedness being refinanced or the amount
of any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus, in either case, the amount of expenses
of the Company incurred in connection with such refinancing; (B) such new
Subordinated Indebtedness is subordinated to the Notes to the same extent
as such Subordinated Indebtedness so purchased, redeemed, defeased,
acquired or retired; and (C) such new Subordinated Indebtedness has an
Average Life longer than the Average Life of the Notes and a final Stated
Maturity of principal later than the final Stated Maturity of principal of
the Notes; and
(vi) the payment of cash in lieu of fractional shares of Common Stock
pursuant to the Warrant Agreement.
The actions described in clauses (i), (ii), (iii), (iv) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph (a)
and the actions described in clause (v) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph (b) and shall not reduce the amount that would otherwise be available
for Restricted Payments under clause (3) of paragraph (a) above. (Section 1009)
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, issue or sell any Capital Stock of a Restricted Subsidiary (other
than to the Company or a Wholly Owned Restricted Subsidiary); provided, however,
that this covenant shall not prohibit (i) the ownership by directors of
director's qualifying shares or the ownership by foreign nationals of Capital
Stock of any Restricted Subsidiary, to the extent mandated by applicable law;
80
<PAGE> 82
(ii) issuances or sales of Capital Stock of a Restricted Subsidiary, if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer be a Restricted Subsidiary and any Investment in such
Person remaining after giving effect to such issuance or sale would have been
permitted to be made under the "Limitation on Restricted Payments" covenant if
made on the date of such issuance and sale or (iii) the issuance and sale of
all, but not less than all, of the issued and outstanding Capital Stock of any
Restricted Subsidiary owned by the Company and the Restricted Subsidiaries in
compliance with the "Limitation on Sale of Assets" covenant. (Section 1010)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, enter into or suffer to exist, directly
or indirectly, any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Company or any
Restricted Subsidiary unless (i) such transaction or series of related
transactions are on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's length transaction with unrelated third parties who are not
Affiliates, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $5.0
million (or, to the extent not denominated in United States dollars, the United
States Dollar Equivalent thereof), the Company will deliver an officers'
certificate to the Trustee certifying that such transaction or series of related
transactions complies with clause (i) above and (iii) with respect to any
transaction or series of related transactions involving aggregate consideration
in excess of $10.0 million (or, to the extent not denominated in United States
dollars, the United States Dollar Equivalent thereof), the Company shall deliver
the officers' certificate described in clause (ii) above which shall also
certify that such transaction or series of related transactions has been
approved by a majority of the Disinterested Directors of the Board of Directors,
or that the Company has obtained a written opinion from a nationally recognized
U.S. investment banking firm certifying that such transaction or series of
related transactions is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view; provided, however, that this
provision will not restrict (1) any transaction or series of related
transactions among the Company and Wholly Owned Restricted Subsidiaries or among
Wholly Owned Restricted Subsidiaries, (2) Investments in Qualified Capital Stock
of the Company by any Person, including an Affiliate of the Company, (3) the
Company from paying reasonable and customary regular compensation and fees to
directors of the Company or any Restricted Subsidiary who are not employees of
the Company or any Restricted Subsidiary, (4) the making of any Restricted
Payment not prohibited by the "Limitation on Restricted Payments" covenant or
(5) any transaction or series of transactions in an aggregate amount of up to
$1.5 million. (Section 1011)
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) on or with respect to any
of its property or assets, including any shares of stock or Indebtedness of any
Restricted Subsidiary, whether owned at the date of the Indenture or thereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, unless (x) in the case of any Lien
securing Subordinated Indebtedness, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Notes are equally and ratably secured with the
obligation or liability secured by such Lien. (Section 1012)
Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries. (a) The Company will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Company (the "Guaranteed
Indebtedness") unless (i) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture providing for the guarantee (a "Subsidiary
Guarantee") of payment of the Notes by such Restricted Subsidiary; provided that
this paragraph (a) shall not be applicable to (x) any guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary and was not incurred in connection with or in contemplation of such
Person becoming a Restricted Subsidiary or (y) any guarantee of any Restricted
Subsidiary of Indebtedness incurred pursuant to clause (j) under the "Permitted
Indebtedness" definition. If the Guaranteed Indebtedness is (A) pari passu in
right of payment with the Notes, then the guarantee of such Guaranteed
Indebtedness shall be pari passu in right of payment with, or subordinated in
right of payment to,
81
<PAGE> 83
the Subsidiary Guarantee or (B) subordinated in right of payment to the Notes,
then the guarantee of such Guaranteed Indebtedness shall be subordinated in
right of payment to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated in right of payment to the Notes.
(b) Notwithstanding the foregoing, any Subsidiary Guarantee created
pursuant to the provisions described in the foregoing paragraph (a) will provide
by its terms that it will be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person who is not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release by
the holders of the Indebtedness of the Company described in the preceding
paragraph of their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness, except
by or as a result of payment under such guarantee), at a time when (A) no other
Indebtedness of the Company has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed released upon payment in full of all obligations under
such Indebtedness). (Section 1013)
Purchase of Notes upon a Change of Control. If a Change of Control shall
occur at any time, then the Company shall offer to purchase (the "Change of
Control Offer") from each holder of Notes all of such holder's Notes, in whole
or in part and in integral multiples of $1,000, at a purchase price (the "Change
of Control Purchase Price") in cash in an amount equal to (a) 101% of the
Accreted Value of the Notes as of the date of purchase (the "Change of Control
Purchase Date"), if such date is on or before March 1, 2003, and (b) 101% of the
principal amount at maturity of the Notes, plus accrued and unpaid cash
interest, if any, to the Change of Control Purchase Date, if such date is after
March 1, 2003 pursuant to the procedures described below and the other
procedures set forth in the Indenture.
Within 15 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at the address appearing
in the security register, stating, among other things, (i) the purchase price
and the purchase date, which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, or such later date as is
necessary to comply with requirements under the Exchange Act or any applicable
securities laws or regulations; (ii) that any Note not tendered will continue to
accrete original issue discount and/or accrue interest, as the case may be;
(iii) that, unless the Company defaults in the payment of the purchase price,
any Notes accepted for payment pursuant to the Change of Control Offer shall
cease to accrete original issue discount and/or accrue interest, as the case may
be, after the Change of Control Purchase Date; and (iv) certain other procedures
that a holder of Notes must follow to accept a Change of Control Offer or to
withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The failure of the Company
to make or consummate the Change of Control Offer would result in an Event of
Default and would give the Trustee and the holders of the Notes the rights
described under "-- Events of Default."
One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event holders of the Notes elect to require the Company to purchase the
Notes and the Company elects to contest such election, there can be no assurance
as to how a court interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
82
<PAGE> 84
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with Company's management or its Affiliates,
including a reorganization, restructuring, merger or similar transaction
involving the Company (including, in certain circumstances, an acquisition of
the Company by management or its Affiliates) that may adversely affect holders
of the Notes, if such transaction is not a transaction defined as a Change of
Control. See "-- Certain Definitions" for the definition of "Change of Control."
A transaction involving the Company's management or its Affiliates, or a
transaction involving a recapitalization of the Company, would result in a
Change of Control if it is the type of transaction specified by such definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under Indebtedness as in effect on the date of the Indenture) that
would materially impair its ability to make a Change of Control Offer to
purchase the Notes or, if such Change of Control Offer is made, to pay for the
Notes tendered for purchase. (Section 1014)
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale
unless (i) the consideration received by the Company or such Restricted
Subsidiary for such Asset Sale is not less than the fair market value of the
shares or assets sold (as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and (ii)
the consideration received by the Company or the relevant Restricted Subsidiary
in respect of such Asset Sale consists of at least 75% cash or Cash Equivalents.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof, within 12 months after such
Asset Sale, to (i) permanently repay or prepay any then outstanding senior
Indebtedness of the Company or Indebtedness of any Restricted Subsidiary or (ii)
invest (or enter into a legally binding agreement to invest) in properties and
assets to replace the properties and assets that were the subject of the Asset
Sale or in properties and assets that will be used in the businesses of the
Company or a Restricted Subsidiary, as the case may be, existing on the Original
Issue Date. If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, then the Company may, within 60 days of such termination
or within 12 months of such Asset Sale, whichever is later, apply or invest such
Net Cash Proceeds as provided in clause (i) or (ii) (without regard to the
parenthetical contained in such clause (ii)) above. The amount of such Net Cash
Proceeds not so used as set forth above in this paragraph (b) constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10.0 million (or,
to the extent not denominated in United States dollars, the United States Dollar
Equivalent thereof), the Company will, within 15 business days, make an offer to
purchase (an "Excess Proceeds Offer") from all holders of Notes, on a pro rata
basis, in accordance with the procedures set forth below, the maximum principal
amount at maturity of Notes (expressed as a multiple of $1,000) that may be
purchased with the Excess Proceeds. The offer price as to each Note (the "Excess
Proceeds Offer Price") will be payable in cash in an amount equal to (a) 100% of
the Accreted Value of the Notes as of the purchase date, if such purchase date
is on or before March 1, 2003, and (b) 100% of the principal amount at maturity
of the Note, plus accrued and unpaid cash interest, if any, to the date of
purchase, if such purchase date is after March 1, 2003. To the extent that the
aggregate Excess Proceeds Offer Price of Notes tendered pursuant to an Excess
Proceeds Offer is less than the Excess Proceeds, the Company may use such
deficiency for general corporate purposes. If the aggregate Excess Proceeds
Offer Price of Notes validly tendered and not withdrawn by holders thereof
exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset to zero. (Section 1015)
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any
83
<PAGE> 85
Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any
other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
Investments in the Company or any other Restricted Subsidiary, (d) transfer any
of its properties or assets to the Company or any other Restricted Subsidiary or
(e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) any agreement in effect on the date of the Indenture, (ii)
applicable law, (iii) customary non-assignment provisions of any lease governing
a leasehold interest of the Company or any Restricted Subsidiary, (iv) any
agreement or other instrument of a Person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, (v) the
refinancing of Indebtedness incurred under agreements existing on the date of
the Indenture, so long as such encumbrances or restrictions are no less
favorable in any material respect to the Company or any Restricted Subsidiary
than those contained in the respective agreement as in effect on the date of the
Indenture, (vi) restrictions contained in any security agreement (including a
capital lease obligation) securing Indebtedness of the Company or a Restricted
Subsidiary otherwise permitted under the Indenture, (vii) customary
nonassignment provisions entered into in the ordinary course of business in
leases and other agreements, (viii) any restriction with respect to a Restricted
Subsidiary of the Company entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted Subsidiary
made in accordance with the "Limitation on Sales of Assets" covenant, (ix)
pursuant to the Indenture and the Notes or (x) any agreement or instrument
governing or relating to Indebtedness under any senior commercial bank facility
(each, a "Bank Facility") if such encumbrance or restriction applies only to (A)
amounts which at any point in time (other than during such periods as are
described in the following clause (B)) (1) exceed amounts due and payable (or
which are to become due and payable within 30 days) in respect of the Notes or
the Indenture for interest, premium and principal or (2) if paid, would result
in an event described in the following clause (B) of this sentence, or (B)
during the pendency of any event that causes, permits or, after notice or lapse
of time, would cause or permit the holder(s) of Indebtedness governed by such
Bank Facility to declare such Indebtedness to be immediately due and payable or
to require cash collateralization or cash cover for such Indebtedness for so
long as such cash collateralization or cash cover has not been provided.
(Section 1016)
Limitation on Investments in Unrestricted Subsidiaries. The Company will
not, and will not permit any of its Restricted Subsidiaries to, make any
Investments in Unrestricted Subsidiaries if, at the time of such Investment, the
aggregate amount of such Investments would exceed the amount of Restricted
Payments then permitted to be made pursuant to the "Limitation on Restricted
Payments" covenant. Any Investment in an Unrestricted Subsidiary permitted to be
made pursuant to this covenant (i) will be treated as a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or any
Restricted Subsidiary, without duplication, under the provisions of clause (iv)
of paragraph (a) of the "Limitation on Restricted Payments" covenant and (ii)
may be made in cash or property (if made in property, the fair market value
thereof as determined by the Company, whose determination will be conclusive)
and will be deemed to be the amount of such Investment for the purpose of clause
(i) of this covenant. (Section 1017)
Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any sale-leaseback
transaction involving any of its assets or properties whether now owned or
hereafter acquired, whereby the Company or a Restricted Subsidiary sells or
transfers such assets or properties and then or thereafter leases such assets or
properties or any part thereof or any other assets or properties which the
Company or such Restricted Subsidiary, as the case may be, intends to use for
substantially the same purpose or purposes as the assets or properties sold or
transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with the "Limitation on Sale of Assets" covenant. (Section 1018)
84
<PAGE> 86
Business of the Company. The Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in any business activity other than (i)
the delivery of telephony or other telecommunications or data transmission
services in North America, (ii) telecommunications network construction services
and (iii) any business or activity reasonably related thereto, including,
without limitation, any business conducted by any Restricted Subsidiary on the
date of the Indenture and the acquisition, holding or exploitation of any
telecommunications licenses, permits, franchises or rights of way related to the
delivery of the services described in clause (i) above. (Section 1019)
Provision of Financial Statements and Reports. After the consummation of
this Exchange Offer or the effectiveness of a Shelf Registration Statement, the
Company will file on a timely basis with the Commission, to the extent such
filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Section 13 or 15(d) of the Exchange Act. The Company will
also be required (i) to file with the Trustee, copies of such reports and
documents within 15 days after the date on which such reports and documents are
filed with the Commission or the date on which the Company would be required to
file such reports and documents if the Company were so required, and (ii)
provide to each holder of Notes, without cost to such holder, copies of such
reports and documents within 15 days after the filing thereof with the Trustee.
(Section 1020)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets substantially as an entirety to any other Person or
Persons or permit any Subsidiary to enter into any such transaction or series of
related transactions, if such transaction or series of related transactions, in
the aggregate, would result in the sale, assignment, conveyance, transfer, lease
or other disposition of all or substantially all of the properties and assets of
the Company and its Subsidiaries on a consolidated basis substantially as an
entirety to any Person or Persons, unless at the time and immediately after
giving effect thereto: (i) either (a) the Company will be the continuing
corporation or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company or such Subsidiary is merged or the
Person which acquires by sale, conveyance, transfer, lease or other disposition,
all or substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis substantially as an entirety, as the case
may be (the "Surviving Entity"), (1) will be a corporation organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and (2) will expressly assume, by a supplemental
indenture to the Indenture in form satisfactory to the Trustee, the Company's
obligation pursuant to the Notes for the due and punctual payment of the
principal (including accretion of original issue discount) of, premium, if any,
on and interest on all the Notes and the performance and observance of every
covenant of the Indenture on the part of the Company to be performed or
observed; (ii) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any obligation of the
Company or any Subsidiary incurred in connection with or as a result of such
transaction or series of transactions as having been incurred at the time of
such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (on the assumption that the transaction or
series of transactions occurred on the first day of the latest fiscal quarter
for which consolidated financial statements of the Company are available
immediately prior to the consummation of such transaction or series of
transactions with the appropriate adjustments with respect to the transaction or
series of transactions being included in such pro forma calculation), the
Company (or the Surviving Entity if the Company is not the continuing obligor
under the Indenture) could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the provisions of the "Limitation on
Indebtedness" covenant; and (iv) if any of the property or assets of the Company
or any of its Subsidiaries would thereupon become subject to any Lien, the
provisions of the "Limitation on Liens" covenant are complied with. (Section
801)
85
<PAGE> 87
In connection with any such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, the Company or the Surviving
Entity shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition, and if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with the requirements of the Indenture and that all conditions precedent
therein provided for relating to such transaction have been complied with.
(Section 801)
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all of substantially all of the properties and
assets of the Company in accordance with the immediately preceding paragraphs in
which the Company is not the continuing obligor under the Indenture, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor had been named as the Company therein. When a successor
assumes all the obligations of its predecessor under the Indenture, the
predecessor shall be released from those obligations; provided that in the case
of a transfer by lease, the predecessor shall not be released from the payment
of principal of, premium, if any, and interest on the Notes. (Section 802)
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(ii) default in the payment of the principal of or premium, if any, on
any Note at its Maturity (upon acceleration, required purchase or
otherwise);
(iii) (A) default in the performance, or breach, of any covenant or
agreement of the Company contained in the Indenture (other than a default
in the performance, or breach, of a covenant or agreement which is
specifically dealt with in the immediately preceding clauses (i) and (ii)
or in clauses (B), (C) or (D) of this clause (iii)) and continuance of such
default or breach for a period of 30 days after written notice shall have
been given to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount at maturity of
the Notes then outstanding; (B) default in the performance or breach of the
provisions of the "Limitation on Sale of Assets" covenant; (C) default in
the performance or breach of the provisions of "-- Consolidation, Merger
and Sale of Assets"; and (D) failure to make or consummate a Change of
Control Offer in accordance with the provisions of the "Purchase of Notes
upon a Change of Control" covenant;
(iv) (A) one or more defaults in the payment of principal of or
premium, if any, or interest on Indebtedness of the Company or any
Significant Subsidiary aggregating $7.5 million or more (or, to the extent
not denominated in United States dollars, the United States Dollar
Equivalent thereof), when the same becomes due and payable at the stated
maturity thereof, and such default or defaults shall have continued after
any applicable grace period and shall not have been cured or waived or (B)
Indebtedness of the Company or any Significant Subsidiary aggregating $7.5
million or more (or, to the extent not denominated in United States
dollars, the United States Dollar Equivalent thereof) shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment), prior to the Stated Maturity thereof;
(v) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $7.5 million (or, to
the extent not denominated in United States dollars, the United States
Dollar Equivalent thereof) and either (A) an enforcement proceeding shall
have been commenced by any creditor upon such judgment or order or (B)
there shall have been a period of 30 days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, was not in effect; or
86
<PAGE> 88
(vi) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than an Event of Default arising from an
event of bankruptcy, insolvency or reorganization with respect to the Company or
any Significant Subsidiary) occurs and is continuing, the Trustee or the holders
of not less than 25% in aggregate principal amount at maturity of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the holders), may, and the Trustee upon the written request of such
holders shall, declare the Accreted Value of, premium, if any, and accrued
interest on all outstanding Notes immediately due and payable, and upon any such
declaration all such amounts payable in respect of the Notes shall become
immediately due and payable. If an Event of Default specified in clause (vi)
above occurs and is continuing, then the Accreted Value of, premium, if any, and
accrued interest on all of the outstanding Notes will ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of Notes. (Section 502)
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount at Maturity
of the outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if (a) the Company has paid or
deposited with the Trustee a sum sufficient to pay (i) all overdue interest on
all outstanding Notes, (ii) the Accreted Value of and premium, if any, on any
outstanding Notes that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, (iii) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes, and (iv) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel; and
(b) all Events of Default, other than the non-payment of amounts of principal
of, premium, if any, or interest on the Notes that have become due solely by
such declaration of acceleration, have been cured or waived. No such rescission
shall affect any subsequent default or impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because of an Event of Default specified in
subparagraph (iv)(A) or (iv)(B) above has occurred and is continuing, such Event
of Default and all consequences thereof (including, without limitation, any
acceleration or resulting payment default) will be automatically annulled,
waived and rescinded if the Indebtedness that is the subject of such Event of
Default has been discharged or the holders thereof have rescinded their
declaration of acceleration in respect of such Indebtedness or the default that
is the basis for such Event of Default has been cured and no other Event of
Default has occurred and has not been cured or waived.
The holders of not less than a majority in aggregate principal amount at
maturity of the outstanding Notes may, on behalf of the holders of all the
Notes, waive any past defaults under the Indenture, except a default in the
payment of the principal of, premium, if any, or interest on any Note or in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of, or
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of the Notes if a committee of its trust officers in good faith
determines that withholding such notice is in the interests of the holders of
the Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company of its obligations under the Indenture and as to
any default in such performance. The Company is also required to notify the
Trustee within five days of the occurrence of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company upon the Notes discharged with respect to the
outstanding Notes ("defeasance"). Such defeasance means that the
87
<PAGE> 89
Company will be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes and to have satisfied all of other
obligations under the Notes and the Indenture insofar as such Notes are
concerned except for (i) the rights of holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on the
Notes when such payments are due, (ii) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any such Notes, replace
mutilated, destroyed, lost or stolen Notes, maintain an office or agency for
payments in respect of such Notes and segregate and hold such payments in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee and (iv)
the defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants set forth in the Indenture, and any omission
to comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance: (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Notes, cash in United States dollars, U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the Accreted Value of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity (or upon redemption, if
applicable); (ii) no Default or Event of Default with respect to the Notes will
have occurred and be continuing on the date of such deposit or, insofar as an
event of bankruptcy under clause (vi) of "-- Events of Default" above is
concerned, at any time during the period ending on the 91st day after the date
of such deposit; (iii) such defeasance or covenant defeasance will not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company is a party or by
which it is bound; (iv) in the case of defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or since the date of the Private Offering Memorandum, there has been a
change in applicable federal income tax law, in either case to the effect that,
and based thereon such opinion shall confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance had not occurred; (v) in the case
of covenant defeasance, the Company shall have delivered to Trustee an Opinion
of Counsel to the effect that the holders of the Notes outstanding will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such covenant defeasance and will be subject to U.S. federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and (vi) the Company
shall have delivered to the Trustee an officers' certificate and an Opinion of
Counsel, each stating that all conditions precedent provided for relating to
either the defeasance or the covenant defeasance, as the case may be, have been
complied with. (Sections 1301, 1302 and 1303)
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes as expressly
provided for in the Indenture), and the Trustee, at the expense of the Company,
will execute proper instruments acknowledging satisfaction and discharge of the
Indenture when (i) either (a) all the respective Notes theretofore authenticated
and delivered (other than destroyed, lost or stolen Notes which have been
replaced or paid) have been delivered to the Trustee for cancellation or (b) all
the Notes not theretofore delivered to the Trustee for cancellation (x) have
become due and payable, (y) will become due and payable at Stated Maturity
within one year or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the Company
has irrevocably deposited or caused to be deposited with the Trustee trust funds
in trust for such purpose an amount sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for the Accreted Value of, premium, if any, and interest on the
Notes to the date of such deposit (in the case of Notes which have become due
and payable) or to the Stated Maturity or redemption date, as the case may be;
(ii) the
88
<PAGE> 90
Company has paid or caused to be paid all other sums payable under the Indenture
by the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an Opinion of Counsel, each stating that all conditions
precedent provided in the Indenture relating to the satisfaction and discharge
of the Indenture have been complied with. (Section 401)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by a supplemental
indenture entered into by the Company and the Trustee with the consent of the
holders of a majority in aggregate outstanding principal amount at maturity of
the Notes; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Note affected thereby, (i)
change the Stated Maturity of the principal of, or any installment of interest
on, any Note or reduce the Accreted Value thereof or premium, if any, or the
rate of interest thereon, alter any redemption provision with respect to the
timing or amount of payment thereof, or change the coin or currency in which the
Accreted Value of any Note or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment after
the Stated Maturity thereof (or, in the case of redemption, on or after the
redemption date); (ii) amend, change or modify the obligation of the Company to
make and consummate an Excess Proceeds Offer with respect to any Asset Sale in
accordance with the "Limitation on Sale of Assets" covenant or the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control in accordance with the "Purchase of Notes upon a Change of
Control" covenant, including, in each case, amending, changing or modifying any
definition relating thereto; (iii) reduce the percentage in principal amount at
maturity of outstanding Notes the consent of whose holders is required for any
waiver of compliance with certain provisions of the Indenture; (iv) modify any
of the provisions relating to supplemental indentures requiring the consent of
holders or relating to the waiver of past defaults or relating to the waiver of
certain covenants, except to increase the percentage of outstanding Notes
required for such actions or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the holder of each
Note affected thereby; or (v) except as otherwise permitted under "--
Consolidation, Merger and Sale of Assets," consent to the assignment or transfer
by the Company of any of their respective rights or obligations under the
Indenture. (Sections 901 and 902)
Notwithstanding the foregoing, without the consent of any holder of the
Notes the Company and the Trustee may modify or amend the Indenture: (a) to
evidence the succession of another Person to the Company or any other obligor on
the Notes, and the assumption by any such successor of the covenants of the
Company or such obligor in the Indenture and in the Notes in accordance with "--
Consolidation, Merger, Sale of Assets"; (b) to add to the covenants of the
Company or any other obligor upon the Notes for the benefit of the holders of
such Notes or to surrender any right or power conferred upon the Company or any
other obligor upon such Notes, as applicable, in the Indenture or in such Notes;
(c) to cure any ambiguity, or to correct or supplement any provision in the
Indenture or the Notes or make any other provisions with respect to matters or
questions arising under the Indenture or the Notes; provided that, in each case,
such provisions shall not adversely affect the interest of the holders of such
Notes; (d) to comply with the requirements of the Commission in order to effect
or maintain the qualification, if any, of the Indenture under the TIA; (e) to
evidence and provide the acceptance of the appointment of a successor Trustee
under the Indenture; or (f) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the holders of the Notes as
additional security for the payment and performance of the Company's obligations
under the Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture or
otherwise. (Section 901)
The holders of a majority in aggregate principal amount at maturity of the
Notes outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and
89
<PAGE> 91
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.
The Indenture and provisions of the TIA incorporated by reference therein
contain limitations on the rights of the Trustee thereunder should it become a
creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign as Trustee.
GOVERNING LAW
The Indenture, the Notes and the Notes Registration Rights Agreement are
governed by, and construed in accordance with, the laws of the State of New
York.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Accreted Value" is defined to mean, for any specified date, the amount
calculated pursuant to clause (i), (ii), (iii) or (iv) below with respect to
each $1,000 principal amount at Maturity of Notes:
(i) if the specified date occurs on one or more of the following dates
(each a "Semiannual Accrual Date"), the Accreted Value will equal $543.92
on the Original Issue Date, and for any Semiannual Accrual Date thereafter,
the amount set forth below:
<TABLE>
<CAPTION>
ACCRETED
SEMIANNUAL ACCRUAL DATE VALUE
----------------------- ---------
<S> <C>
September 1, 1998........................................... $ 579.48
March 1, 1999............................................... $ 615.70
September 1, 1999........................................... $ 654.18
March 1, 2000............................................... $ 695.07
September 1, 2000........................................... $ 738.51
March 1, 2001............................................... $ 784.66
September 1, 2001........................................... $ 833.71
March 1, 2002............................................... $ 885.81
September 1, 2002........................................... $ 941.18
March 1, 2003............................................... $1,000.00
</TABLE>
(ii) if the specified date occurs before the first Semiannual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
and (b) an amount equal to the product of (1) the Accreted Value for the
first Semiannual Accrual Date less the original issue price multiplied by
(2) a fraction, the numerator of which is the number of days from the date
of the Indenture to the specified date, using a 360-day year of twelve
30-day months, and the denominator of which is the number of days elapsed
from the date of the Indenture to the first Semiannual Accrual Date, using
a 360-day year of twelve 30-day months;
(iii) if the specified date occurs between two Semiannual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semiannual Accrual Date immediately preceding such specified date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semiannual Accrual Date less the Accreted Value for
the immediately preceding Semiannual Accrual Date, and (2) a fraction, the
numerator of which equals the number of days from the immediately preceding
Semiannual Accrual Date to the specified date, using a 360-day year of
twelve 30-day months, and the denominator of which is 180; or
(iv) if the specified date occurs on or after the last Semiannual
Accrual Date, the Accreted Value will equal $1,000.
90
<PAGE> 92
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary or such acquisition; provided that, for purposes of the
"Limitation on Indebtedness" covenant, such Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Restricted Subsidiary.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Voting Stock
or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary; (ii) all or substantially all of the properties and assets of
the Company or its Subsidiaries; or (iii) any other properties or assets of the
Company or any Subsidiary, other than in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties or assets (A) that is governed by the provisions of the
Indenture described under "-- Consolidation, Merger, Sale of Assets," (B) of the
Company to any Restricted Subsidiary, or of any Restricted Subsidiary to the
Company or any Restricted Subsidiary in accordance with the terms of the
Indenture, (C) having a fair market value of less than $500,000 (or, to the
extent not denominated in United States dollars, the United States Dollar
Equivalent thereof) in any given fiscal year, (D) in any Permitted
Telecommunications Asset Sale, or (E) by the Company or a Restricted Subsidiary
to a Person who is not an Affiliate of the Company in exchange for
Telecommunications Assets (or not less than 66 2/3% of the outstanding Voting
Stock of a Person that becomes a Restricted Subsidiary the assets of which
consist primarily of Telecommunications Assets) or related telecommunications
services where in the good faith judgment of the Company the fair market value
of the Telecommunications Assets (or such Voting Stock) or services so received
is at least equal to the fair market value of the properties or assets disposed
of or, if less, the difference is received by the Company in cash in an amount
at least equal to such difference.
"Attributable Value" means, with respect to any lease at the time of
determination, the present value (discounted at the interest rate implicit in
the lease or, if not known, at the Company's incremental borrowing rate) of the
obligations of the lessee of the property subject to such lease for rental
payments during the remaining term of the lease included in such transaction,
including any period for which such lease has been extended or may, at the
option of the lessor, be extended, or until the earliest date on which the
lessee may terminate such lease without penalty or upon payment of penalty (in
which case the rental payments shall include such penalty), after excluding from
such rental payments all amounts required to be paid on account of maintenance
and repairs, insurance, taxes, assessments, water utilities and similar charges.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
"Board of Directors" means the board of directors of the Company.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated and whether voting or non-voting) of such Person's capital
stock, and any rights (other than debt securities convertible into capital
stock), warrants or
91
<PAGE> 93
options exchangeable for or convertible into such capital stock, whether now
outstanding or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required to
be classified and accounted for as a capital lease obligation under GAAP and,
for the purposes of the Indenture, the amount of such obligation at any date
shall be the capitalized amount thereof at such date, determined in accordance
with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) certificates of deposit or acceptances with a maturity of 180
days or less of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and undivided
profits of not less than $500 million; (iii) commercial paper with a maturity of
180 days or less issued by a corporation that is not an Affiliate of the Company
and is organized under the laws of any state of the United States or the
District of Columbia and rated at least A-1 by S&P or at least P-l by Moody's;
and (iv) money market funds which invest substantially all of their assets in
securities of the type described in the preceding clauses (i) through (iii).
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction (i) where the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation and cash, securities
and other property in an amount that could be paid by the Company as a
Restricted Payment as described under the "Limitation on Restricted Payments"
covenant and (ii) immediately after such transaction, no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the surviving or transferee corporation; (c) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors whose
election to such Board of Directors, or whose nomination for election by the
stockholders of the Company, was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then in
office; (d) the Company is liquidated or dissolved or a special resolution is
passed by the shareholders of the Company approving the plan of liquidation or
dissolution other than in a transaction which complies with the provisions
described under "-- Consolidation, Merger and Sales of Assets"; or (e) a
Permitted Holder holds (i) less than 15% of the outstanding Common Stock at any
time prior to an Initial Public Equity Offering or (ii) more than 65% of the
outstanding Common Stock at any time after an Initial Public Equity Offering.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and
92
<PAGE> 94
expenses relating thereto), (b) any net after-tax gains or losses (less all fees
and expenses relating thereto) attributable to asset dispositions other than in
the ordinary course of business, (c) the portion of net income (or loss) of any
Person (other than the Company or a Restricted Subsidiary), including
Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has
an ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in cash
dividends or distributions during such period, (d) net income (but not loss) of
any Person combined with the Company or any Restricted Subsidiary on a "pooling
of interests" basis attributable to any period prior to the date of combination,
(e) the net income of any Restricted Subsidiary, to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders and (f) any gain or
loss, net of taxes, realized upon the termination of any employee benefit plan.
"Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio"
means, at any date of determination, the ratio of (i) the aggregate amount of
Indebtedness of the Company and its Restricted Subsidiaries outstanding at the
date of determination as determined on a consolidated basis in accordance with
GAAP to (ii) the aggregate amount of Consolidated Operating Cash Flow for the
then most recent four full fiscal quarters for which consolidated financial
statements of the Company are available preceding the date of the transaction
giving rise to the need to calculate the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio (such four fiscal quarter period being
referred to as the "Four Quarter Period").
"Consolidated Interest Expense" of the Company means, for any period,
without duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of debt discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) accrued interest, (v) the consolidated amount
of any interest capitalized by the Company and (vi) amortization of debt
issuance costs, plus (b) the interest component of Capitalized Lease Obligations
of the Company and its Restricted Subsidiaries paid, accrued and/or scheduled to
be paid or accrued during such period, excluding, however, any amount of such
interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Adjusted Net Income
pursuant to clause (e) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Consolidated Adjusted Net Income pursuant to clause (e) of the
definition thereof); provided that the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
(A) bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period
and (B) which was not outstanding during the period for which the computation is
being made but which bears, at the option of the Company, a fixed or floating
rate of interest, shall be computed by applying, at the option of the Company,
either the fixed or the floating rate.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Adjusted Net Income for such period (a) increased by (to the extent
included in computing Consolidated Adjusted Net Income) the sum of (i) the
Consolidated Tax Expense for such period (other than taxes attributable to
extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated
Interest Expense for such period; (iii) depreciation of the Company and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; (iv) amortization of the Company and its Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; and (v) any other non-cash charges that were deducted in computing
Consolidated Adjusted Net Income (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period) of the Company and
its Restricted Subsidiaries for such period in accordance with GAAP and (b)
decreased by any non-cash gains that were included in computing Consolidated
Adjusted Net Income.
"Consolidated Tax Expense" means, for any period, the provision for
federal, state, provincial, local and foreign income taxes of the Company and
all Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
93
<PAGE> 95
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
designed solely to protect against or manage exposure to fluctuations in
currency exchange rates.
"Default" means any event that after notice or passage of time or both
would be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Subsidiaries" means Digital Teleport, Inc.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States on the date of the
Indenture.
"Guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Incur" or "incur" means, with respect to any Indebtedness, to create,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of, or otherwise incur such Indebtedness; provided that neither
the accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities, contingent or otherwise, of such Person: (i) for borrowed money
(including overdrafts), (ii) in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities, (iii) evidenced by bonds, notes, debentures or other
similar instruments, (iv) for the deferred purchase price of property or
services or created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person, or (v) for
Capitalized Lease Obligations; (b) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements; (c) all indebtedness
referred to in (but not excluded from) the preceding clauses of other Persons
and all dividends of other Persons, the payment of which is secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or with respect to property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness (the amount of such obligation being deemed to be the
lesser of the value of such property or asset or the amount of the obligation so
secured); (d) all guarantees by such Person of Indebtedness referred to in this
definition of any other Person; and (e) all Redeemable Capital Stock of such
Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date (or, in
the case of a revolving credit or other similar facility, the total amount of
funds outstanding and/or available on the date of determination) of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency giving
rise to the obligation; provided that the amount outstanding at any time of any
Indebtedness issued with original issue discount equals the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount with respect to such Indebtedness at such time as determined in
conformity with GAAP. For purposes hereof, the "maximum fixed repurchase price"
of any Redeemable Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Redeemable Capital
Stock as if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the
94
<PAGE> 96
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. Notwithstanding the foregoing, trade accounts and
accrued liabilities arising in the ordinary course of business and any liability
for federal, state or local taxes or other taxes owed by such Person will not be
considered Indebtedness for purposes of this definition.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and other similar
agreements) designed solely to protect the Company or any Restricted Subsidiary
against fluctuations in interest rates in respect of Indebtedness of the Company
or any Restricted Subsidiary.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by, any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the fair market value of the net
assets of any Subsidiary at the time that such Subsidiary is designated an
Unrestricted Subsidiary shall be deemed to be an "Investment" made by the
Company in such Unrestricted Subsidiary at such time. "Investments" shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices and any loans, advances or extensions of
credit to an employee of the Company or any Subsidiaries made in the ordinary
course of business; provided that such loans, advances or extensions of credit
shall not have an aggregate principal amount in excess of $1.0 million at any
one time outstanding.
"Original Issue Date" means the date of the Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as provided therein or in the Indenture,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties which are the subject
of such Asset Sale, (iv) amounts required to be paid to any Person (other than
the Company or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Redeemable Capital Stock that have been converted into or exchanged for
Qualified Capital Stock, as referred to under the
95
<PAGE> 97
"Limitation on Restricted Payments" covenant, the proceeds of such issuance or
sale in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Subsidiary of the Company), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Participant" is defined to mean, with respect to DTC, Persons who have
accounts with DTC.
"Permitted Holder" means either of (a) (i) collectively, Richard Weinstein,
his spouse, issues or other members of his immediate family (collectively, the
"Weinstein Family") (ii) trusts or other entities created for the benefit of any
member of the Weinstein Family, (iii) entities controlled by any of the
Weinstein Family and (iv) in the event of the death of any members of the
Weinstein Family, the heirs or testamentary legatees of such member of the
Weinstein Family, or (b) collectively, KLT and any of its controlled Affiliates
(as defined under Rules 13d-3 and 13d-5 under the Exchange Act).
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company pursuant to the Notes;
(b) Indebtedness of the Company owing to any Restricted Subsidiary
(but only so long as such Indebtedness is held by such Restricted
Subsidiary); provided that any Indebtedness of the Company owing to any
such Restricted Subsidiary is subordinated in right of payment from and
after such time as the Notes shall become due and payable (whether at
Stated Maturity, by acceleration or otherwise) to the payment and
performance of the Company's obligations under the Notes; provided further
that any transaction pursuant to which any Restricted Subsidiary to which
such Indebtedness is owed, ceases to be a Restricted Subsidiary shall be
deemed to be an incurrence of such Indebtedness by such Restricted
Subsidiary that is not permitted by this clause (b);
(c) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with one or more commercial bank facilities
permitted under clause (j) of the "Permitted Indebtedness" definition or in
connection with the acquisition of or disposition of assets, including,
without limitation, shares of Capital Stock;
(d) Indebtedness of the Company or any Restricted Subsidiary under
letter of credit facilities that are used to finance trade payables in the
ordinary course of business and under which recourse to the Company or any
Restricted Subsidiary is limited to the cash securing such letters of
credit;
(e) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements and Interest Rate Agreements entered into in the
ordinary course of business, provided that such agreements do not increase
the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates
or by reason of fees, indemnities and compensation payable thereunder;
(f) Indebtedness of the Company or any Restricted Subsidiary in
addition to that permitted to be incurred pursuant to clauses (a) through
(e) above in an aggregate principal amount not in excess of $25.0 million
(or, to the extent not denominated in United States dollars, the United
States Dollar Equivalent thereof) at any one time outstanding;
(g) Purchase Money Indebtedness;
(h) Indebtedness of any Restricted Subsidiary to the Company;
(i) Prior to December 31, 2000, Indebtedness of the Company or any
Restricted Subsidiary not to exceed, at any one time outstanding, two times
(A) the Net Cash Proceeds received by the Company after the date of the
Indenture as a capital contribution or from the issuance and sale of its
Qualified Capital Stock to a Person that is not a Subsidiary of the
Company, to the extent such Net Cash Proceeds have not been used pursuant
to clause (a)(3)(B) or clauses (b)(ii) and (iii) of the "Limitation on
Restricted Payments" covenant to make a Restricted Payment and (B) 80% of
the fair market value of
96
<PAGE> 98
property (other than cash and Cash Equivalents) received by the Company
after the date of the Indenture as a contribution of capital or from the
sale of its Qualified Capital Stock to a person that is not a Subsidiary of
the Company, to the extent such capital contribution or sale of Qualified
Capital Stock has not been used pursuant to clause (a)(3)(B) of the
"Limitation on Restricted Payments" covenant to make a Restricted Payment;
provided that such Indebtedness does not mature prior to the Stated
Maturity of the Notes and has an Average Life longer than the Notes;
(j) Indebtedness of the Company or any Restricted Subsidiary under one
or more commercial bank facilities outstanding at any time in an aggregate
principal amount not to exceed $70.0 million plus the greater of (x) 80% of
the accounts receivable of the Company or (y) $30.0 million; and
(k) any renewals, extensions, substitutions, refinancings or
replacements (each, for purpose of this clause, a "refinancing") of any
Indebtedness of the Company (including all or any part of the Notes) or any
Restricted Subsidiary by the Company, or any refinancing of any
Indebtedness of any Restricted Subsidiary by such Restricted Subsidiary,
other than Indebtedness incurred pursuant to clauses (b) through (f) and
(h) through (j) of this definition, including any successive refinancings,
so long as (i) any such new Indebtedness shall be in a principal amount
that does not exceed the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced, plus the amount of
any premium reasonably determined as necessary to accomplish such
refinancing and the amount of expenses of the Company incurred in
connection with such refinancing, (ii) in the case of any refinancing of
Subordinated Indebtedness, such new Indebtedness is made subordinate to the
Notes at least to the same extent as the Indebtedness being refinanced,
(iii) in the case of any refinancing of Indebtedness that is pari passu in
right of payment with the Notes, such new Indebtedness is made pari passu
in right of payment with, or subordinate in right of payment to, the Notes
and (iv) (A) if such indebtedness being refinanced has an Average Life
longer than the Average Life of the Notes, such new Indebtedness has an
Average Life longer than the Average Life of the Notes and a final Stated
Maturity later than the final Stated Maturity of the Notes and (B) if such
Indebtedness being refinanced has an Average Life shorter than the Average
Life of the Notes, such Indebtedness has an Average Life longer than, and a
Final Stated Maturity Date later than, such Indebtedness being so
refinanced.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any Restricted Subsidiary;
(c) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment (i) such other Person becomes a
Restricted Subsidiary and the Company or another Restricted Subsidiary owns
at least 66 2/3% of the outstanding Voting Stock of such other Person or
(ii) such other Person is merged or consolidated with or into, or transfers
or conveys all or substantially all of its assets to, the Company or a
Restricted Subsidiary;
(d) Investments by the Company or any Restricted Subsidiary in any
Person engaged in the delivery of telephony or other telecommunications or
data transmission services in North America, the sum of which does not
exceed $20.0 million at any one time outstanding; or
(e) Investments in existence on the date of the Indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of the issuance of the Notes;
(b) Liens on any property or assets of a Subsidiary granted in favor
of the Company or any Restricted Subsidiary;
(c) Liens securing the Notes;
97
<PAGE> 99
(d) any interest or title of a lessor under any Capitalized Lease
Obligation or of a seller under any Purchase Money Indebtedness permitted
by the Indenture;
(e) Liens securing Indebtedness incurred under clause (j) of the
definition of "Permitted Indebtedness";
(f) statutory Liens or landlord's and carrier's, warehouseman's,
mechanic's, supplier's, materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceeding,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(g) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(h) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature (including, without limitation, indefeasible rights to use) incurred
in the ordinary course of business (other than contracts for the payment of
money);
(i) easements, servitudes, rights-of-way, restrictions (including,
without limitation, zoning restrictions) and other similar charges or
encumbrances not interfering in any material respect with the business of
the Company or any Subsidiary incurred in the ordinary course of business;
(j) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired;
(k) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Subsidiary; provided that such Lien does not extend
to any property or assets of the Company or any Subsidiary other than the
assets acquired in connection with the incurrence of such Acquired
Indebtedness;
(l) Liens securing Interest Rate Agreements or Currency Agreements
permitted to be incurred pursuant to clause (e) of the definition of
"Permitted Indebtedness" or any collateral for the Indebtedness to which
such Interest Rate Agreements or Currency Agreements relate;
(m) Liens arising from purchase money mortgages and purchase money
security interests; provided that (i) the related Indebtedness shall not be
secured by any property or assets of the Company or any Subsidiary other
than the property and assets so acquired and (ii) the Lien securing such
Indebtedness shall be created within 60 days of such acquisition;
(n) Liens with respect to assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to the Company or a Restricted Subsidiary to
secure Indebtedness owing to the Company or such Restricted Subsidiary;
(o) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations; and
(p) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (o); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets.
98
<PAGE> 100
"Permitted Telecommunications Asset Sale" means any transfer, conveyance,
sale, lease or other disposition of a capital asset that is a Telecommunications
Asset, the proceeds of which are treated as revenues (including deferred
revenues) by the Company in accordance with GAAP.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Original Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiaries incurred at any time within 270 days of, and for the
purpose of financing all or any part of the cost of, the construction,
expansion, installation, acquisition or improvement by the Company or any
Restricted Subsidiary of the Company of any new Telecommunications Assets or not
less than 66 2/3 percent of the outstanding Voting Stock of a Person that
becomes a Restricted Subsidiary the assets of which consist primarily of
Telecommunications Assets constructed, expanded, installed, acquired or improved
after the date of the Indenture; provided that the proceeds of such Indebtedness
are expended for such purposes within such 270-day period; and provided,
further, that the Net Cash Proceeds from the issuance of such Indebtedness does
not exceed, as of the date of incurrence of such Indebtedness, 100% of the
lesser of cost or fair market value of such Telecommunication Assets.
"Public Equity Offering" means an underwritten public offering or flotation
of Common Stock of the Company which has been registered under the Securities
Act.
"Qualified Capital Stock" of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity; provided that any Capital Stock that would not constitute Redeemable
Capital Stock but for provisions thereof giving holders thereof the right to
require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Redeemable Capital Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable in any material respect to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants are to the holders of
the Notes, and such Capital Stock specifically provides that such Person will
not repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants.
"Restricted Subsidiary" means the Existing Subsidiaries and any Subsidiary
that is not designated an Unrestricted Subsidiary by the Board of Directors.
"S&P" means Standard and Poor's Ratings Services, a division of
McGraw-Hill, Inc., and its successors.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its subsidiaries, (i) for the most
recent fiscal year of the Company accounted for more than 10% of the
consolidated revenues of the Company and the Restricted Subsidiaries, (ii) as of
the end of such fiscal year, was the owner of more than 10% of the consolidated
assets of the Company and the Restricted Subsidiaries, in each case as set forth
on the most recently available consolidated financial statements of the Company
and the
99
<PAGE> 101
Restricted Subsidiaries for such fiscal year, or (iii) owns one or more licenses
or concessions to provide telecommunications or data transmission services in
the United States.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
"Tax" is defined to mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and any other liabilities
related thereto).
"Taxing Authority" is defined to mean any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Telecommunications Assets" means, with respect to any Person, all assets,
rights (contractual or otherwise) and properties, whether tangible or
intangible, used or intended for use in connection with a Telecommunications
Business; provided that such assets are accounted for as "property, plant and
equipment" on the Company's consolidated balance sheet in accordance with GAAP.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) constructing, creating, developing
or marketing communications related network equipment, software and other
devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (i) or (ii) above; provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the board of directors of the Company.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency of instrumentality of the United States of
America (x) the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or (y) that are rated at
least "Aaa" (or the then equivalent grade) by Moody's or "AAA" (or the then
equivalent grade) by S&P.
"United States Dollar Equivalent" means, with respect to any monetary
amount in a currency other than the United States dollar, at any time for the
determination thereof, the amount of United States dollars obtained by
converting such foreign currency involved in such computation into United States
dollars at the spot rate for the purchase of United States dollars with the
applicable foreign currency as quoted by Reuters at approximately 11:00 a.m.
(New York City time) on the date not more than two business days prior to such
determination. For purposes of determining whether any Indebtedness can be
incurred (including Permitted Indebtedness), any Investment can be made and any
transaction described in the "Limitation on Transactions with Affiliates"
covenant can be undertaken (a "Tested Transaction"), the "United States Dollar
Equivalent" of such Indebtedness, Investment or transaction described in the
"Limitation on Transactions with Affiliates" covenant will be determined on the
date incurred, made or undertaken and no subsequent change in the United States
Dollar Equivalent shall cause such Tested Transaction to have been incurred,
made or undertaken in violation of the Indenture.
100
<PAGE> 102
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors, as provided below) and (b) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so
long as (i) neither the Company nor any other Subsidiary is directly or
indirectly liable for or provides credit support for or guarantees any
Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any other
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of the "Limitation on
Investments in Unrestricted Subsidiaries" covenant, (iv) neither the Company nor
any other Subsidiary has a contract, agreement, arrangement, understanding or
obligation of any kind, whether written or oral, with such Subsidiary other than
those that might be obtained at the time from persons who are not Affiliates of
the Company and (v) neither the Company nor any other Subsidiary has any
obligation (1) to subscribe for additional shares of Capital Stock or other
equity interest in such Subsidiary or (2) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing a board resolution with the Trustee
giving effect to such designation. The Board of Directors may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation, there would be no Default or Event of Default under
the Indenture and the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "Limitation on Indebtedness"
covenant. In no event shall the Existing Subsidiaries be designated as
Unrestricted Subsidiaries.
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Subsidiary, such Subsidiary if
all the outstanding Capital Stock of such Subsidiary (other than any directors'
qualifying shares) is owned directly by the Company or by the Company and one or
more Wholly Owned Restricted Subsidiaries.
101
<PAGE> 103
DESCRIPTION OF THE WARRANTS
In connection with the Private Offering, the Company issued Warrants to
purchase 3,926,560 shares of Common Stock. Upon the effectiveness of the
Registration Statement of which this Prospectus is a part, the Notes and the
Warrants will be separately transferable, in accordance with any applicable
restrictions on transferability thereof as provided by the respective terms
thereof. The following is a description of the Warrants.
GENERAL
The Warrants were issued under a Warrant Agreement dated as of February 23,
1998 (the "Warrant Agreement") between the Company, as issuer, and The Bank of
New York, as Warrant Agent (the "Warrant Agent"). The following summary of
certain provisions of the Warrants and the Warrant Agreement does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Warrants and the Warrant Agreement, including the
definitions of certain terms contained therein. The Warrant Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part, and copies of such Agreement are available upon request from the Company
or the Warrant Agent. For definitions of certain capitalized terms used in this
summary, see "-- Certain Definitions" below. Capitalized terms used herein but
not defined have the meanings attributed to them in the Warrants or the Warrant
Agreement.
Each Warrant entitles the registered holder thereof, subject to and upon
compliance with the provisions thereof and of the Warrant Agreement, at such
holder's option, after the Exercisability Date and prior to 5:00 P.M., New York
City time, on March 1, 2008 (the "Expiration Date") to purchase from the Company
1.552 shares of Common Stock at an exercise price (the "Exercise Price") of
$0.01 per share of Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares") (both the Exercise Price and securities issuable upon exercise
of the Warrants being subject to adjustments as provided in the Warrant
Agreement). Each Warrant may be exercised on any business day on or after the
Exercisability Date and on or prior to the Expiration Date. Any Warrant not
exercised before the close of business on the Expiration Date shall become void,
and all rights of the holder under the Warrant Certificate evidencing such
Warrant and under the Warrant Agreement shall cease.
EXERCISE
Warrants may be exercised by surrendering the Warrant Certificate
evidencing such Warrants with the form of election to purchase shares of Common
Stock set forth on the reverse side thereof duly completed and executed by the
holder thereof and by paying in full the Exercise Price for such Warrants at the
office or agency in The City of New York maintained for such purposes (which
will initially be the corporate trust office of the Warrant Agent located at 101
Barclay Street, New York, New York 10286).
Each Warrant may only be exercised in whole and the Exercise Price may be
paid in full, at the option of the holder (i) in cash or by certified or
official bank check, (ii) by a Cashless Exercise or (iii) by any combination of
(i) and (ii). For purposes of the Warrant Agreement, a "Cashless Exercise" will
mean an exercise of a Warrant in accordance with the immediately following two
sentences. To effect a Cashless Exercise, the holder may exercise a Warrant or
Warrants without payment of the Exercise Price in cash by surrendering such
Warrant or Warrants (represented by one or more Warrant Certificates) and, in
exchange therefor, receiving such number of shares of Common Stock equal to the
product of (1) the number of shares of Common Stock for which such Warrant or
Warrants are exercisable and which would be issuable in the event of an exercise
with payment in cash of the Exercise Price and (2) the Cashless Exercise Ratio
(as defined below). For purposes of the Warrant Agreement, the "Cashless
Exercise Ratio" will equal a fraction, the numerator of which is the excess of
the Current Market Value (calculated as set forth in the Warrant Agreement) per
share of Common Stock on the date of exercise over the Exercise Price per share
of Common Stock as of the date of exercise, and the denominator of which is the
Current Market Value per share of the Common Stock on the date of exercise. Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with a holder's option to elect a Cashless Exercise, such holder must
specify the
102
<PAGE> 104
number of Warrants for which such Warrant Certificate is to be exercised
(without giving effect to such Cashless Exercise). All provisions of the Warrant
Agreement shall be applicable with respect to a Cashless Exercise of a Warrant
Certificate for less than the full number of Warrants represented thereby. No
payment or adjustment shall be made on account of any dividends on the Common
Stock issued upon exercise of a Warrant.
If the Company has not effected the registration under the Securities Act
of the offer and sale of the Warrant Shares by the Company to the holders of the
Warrants on or prior to the Exercise Date (as defined below), the Company may
elect to require that holders of the Warrants effect the exercise of the
Warrants solely pursuant to the Cashless Exercise option and may also amend the
Warrants to eliminate the requirement for payment of the Exercise Price with
respect to such Cashless Exercise option.
The Company will, as soon as practicable after the occurrence of an
Exercise Event (as defined below), send to each holder of Warrants and to each
beneficial owner of the Warrants to the extent that the Warrants are held of
record by a depository or other agent, by first-class mail, at the addresses
appearing on the Warrant Register, a notice of the Exercise Event which has
occurred, which notice shall describe the type of Exercise Event, the date of
the occurrence thereof and the date of expiration of the right to exercise the
Warrants prominently set forth on the face of such notice.
Subject to the terms of the Warrant Agreement, the Warrant Certificates
evidencing the Warrants may be surrendered for exercise or exchange, and the
transfer of Warrant Certificates will be registerable, at the office or agency
of the Company maintained for such purpose, which initially will be the
corporate trust office of the Warrant Agent in New York, New York. The Warrant
Certificates will be issued either in global form or in registered form as
definitive Warrant Certificates. No service charge will be made for any
exercise, exchange or registration of transfer of Warrant Certificates, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
DISTRIBUTION RIGHTS; ADJUSTMENT TO EXERCISE RATE; MERGER OR CONSOLIDATION
In general, holders of Warrants are not entitled, by virtue of being such
holders, to receive notice of any meetings of shareholders or otherwise have any
right of shareholders of the Company. However, if at any time after the
Exercisability Date, the Company grants, issues or sells options, convertible
securities, or rights to purchase stock, warrants or other securities pro rata
to the record holders of Common Stock ("Distribution Rights") or, without
duplication, makes any dividend or otherwise makes any distribution, including
(subject to applicable law) pursuant to any plan of liquidation
("Distribution"), on the Common Stock (whether in cash, property, evidences of
indebtedness or otherwise), then the Company shall grant, issue, sell or make to
each registered holder of Warrants then outstanding the aggregate Distribution
Rights or Distribution, as the case may be, which such holder would have
acquired if such holder had held the maximum number of shares of Common Stock
acquirable upon complete exercise of such holder's Warrants (regardless of
whether the Warrants are then exercisable and without giving effect to the
Cashless Exercise option) immediately before the record date for the grant,
issuance or sale of such Distribution Rights or Distribution, as the case may
be, or, if there is no such record date, the date as of which the record holders
of shares of Common Stock are to be determined for the grant, issue or sale of
such Distribution Rights or Distribution, as the case may be.
The number of Warrant Shares issuable upon exercise of a Warrant (the
"Exercise Rate") is subject to adjustment from time to time upon the occurrence
of certain events occurring after the Original Issue Date of the Notes,
including (a) certain dividends or distributions on shares of Common Stock
payable in shares of Common Stock or certain other Capital Stock of the Company,
(b) subdivisions, combinations or certain reclassifications of shares of Common
Stock and (c) sales by the Company of shares of Common Stock or of securities
convertible into or exchangeable or exercisable for shares of Common Stock to an
Affiliate (other than a wholly owned subsidiary) of the Company at a price below
the then Current Market Value (other than (1) pursuant to the exercise of the
Warrants, (2) pursuant to any security convertible into, or exchangeable or
exercisable for, shares of Common Stock outstanding as of the Original Issue
Date, (3) upon the conversion, exchange or exercise of any convertible,
exchangeable or exercisable security as to which the issuance thereof has
previously been the subject of any required adjustment pursuant to the Warrant
Agreement and (4) upon
103
<PAGE> 105
the conversion, exchange or exercise of convertible, exchangeable or exercisable
securities of the Company outstanding on the Original Issue Date (to the extent
in accordance with the terms of such securities as in effect on such date)).
Notwithstanding the foregoing, no adjustment in the Exercise Rate will be
required upon the conversion, exchange or exercise of options to acquire shares
of Common Stock by officers, directors or employees of the Company; provided
that the exercise price of such options, at the time of issuance thereof, is at
least equal to the then Current Market Value of the Common Stock underlying such
options.
If the Company, in a single transaction or through a series of related
transactions, consolidates with or merges with or into any other person or
sells, assigns, transfers, leases, conveys or otherwise disposes of all or
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (a "Fundamental
Transaction"), as a condition to consummating any such transaction the person
formed by or surviving any such consolidation or merger if other than the
Company or the person to whom such transfer has been made (the "Surviving
Person") shall enter into a supplemental warrant agreement. The supplemental
warrant agreement shall provide (a) that the holder of a Warrant then
outstanding may exercise it for the kind and amount of securities, cash or other
assets which such holder would have received immediately after the Fundamental
Transaction if such holder had exercised the Warrant immediately before the
effective date of the transaction (regardless of whether the Warrants were then
exercisable and without giving effect to the Cashless Exercise option), assuming
(to the extent applicable) that such holder (i) was not a constituent person or
an affiliate of a constituent person to such transaction, (ii) made no election
with respect thereto and (iii) was treated alike with the plurality of
non-electing holders, and (b) that the Surviving Person shall succeed to and be
substituted for every right and obligation of the Company in respect of the
Warrant Agreement and the Warrants. The Surviving Person shall mail to holders
of Warrants at the addresses appearing on the Warrant Register a notice briefly
describing the supplemental warrant agreement. If the issuer of securities
deliverable upon exercise of Warrants is an affiliate of the Surviving Person,
that issuer shall join in the supplemental warrant agreement.
Notwithstanding the foregoing, if the Company enters into a Fundamental
Transaction with another person (other than a subsidiary of the Company) and
consideration is payable to holders of the shares of Capital Stock (or other
securities or property) issuable or deliverable upon exercise of the Warrants
that are exercisable in exchange for such shares in connection with such
Fundamental Transaction which consists solely of cash, then the holders of
Warrants shall be entitled to receive distributions on the date of such event on
an equal basis with holders of such shares (or other securities issuable upon
exercise of the Warrants) as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price therefor. Upon receipt of such
payment, if any, the rights of a holder of a Warrant shall terminate and cease
and such holder's Warrants shall expire.
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment to the number of shares of Common Stock or other
consideration for which such a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain Federal Income Tax Considerations."
Fractional shares of Common Stock are not required to be issued upon
exercise of Warrants, but in lieu thereof the Company will pay a cash
adjustment, except in limited circumstances.
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the terms of the Warrants and the modification of rights and
obligations of the Company and the rights of the holders of Warrant Certificates
under the Warrant Agreement at any time by the Company and the Warrant Agent
with the consent of the Requisite Warrant Holders (as defined below).
CERTAIN COVENANTS
The Company has agreed not to make an Initial Public Equity Offering of any
class of Capital Stock (other than the class of Capital Stock into which the
Warrants are exercisable) without adopting any amendments to the terms of the
Company's Articles of Incorporation that may be necessary to provide that the
Warrant Shares are convertible into such class of Capital Stock on a
share-for-share or other equitable
104
<PAGE> 106
basis and that the rights, conditions and privileges attaching to such class of
Capital Stock are not adverse to holders of the Warrant Shares.
The Company has also agreed to comply with all applicable laws, including
the Securities Act and any applicable state securities laws, in connection with
the offer and sale of Common Stock (and other securities and property
deliverable) upon exercise of the Warrants.
CERTAIN DEFINITIONS
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated and whether voting or non-voting) of, such person's capital
stock, and any rights (other than debt securities convertible into capital
stock), warrants or options exchangeable for or convertible into such capital
stock whether outstanding on the Original Issue Date or issued after the
Original Issue Date.
"Common Stock" is defined in the Warrant Agreement to include the Company's
Common Stock, par value $0.01 per share, and any other class or series of common
equity equivalent shares of the Company hereafter created.
"Convertible Preferred Stock" means any securities convertible or
exercisable or exchangeable into Common Stock, whether outstanding on the
Closing Date or thereafter issued.
"Current Market Value" per share of Common Stock or any other security at
any date means (i) if the security is not registered under the Exchange Act, (a)
the value of the security, determined in good faith by the Board of Directors of
the Company and certified in a board resolution, based on the most recently
completed arms-length transaction between the Company and a person other than an
Affiliate of the Company and the closing of which occurs on such date or shall
have occurred within the six-month period preceding such date, or (b) if no such
transaction shall have occurred on such date or within such six-month period,
the fair market value of the security as determined by a nationally or
regionally recognized independent financial expert (provided that, in the case
of the calculation of Current Market Value for determining the cash value of
fractional shares, any such determination within six months that is, in the good
faith judgment of the Board, a reasonable determination of value, may be
utilized) or (ii) (a) if the security is registered under the Exchange Act, the
average of the daily closing sales prices of the securities for the 20
consecutive trading days immediately preceding such date, or (b) if the security
has been registered under the Exchange Act for less than 20 consecutive trading
days before such date, then the average of the daily closing sales prices for
all of the trading days before such date for which closing sales prices are
available, in the case of each of (ii)(a) and (ii)(b), as certified to the
Warrant Agent by the President, any Vice President or the Chief Financial
Officer of the Company. The closing sales price for each such trading day shall
be: (A) in the case of a security listed or admitted to trading on any United
States national securities exchange or quotation system, the closing sales
price, regular way, on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, (B) in the case of a
security not then listed or admitted to trading on any national securities
exchange or quotation system, the last reported sale price on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, as reported by a reputable quotation source designated by the Company,
(C) in the case of a security not then listed or admitted to trading on any
national securities exchange or quotation system and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, The City and State of New York, customarily published on each
business day, designated by the Company, or, if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported and (D) if there are not bid
and asked prices reported during the 30 days prior to the date in question, the
Current Market Value shall be determined as if the securities were not
registered under the Exchange Act.
"Exercisability Date" is defined in the Warrant Agreement as the first day
on or after the Separability Date on which there shall have occurred an Exercise
Event.
105
<PAGE> 107
"Exercise Date" means the date when the Warrant Certificate evidencing
Warrants to be exercised and payment in full of the aggregate Exercise Price are
received by the Warrant Agent at or prior to 11:00 a.m. (5:00 p.m. in the event
of exercise on the Expiration Date), New York City time, on a Business Day.
"Exercise Event" means the date of the occurrence of the earliest of: (i)
the time immediately prior to the occurrence of a Change of Control (as defined
in the Indenture; see "Description of the Notes -- Certain Definitions"),
(ii)(a) the 180th day (or such earlier date as determined by the Company in its
sole discretion) following, the closing of an Initial Public Equity Offering (as
defined) or (b) upon the closing of an Initial Public Equity Offering but only
in respect of Warrants, if any, required to be exercised to permit the holders
thereof to sell Warrant Shares pursuant to their respective registration rights,
(iii) a class of equity securities of the Company is listed on a national
securities exchange or authorized for quotation on the Nasdaq National Market or
is otherwise subject to registration under the Exchange Act, or (iv) September
1, 1999.
"Initial Public Equity Offering" means a primary public offering (whether
or not underwritten, but excluding any offering pursuant to Form S-8 under the
Securities Act or any other publicly registered offering pursuant to the
Securities Act pertaining to an issuance of Common Stock or securities
exercisable therefor under any benefit plan, employee compensation plan, or
employee or director stock purchase plan) of Common Stock pursuant to an
effective registration statement under the Securities Act.
"Registrable Securities" means any of (i) the Common Stock issued and
issuable upon exercise of the Warrants and (ii) any other securities issued or
issuable with respect to the Warrants or Warrant Shares by way of stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the offering of such
securities by the holder thereof shall have been declared effective under the
Securities Act and such securities shall have been disposed of by such holder
pursuant to such registration statement, (b) such securities have been sold to
the public pursuant to, or are eligible for sale to the public without volume or
manner of sale restrictions under, Rule 144(k) (or any similar provision then in
force, but not Rule 144A) promulgated under the Securities Act, (c) such
securities shall have been otherwise transferred and new certificates for such
securities not bearing a legend restricting further transfer shall have been
delivered by the Company or its transfer agent and subsequent disposition of
such securities shall not require registration or qualification under the
Securities Act or any similar state law then in force, or (d) such securities
shall have ceased to be outstanding.
"Requisite Warrant Holders" means (i) in the case of any amendment,
modification, supplement or waiver affecting only Warrant Holders as such,
holders of a majority in number of the outstanding Warrants, voting separately
as a class, or (ii) in the case of any amendment, modification, supplement or
waiver affecting Warrant Holders, a majority in number of Warrant Shares
represented by the Warrants that would be issuable assuming exercise thereof at
the time such amendment, modification, supplement or waiver is voted upon.
"Triggering Date" means the date of the consummation of a bona fide
underwritten public offering of Common Stock, as a result of which at least 20%
of the outstanding shares of Common Stock are listed on a United States national
securities exchange or the Nasdaq National Market.
REGISTRATION AND OTHER RIGHTS RELATING TO THE WARRANT SHARES
The Company, the Initial Purchasers and, to the limited extent set forth
therein, the Permitted Holders entered into the Warrant Registration Rights
Agreement, which provides that the holders of Warrants and Registrable
Securities have registration rights and other rights and obligations with
respect to the Warrants and Registrable Securities. The following summary of the
material provisions of the Warrant Registration Rights Agreement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Warrant Registration Rights
Agreement. The Warrant Registration Rights Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and
copies of such Agreement are available upon request from the Company or the
Warrant Agent.
106
<PAGE> 108
Registration Rights. After the occurrence of an Exercise Event, the
holders of a number of Warrants, Warrant Shares and Registrable Securities (the
"Subject Equity") equivalent to at least a majority of the outstanding Subject
Equity will be entitled to require the Company to effect two registrations
(each, a "Demand Registration") under the Securities Act of the Subject Equity,
subject to certain limitations. Within 20 days after the receipt of such demand,
the Company will (a) notify the holders of all Subject Equity that a demand
registration has been requested, (b) prepare, file and use its best efforts to
cause to become effective under the Securities Act within 150 days of such
demand a registration statement in respect of all of the Subject Equity which
holders request, no later than 30 days after the date of such notice, to have
included therein (the "Included Securities"); provided that if such demand
occurs during the "lock up" or "black out" period (not to exceed 180 days)
imposed on the Company pursuant to or in connection with any underwriting or
purchase agreement relating to an underwritten Rule 144A or registered public
offering of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, the Company shall not be required to so notify
holders of Subject Equity and file such demand registration statement prior to
the end of such "lock up" or "black out" period, in which event the Company will
use its best efforts to cause such Demand Registration statement to become
effective no later than the later of (i) 150 days after such demand or (ii) 30
days after the end of such "lock up" or "black out" period, and (c) keep such
registration statement continuously effective for the shorter of (i) 60 days
(the "Effectiveness Period") and (ii) such period of time as all of the Subject
Equity included in such registration statement shall have been sold thereunder;
provided further that the Company may postpone the filing of, or suspend the
effectiveness of, any registration statement or amendment thereto, suspend the
use of any prospectus and shall not be required to amend or supplement the
registration statement, any related prospectus or any document incorporated
therein by reference (other than an effective registration statement being used
for an underwritten offering) in the event that and for a period (a "Suspension
Period") not to exceed an aggregate of 90 days with respect to any Demand
Registration if (i) an event or circumstance occurs and is continuing as a
result of which the registration statement, any related prospectus or any
document incorporated therein by reference as then amended or supplemented or
proposed to be filed would, in the Company's good faith judgement, contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and (ii)(A) the Company determines in its
good faith judgement that the disclosure of such an event at such time would
have a material adverse effect on the business, operations or prospects of the
Company or (B) the disclosure otherwise relates to a material business
transaction which has not yet been publicly disclosed; provided further that if,
after a Demand Registration has become effective, the offering of Subject Equity
pursuant thereto is or becomes the subject of any stop order, injunction or
other order or requirement of the Commission or similar governmental, judicial
or administrative order or requirement, and such Demand Registration has not
become effective within a reasonable time period thereafter, such Demand
Registration will be deemed not to have been effected; provided further that the
Effectiveness Period shall be extended by the number of days in any Suspension
Period. In the event of any "lock up" or "black out" period in any underwriting
or purchase agreement, the Company will so notify the holders of Registrable
Securities. Under the Warrant Registration Rights Agreement, a Warrant holder is
obligated to keep confidential the existence of a Suspension Period or any
confidential information communicated by the Company to the Warrant holder with
respect thereto. Notwithstanding the foregoing, in lieu of filing and causing to
become effective a Demand Registration, the Company may satisfy its obligation
with respect to such Demand Registration by making and consummating (or having
its designee make and consummate) an offer to purchase all Subject Equity at a
price at least equal to Current Market Value (as defined in the Warrant
Agreement, but without the inclusion of clause (i)(a) thereof) less any
applicable Exercise Price.
Holders of Registrable Securities also have the right to include such
Registrable Securities in any registration statement under the Securities Act
filed by the Company for its own account or for the account of any of its
securityholders covering the sale of Common Stock (other than (a) a registration
statement on Form S-4 or S-8 or (b) a registration statement filed in connection
with an offer of securities solely to existing securityholders or (c) a Demand
Registration) for sale on the same terms and conditions as the securities of the
Company or any other selling securityholder included therein (a "Piggy-Back
Registration"). In the case of a Piggy-Back Registration, the number of
Registrable Securities requested to be included therein is subject
107
<PAGE> 109
to pro rata reduction to the extent that the Company is advised by the managing
underwriter, if any, therefor that the total number or type of Registrable
Securities and other securities proposed to be included therein pursuant to
similar piggyback registration rights of other holders is such as to materially
and adversely affect the success of the offering; provided that securities
included pursuant to other holders' demand registration rights are not to be
included in any such reduction. The provisions in the preceding paragraph
relating to the effect of a Suspension Period and the imposition of any
"lock-up" or "black-out" period on a related registration statement will also
apply to such holder upon exercise of Piggy-Back Registration Rights.
If the Company has complied with all its obligations under the Warrant
Registration Rights Agreement with respect to a Demand Registration or a
Piggy-Back Registration relating to an underwritten public offering, all holders
of Warrants and Registrable Securities, upon request of the lead managing
underwriter with respect to such underwritten public offering, will be required
to not sell or otherwise dispose of any Warrant or Registrable Security owned by
them for a period not to exceed 30 days prior to or 180 days after the
consummation of such underwritten public offering.
The Warrant Registration Rights Agreement includes customary covenants on
the part of the Company and will provide that the Company will indemnify the
holders of Registrable Securities included in any registration statement and any
underwriter with respect thereto against certain liabilities, including
liabilities under the Securities Act.
Each holder of Warrants that sells such Warrants or Registrable Securities
pursuant to a Demand Registration generally may be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
the purchaser, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
certain provisions of the Warrant Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations). In
addition, each holder of Warrants will be required to deliver information to be
used in connection with any such registration in order to have its Warrants or
Registrable Securities included in such registration.
Tag-Along Rights. Prior to the Triggering Date, each of the holders of
Subject Equity shall have the right (the "Tag-Along Right") to require the
proposed purchaser (as defined below) to purchase from each of them all Subject
Equity owned by such holder in the event of any proposed direct or indirect sale
or other disposition (collectively, a "Transfer") of Common Stock or Convertible
Preferred Stock (whether now or hereafter issued) to any person or persons (such
other person or persons being hereinafter referred to as the "proposed
purchaser") by any Permitted Holders or any of their Affiliates in any
transaction or a series of related transactions resulting in a Change of
Control. Any Subject Equity purchased from the holders pursuant to such
provisions shall be paid for in the same type of consideration and at the same
price per share of Common Stock and upon the same terms and conditions of such
proposed transfer of Common Stock by any Permitted Holders or any of their
Affiliates; except that the price per Warrant to be paid by the proposed
purchaser shall be less the exercise price of such Warrant per share. If the
Subject Equity to be purchased includes securities or property other than Common
Stock, the price to be paid for such securities or property shall be the same
price per share or other denomination paid by the proposed purchaser for like
securities purchased from any Permitted Holder or any of its Affiliates or, if
like securities are not purchased from any Permitted Holder or any of its
Affiliates, the fair market value of such securities determined by a nationally
or regionally recognized investment banking firm selected by the Company.
Each Permitted Holder shall notify, or cause to be notified, each holder of
Subject Equity and in writing of each such proposed Transfer at least 30 days
prior to the date thereof. Such notice shall set forth: (a) the name and address
of the proposed purchaser and the number of shares of Common Stock and other
securities, if any, proposed to be transferred, (b) the proposed amount of
consideration and terms and conditions of payment offered by such proposed
purchaser (if the proposed consideration is not cash, the notice shall describe
the terms of the proposed consideration) and (c) that either the proposed
purchaser has been informed of the Tag-Along Right and has agreed to purchase
Subject Equity in accordance with the terms of the Warrant Registration Rights
Agreement or that the Permitted Holder or any of its Affiliates will make such
purchase. The Tag-Along Right may be exercised by any holder of Subject Equity
by delivery of a
108
<PAGE> 110
written notice to the Company (the "Tag-Along Notice"), within 10 days following
such holder's receipt of the notice specified in the preceding sentence. The
Tag-Along Notice shall state the amount of Subject Equity that such holder
proposes to include in such transfer to the proposed purchaser determined as
aforesaid. Failure to provide a Tag-Along Notice within the 10 day notice period
shall be deemed to constitute an election by such holder not to exercise its
Tag-Along Rights.
In the event that the proposed purchaser does not purchase Subject Equity
entitled to be transferred as described above on the same terms and conditions
as purchased from the Permitted Holders or any of their Affiliates, then the
Permitted Holders or their Affiliates shall purchase such Subject Equity if the
Transfer occurs. If any Subject Equity is being sold by a Warrant Holder
pursuant to the Tag-Along Right under the Warrant Registration Rights Agreement,
upon the occurrence of a Change of Control triggered by the sale of Common Stock
by a Permitted Holder, the other Permitted Holder will have the right to
purchase up to 50% of such Subject Equity.
Drag-Along Rights. If at any time prior to an Initial Public Equity
Offering, any Permitted Holders or any of their respective Affiliates determines
to sell all of the Capital Stock of the Company owned by them to a person other
than a Permitted Holder or its Affiliate in a transaction resulting in a Change
of Control, the transferring Permitted Holder (whether directly or through an
Affiliate) shall have the right (the "Drag-Along Right") to require the holders
of Subject Equity to sell such Subject Equity to such transferee; provided that
(a) the consideration to be received by the holders of Subject Equity shall be
the same type of consideration received by the Permitted Holders and their
Affiliates and, in any event, shall be cash or freely transferable marketable
securities, and (b) after giving effect to such transaction, the Permitted
Holder making the transfers and its Affiliates shall not own, directly or
indirectly, any capital stock or rights to purchase capital stock of the
Company. Any Warrants and/or Registrable Securities purchased from the holders
thereof pursuant to such provision shall be paid for at the same price per share
of Common Stock and upon the same terms and conditions of such proposed transfer
of Common Stock by the Permitted Holders and their Affiliates. The price per
Warrant to be paid by the proposed purchaser shall be less the exercise price of
such Warrant per share. If the Subject Equity to be purchased includes
securities other than Common Stock, the price to be paid for such securities
shall be the same price per share or other denomination paid by the proposed
purchaser for like securities purchased from the Permitted Holders and their
Affiliates or, if like securities are not purchased from the Permitted Holders
and their Affiliates, the fair market value of such securities determined by a
nationally or regionally recognized investment banking firm selected by the
Company.
If any Subject Equity is being sold by a Warrant Holder pursuant to the
Drag-Along Right under the Warrant Registration Rights Agreement, upon the
occurrence of a Change of Control triggered by the sale of Common Stock by a
Permitted Holder, the other Permitted Holder will have the right to purchase up
to 50% of such Subject Equity.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form without interest coupons. Exchange Notes issued in exchange for
Private Notes sold in offshore transactions in reliance on Regulation S under
the Securities Act will be represented by one or more global Notes in
definitive, fully registered form without interest coupons (each a "Regulation S
Global Note").
Exchange Notes issued in exchange for Private Notes sold in reliance on
Rule 144A will be represented by one or more permanent global Notes (each a
"Registered Global Note" and, together with the Regulation S Global Note, the
"Global Notes") in definitive, fully registered form and, without interest
coupons and will be deposited with the Trustee or as custodian for The
Depository Trust Company (the "Depositary"), and registered in the name of the
Depositary or of a nominee of the Depositary.
Upon issuance of the Global Note, the Depositary will credit, on its
internal system, the respective amounts of the individual beneficial interests
in the Global Note as applicable, to persons who have accounts with the
Depositary ("Participants"). Such accounts initially will be designated by or on
behalf of the Initial
109
<PAGE> 111
Purchasers. Ownership of beneficial interests in the Global Note will be shown
on, and the transfer of such beneficial interests will be effected only through,
records maintained by the Depositary or its nominee (with respect to interests
of Participants) and the records of Participants (with respect to interests of
persons other than Participants). Qualified Institutional Buyers may hold their
interests in the Global Note directly through the Depositary if they are
Participants, or indirectly through organizations which are Participants.
Investors may hold their interests in a Regulation S Global Note directly
through Cedel Bank or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such system. Investors
may also hold such interests through organizations other than Cedel Bank or
Euroclear that are participants in the DTC system. Cedel Bank and Euroclear will
hold interests in the Regulation S Global Note on behalf of their participants
through DTC.
So long as the Depositary, or its nominee, is the registered owner or
holder of the Global Note, the Depositary or such nominee, as the case may be,
will be considered the sole owner and holder of the Notes represented by such
Global Note for all purposes under the Indenture and the Notes. Accordingly,
beneficial owners of an interest in the Global Note must rely on the procedures
of the Depositary and, if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest, to exercise any
rights and fulfill any obligations of a holder under the Indenture. No
beneficial owner of an interest in the Global Note will be able to transfer such
interest except in accordance with the Depositary's procedures, in addition to
those provided for under the Indenture.
Payments of the principal of or premium, if any, and interest on the Global
Notes will be made to the Depositary or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee, or any paying agent
under the Indenture will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of the principal of, premium and interest on (or additional interest in
respect of) the Global Note will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount at maturity of such Global Note as shown on the records of the Depositary
or its nominee. The Company also expects that payments by Participants to owners
of beneficial interests in the Global Note held through such Participants will
be governed by standing instructions and customary practice as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in the Depositary will be effected in the
ordinary way through the Depositary's same-day funds system in accordance with
the Depositary rules and will be settled in federal funds. Transfers between
participants in Euroclear and Cedel Bank will be effected in the ordinary way in
accordance with their respective rules and operating procedures. If a holder
requires physical delivery of a Certificated Security for any reason, including
to sell Notes to persons in states which require physical delivery of the Notes
or to pledge such securities, such holder must transfer its interest in the
Global Note in accordance with the normal procedures of the Depositary and with
the procedures set forth in the Indenture.
The Depositary has advised the Company that the Depositary will take any
action permitted to be taken by a holder of Notes (including the presentation of
Notes for exchange as described below) only at the direction of one or more
Participants to whose account the Depositary interests in the applicable Global
Securities are credited and only in respect of such portion of the aggregate
principal amount at maturity of Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Indenture, the Depositary will exchange the Global
Certificates for the applicable Certificated Securities, which it will
distribute to its Participants.
The Depositary has advised the Company as follows: the Depositary is a
limited purpose trust company organized under the laws of the State of New York,
a "banking organization" within the meaning of New York Banking Law, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A
110
<PAGE> 112
of the Exchange Act. The Depositary was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Although DTC and its Participants have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
Participants and participants of Euroclear and Cedel Bank, they are under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee, or any paying agent will have
any responsibility for the performance by the Depositary, Euroclear or Cedel
Bank or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Owners of beneficial interests in the Global Note will be entitled to
receive Notes in definitive form ("Definitive Notes" if the Depositary is at any
time unwilling or unable to continue as, or ceases to be, a "Clearing Agency"
registered under Section 17A of the Exchange Act, and a successor to the
Depositary registered as a "Clearing Agency" under Section 17A of the Exchange
Act is not appointed by the Company within 90 days. Any Definitive Notes issued
in exchange for beneficial interests in the Global Note will be registered in
such name or names as the Depositary shall instruct the Trustee. It is expected
that such instructions will be based upon directions received by the Depositary
from Participants with respect to ownership of beneficial interests in the
Global Note.
In addition to the foregoing, on or after the occurrence of an Event of
Default under the Indenture, owners of beneficial interests in the Global Note
will be entitled to request and receive Definitive Notes. Such Definitive Notes
will be registered in such name or names as the Depositary shall instruct the
Trustee.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal
income tax consequences of an exchange of Private Notes for Exchange Notes and
the ownership of Private Notes, as well as certain potential federal income tax
consequences to the Company with respect to the Notes. This summary is based on
current provisions of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), applicable final, temporary and proposed Treasury Regulations
("Treasury Regulations"), judicial authority, and current administrative rulings
and pronouncements of the Internal Revenue Service (the "Service") and upon the
facts concerning the Company as of the date hereof. There can be no assurance
that the Service will not take a contrary view, and no ruling from the Service
has been or will be sought by the Company. Legislative, judicial, or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders.
This summary does not purport to deal with all aspects of taxation that may
be relevant to particular holders of the Notes in light of their personal
investment or tax circumstances, or to certain types of investors (including
individual retirement accounts and other tax deferred accounts, insurance
companies, financial institutions, broker-dealers or tax-exempt organizations)
subject to special treatment under the U.S. federal income tax laws. This
discussion does not deal with special tax situations, such as the holding of the
Notes as part of a straddle with other investments, or situations in which the
functional currency of a holder is not the U.S. dollar. In addition, this
discussion deals only with Notes held by initial purchasers that hold such Notes
as capital assets within the meaning of Section 1221 of the Code.
For purposes of this discussion, the term "U.S. Holder" means a citizen or
resident of the U.S., a corporation, limited liability company or partnership
created or organized in the U.S. or under the law of the U.S. or any state
thereof (including the District of Columbia), an estate the income of which is
includible in gross income for U.S. federal income tax purposes regardless of
its source, or a trust if a court within the U.S.
111
<PAGE> 113
is able to exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control all substantial decisions
of the trust (or, under certain circumstances, a trust the income of which is
includible in gross income for U.S. federal income tax purposes regardless of
its source). The term "Non-U.S. Holder" means any person other than a U.S.
Holder.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT MAY
VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF PRIVATE NOTES
There should be no federal income tax consequences to holders exchanging
Private Notes for Exchange Notes pursuant to the Exchange Offer since the
Exchange Offer will be by operation of the original terms of the Private Notes,
pursuant to a unilateral act by the Company, and will not result in any material
alteration in the terms of the Private Notes. Each exchanging holder will have
the same adjusted tax basis and holding period in the Exchange Notes as it had
in the Private Notes immediately before the exchange.
THE NOTES
Under applicable authorities, the Notes should be treated as indebtedness
for U.S. federal income tax purposes. In the unlikely event the Notes are
treated as equity, the amount of any actual or constructive distributions on any
such Note would first be taxable to the holder as dividend income to the extent
of the issuer's current and accumulated earnings and profits, and next would be
treated as a return of capital to the extent of the holder's tax basis in the
Note, with any remaining amount treated as gain from the sale of a Note.
Further, payments on the Notes treated as equity to Non-U.S. Holders would not
be eligible for the portfolio interest exception from U.S. withholding tax, and
dividends thereon would be subject to U.S. withholding tax at a flat rate of 30%
(or lower applicable treaty rate) and gain from their sale or other taxable
disposition might also be subject to U.S. tax. See "-- Non-U.S. Holders." In
addition, in the event of equity treatment, the Company would not be entitled to
deduct interest on the Notes for U.S. federal income tax purposes. The remainder
of this discussion assumes that the Notes will constitute indebtedness of the
Company for such tax purposes.
ORIGINAL ISSUE DISCOUNT
General. The Notes will be issued with original issue discount ("OID"), and
each U.S. Holder will be required to include in income (regardless of whether
such U.S. Holder is a cash or accrual basis taxpayer) in each taxable year, in
advance of the receipt of corresponding cash payments on such Notes, that
portion of the OID, computed on a constant yield basis, attributable to each day
during such year on which the U.S. Holder held the Notes. See " -- Taxation of
Original Issue Discount."
The amount of OID with respect to each Note will be equal to the excess of
(i) its "stated redemption price at maturity" over (ii) its issue price. Under
the OID Regulations, the "stated redemption price at maturity" of each Note will
include all payments to be made in respect thereof, including any stated
interest payments, other than "qualified stated interest." Payments of qualified
stated interest are payments of interest which are unconditionally payable in
cash or property (other than debt instruments of the issuer) at least annually
at a qualifying rate, including a single fixed rate. Since no actual cash
payments will be made in respect of the Notes until March 1, 2003, no interest
payments on the Notes will constitute "qualified stated interest."
Taxation of Original Issue Discount. A U.S. Holder of a debt instrument
issued with OID is required to include in gross income for U.S. federal income
tax purposes an amount equal to the sum of the "daily portions" of such OID for
all days during the taxable year on which the holder holds the debt instrument.
The daily portions of OID required to be included in a holder's gross income in
a taxable year will be determined upon a constant-yield basis by allocating to
each day during the taxable year on which the holder holds the
112
<PAGE> 114
debt instrument a pro-rata portion of the OID on such debt instrument which is
attributable to the "accrual period" in which such day is included. Accrual
periods with respect to a Note may be of any length and may vary in length over
the term of the Note as long as (i) no accrual period is longer than one year
and (ii) each scheduled payment of interest or principal on the Note occurs on
either the final or first day of an accrual period. The amount of the OID
attributable to each "accrual period" will be the product of the "adjusted issue
price" at the beginning of such accrual period and the "yield to maturity" of
the debt instrument (stated in a manner appropriately taking into account the
length of the accrual period). The "yield to maturity" is the discount rate
that, when used in computing the present value of all payments to be made under
the Notes, produces an amount equal to the issue price of the Notes. The
"adjusted issue price" of a debt instrument at the beginning of an accrual
period is defined generally as the issue price of the debt instrument plus the
aggregate amount of OID that accrued in all prior accrual periods, less any cash
payments on the debt instrument. Accordingly, a U.S. Holder of a Note will be
required to include OID in gross income for U.S. federal income tax purposes in
advance of the receipt of cash in respect of such income. The amount of OID
allocable to an initial short accrual period may be computed using any
reasonable method if all other accrual periods, other than a final short accrual
period, are of equal length. The amount of OID allocable to the final accrual
period at maturity of the Note is the difference between (x) the amount payable
at the maturity of the Note, and (y) the Note's adjusted issue price as of the
beginning of the final accrual period.
Effect of Mandatory and Optional Redemptions on OID. In the event of a
Change of Control, the Company will be required to offer to redeem all of the
Notes at redemption prices specified elsewhere herein. In the event that the
Company receives net proceeds from one or more Equity Offerings, the Company
may, at any time prior to March 1, 2001, use all or a portion of such net
proceeds to redeem the Notes in amounts and at redemption prices specified
elsewhere herein. Under the OID Regulations, computation of yield and maturity
of the Notes is not affected by such redemption rights and obligations if, based
on all the facts and circumstances as of the issue date, the potential
occurrence of such contingencies is remote. The Company has determined that,
based on all of the facts and circumstances that are expected to exist as of the
issue date, the possibility that a Change of Control or an optional redemption
by the Company will occur is remote and, as a result, the stated payment
schedule of the Notes must not be adjusted for such contingencies.
The Company may redeem the Notes, in whole or in part, at any time on or
after March 1, 2003, at redemption prices specified elsewhere herein, plus
accrued and unpaid interest to the date of redemption. The OID Regulations
contain rules for determining the "maturity date" and the stated redemption
price at maturity of an instrument that may be redeemed prior to its stated
maturity date at the option of the issuer. Under the OID Regulations, solely for
purposes of the accrual of OID, it is assumed that the issuer will exercise any
option to redeem a debt instrument if such exercise will lower the
yield-to-maturity of the debt instrument. The Company anticipates that it will
not be presumed to redeem the Notes prior to their stated maturity under the
foregoing rules because the exercise of such option would not lower the
yield-to-maturity of the Notes.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The Notes are "applicable high yield discount obligations" ("AHYDOs"), as
defined in the Code, and the following rules will apply. Under the rules
applicable to AHYDOs, a portion of the OID that accrues on the Notes will not be
deductible by the Company at any time. The non-deductible portion of the OID
will be an amount that bears the same ratio to such OID as (i) the excess of the
yield to maturity of the Notes over the AFR plus six percentage points bears to
(ii) the yield to maturity of the Notes. To the extent that the non-deductible
portion of OID would have been treated as a dividend if it had been distributed
with respect to the Company's stock, it will be treated as a dividend to holders
of the Notes for purposes of the rules relating to the dividends received
deduction for corporate holders. Any remaining OID on the Notes will not be
deductible by the Company until such OID is paid.
MARKET DISCOUNT, ACQUISITION PREMIUM
If a U.S. Holder acquires a Note for an amount that is less than its
revised issue price (generally, adjusted issue price at the time of
acquisition), the amount of the difference will be treated as "market
113
<PAGE> 115
discount," unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a U.S. Holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition (including a gift) of, a Note as ordinary income to the extent
of any accrued market discount that has not previously been included in income.
Market discount generally accrues on a straight-line basis over the remaining
term of the Note, unless the U.S. Holder elects to accrue market discount on a
constant interest method. A U.S. Holder may not be allowed to deduct immediately
all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or to carry such Note.
A U.S. Holder may elect to include market discount in income currently as
it accrues (either on a straight-line basis or, if the U.S. Holder so elects, on
a constant-yield basis), in which case the interest deferral rule set forth in
the preceding paragraph will not apply. Such an election will apply to all bonds
acquired by the U.S. Holder on or after the first day of the first taxable year
to which such election applies and may be revoked only with the consent of the
Service.
A U.S. Holder that acquires a Note for an amount that is greater than the
adjusted issue price of such Note but equal to or less than the sum of all
amounts payable on such Note after the purchase date will be considered to have
purchased such Note at an "acquisition premium." Under the acquisition premium
rules of the Code and the OID Regulations, the daily portion of OID which such
holder must include in its gross income with respect to such Note for any
taxable year will be reduced by an amount equal to the OID multiplied by a
fraction, the numerator of which is the amount of such acquisition premium and
the denominator of which is the OID remaining from the date the Note was
purchased to its maturity date.
SALE OR OTHER DISPOSITION
In general, upon the sale, exchange or redemption of a Note, a U.S. Holder
will recognize taxable gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property received on
the sale, exchange or redemption (not including any amount attributable to
accrued but unpaid interest) and (ii) the U.S. Holder's adjusted tax basis in
the Note. A U.S. Holder's adjusted tax basis in a Note generally will be equal
to the portion of the Unit purchase price allocable to such Note, increased by
the amount of any market discount or OID previously taken into income by the
U.S. Holder and reduced by the amount of any principal received by the U.S.
Holder.
Subject to the discussion of market discount above, gain or loss realized
on the sale, exchange or redemption of a Note will be capital gain or loss.
Capital gain recognized by individual U.S. Holders generally will be subject to
a maximum federal income tax rate of (i) 39.6% if the U.S. Holder held the Note
for not more than one year, (ii) 28% if the U.S. Holder held the Note for more
than one year but not more than eighteen months, and (iii) 20% if the U.S.
Holder held the Note for more than eighteen months. The distinction between
capital gain or loss and ordinary income or loss is also relevant for purposes
of, among other things, limitations with respect to the deductibility of capital
losses.
An exchange of Notes pursuant to the Exchange Offer and the associated
redemption of the Notes by the Company in exchange for the Exchange Notes should
not be considered a taxable event.
NON-U.S. HOLDERS
In general, subject to the discussion below concerning backup withholding:
(a) payments of principal or interest (including OID) on the Notes by the
Company or any paying agent to a beneficial owner of a Note that is a Non-U.S.
Holder will not be subject to U.S. withholding tax, provided that, in the case
of interest or accrued OID, (i) such Non-U.S. Holder does not own, actually or
constructively, 10% or more of the total combined voting power of all classes of
stock of the Company entitled to vote, within the meaning of Section 871(h)(3)
of the Code, (ii) such Non-U.S. Holder is not a "controlled foreign corporation"
(within the meaning of the Code) that is related, directly or indirectly, to the
Company through stock ownership, (iii) such Non-U.S. Holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code, and (iv) the
certification requirements under Section 871(h) or Section 881(c) of the Code
and Treasury Regulations thereunder (summarized below) are satisfied;
114
<PAGE> 116
(b) A Non-U.S. Holder of a Note will not be subject to U.S. income tax on
gains realized on the sale, exchange or other disposition of such Note, unless
(i) such Non-U.S. Holder is an individual who is present in the U.S. for 183
days or more in the taxable year of sale, exchange or other disposition, and
certain other conditions are met, (ii) such gain is effectively connected with
the conduct by the Non-U.S. Holder of a trade or business in the U.S. and, if
certain tax treaties apply, is attributable to a U.S. permanent establishment
maintained by the Non-U.S. Holder, or (iii) the Non-U.S. Holder is subject to
Code provisions applicable to certain U.S. expatriates;
(c) a Note held by an individual who is not a citizen or resident of the
U.S. at the time of his death will not be subject to U.S. estate tax as a result
of such individual's death, provided that, at the time of such individual's
death, the individual does not own, actually or constructively, 10% or more of
the total combined voting power of all classes of stock of the Company entitled
to vote and payments with respect to such Note would not have been effectively
connected with the conduct by such individual of a trade or business in the
U.S.; and
To satisfy the certification requirements referred to in (a)(iv) above,
Sections 871(h) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that either (i) the beneficial owner of a Note
must certify, under penalties of perjury, to the Company or its paying agent, as
the case may be, that such owner is a Non-U.S. Holder and must provide such
owner's name and address, and U.S. taxpayer identification number ("TIN"), if
any, or (ii) a securities clearing organization, bank or other financial
institution that holds customers securities in the ordinary course of its trade
or business (a "Financial Institution") and holds the Note on behalf of the
beneficial owner thereof must certify, under penalties of perjury, to the
Company or its paying agent, as the case may be, that such certificate has been
received from the beneficial owner and must furnish the payor with a copy
thereof. A certificate described in this paragraph is effective only with
respect to payments of interest made to the certifying Non-U.S. Holder after
delivery of the certificate in the calendar year of its delivery and the two
immediately succeeding calendar years. Under temporary Treasury Regulations,
such requirement will be fulfilled if the beneficial owner of a Note certifies
on IRS Form W-8, under penalties of perjury, that it is a Non-U.S. Holder and
provides its name and address, and any Financial Institution holding the Note on
behalf of the beneficial owner files a statement with the withholding agent to
the effect that it has received such a statement from the beneficial owner (and
furnishes the withholding agent with a copy thereof).
Treasury Regulations released on October 6, 1997 as modified by Notice
98-16 dated March 27, 1998 (the "New Regulations") and effective for payments
made after December 31, 1999, subject to certain transition rules, provide
alternative methods for satisfying the certification requirements described
above. The New Regulations require, in the case of Notes held by a foreign
partnership, that (i) the certification be provided by the partners rather than
by the foreign partnership and (ii) the partnership provide certain information,
including a U.S. taxpayer identification number. A look-through rule would apply
in the case of tiered partnerships.
If a Non-U.S. Holder of a Note is engaged in a trade or business in the
U.S. and if interest (including OID) on the Note, or gain realized on the sale,
exchange or other disposition of the Note, is effectively connected with the
conduct of such trade or business and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the Non-U.S. Holder
in the U.S., the Non-U.S. Holder, although exempt from U.S. withholding tax
(provided that the certification requirements discussed in the next sentence are
met), will generally be subject to regular U.S. income tax on such interest or
gain in the same manner as if it were a U.S. Holder. In lieu of the certificate
described above, such a Non-U.S. Holder will be required, under currently
effective Treasury Regulations, to provide the Company with a properly executed
IRS Form 4224 in order to claim an exemption from U.S. withholding tax. In
addition, if such Non-U.S. Holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments. For purposes of the branch profits tax, interest
(including OID) on a Note and any gain recognized on the sale, exchange or other
disposition of a Note will be included in the earnings and profits of such
Non-U.S. Holder if such interest or gain is effectively connected with the
conduct by a Non-U.S. Holder of a trade or business in the U.S. The New
Regulations alter certain of the withholding reporting and
115
<PAGE> 117
certification requirements described above, effective for payments made after
December 31, 1999, subject to certain transition rules. In general, for payments
made after December 31, 1999, a Non-U.S. Holder with effectively connected
income must provide to the Company, either directly or through an intermediary,
a valid IRS Form W-8 to claim an exemption from withholding.
Dividends, if any, paid on Common Stock to a Non-U.S. Holder generally will
be subject to a 30% United States federal withholding tax, subject to reduction
for Non-U.S. Holders eligible for the benefits of certain income tax treaties,
or that qualify as being engaged in a trade or business in the U.S. and if any
dividends received are effectively connected with such trade or business (as
discussed above in connection with the treatment of a Non-U.S. Holder's receipt
of interest on the Notes). For purposes of determining whether tax is to be
withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, the Company ordinarily will presume that dividends paid to an address in
a foreign country are paid to a resident of such country absent knowledge that
such presumption is not warranted. For dividend payments after December 31,
1999, under the New Treasury Regulations, Non-U.S. Holders are required to
provide a valid Form W-8 to the Company in order to receive the benefit of a
reduced treaty rate. Common Stock owned or treated as owned by an individual who
is not a citizen or resident of the U.S. (as specially defined for United States
federal estate tax purposes) will be included in such individual's estate for
U.S. federal estate tax purposes unless an applicable estate tax treaty
otherwise applies.
In the unlikely event the Notes were treated as equity, the periodic
distributions received by a Non-U.S. Holder on the Notes would not qualify for
the portfolio interest exemption from United States federal income tax and would
instead be treated as dividends as described above.
Non-U.S. Holders should consult with their tax advisors regarding U.S. and
foreign tax consequences with respect to the Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments made in respect of a Note to a holder that is not an "exempt recipient"
and that fails to provide certain identifying information (such as the holder's
TIN) in the manner required. Generally, individuals are not exempt recipients,
whereas corporations and certain other entities are exempt recipients. Payments
made in respect of a Note must be reported to the Service, unless the holder is
an exempt recipient or otherwise establishes an exemption.
In the case of payments of interest on a Note to a Non-U.S. Holder,
Treasury Regulations provide that backup withholding and information reporting
will not apply to payments with respect to which either requisite certification
has been received or an exemption has otherwise been established (provided that
neither the Company nor a paying agent has actual knowledge that the holder is a
U.S. Holder or that the conditions of any other exemption are not in fact
satisfied).
Payments of the proceeds of the sale of a Note to or through a foreign
office of a broker that is a U.S. person, a "controlled foreign corporation"
(within the meaning of the Code), or a foreign person, 50% or more of whose
gross income from all sources for the three-year period ending with the close of
its taxable year preceding the payment was effectively connected with the
conduct of a trade or business within the U.S., or (pursuant to the New
Regulations, for payments made after December 31, 1999) a foreign partnership
with certain U.S. connections, are currently subject to certain information
reporting requirements, unless the payee is an exempt recipient or such broker
has evidence in its records that the payee is a Non-U.S. Holder and has no
actual knowledge that such evidence is false and certain other conditions are
met. Temporary Treasury Regulations indicate that such payments are not
currently subject to backup withholding. Under current Treasury Regulations,
payments of the proceeds of a sale of a Note to or through the U.S. office of a
broker will be subject to information reporting and backup withholding unless
the payee certifies under penalties of perjury as to his or her status as a
Non-U.S. Holder and satisfies certain other qualifications (and no agent or
broker who is responsible for receiving or reviewing such statement has actual
knowledge that it is incorrect) and provides his or her name and address or the
payee otherwise establishes an exemption.
116
<PAGE> 118
Any amounts withheld under the backup withholding rules from a payment to a
holder of a Note generally will be allowed as a refund or credit against such
holder's U.S. federal income tax, provided that the required information is
timely furnished to the Service.
In general, the New Regulations do not significantly alter the current
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. Under the New
Regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. A holder of a Note should consult with its tax
advisor regarding the application of the backup withholding rules to its
particular situation, the availability of an exemption therefrom, the procedure
for obtaining such an exemption, if available, and the impact of the New
Regulations on payments made with respect to Notes after December 31, 1999.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF
ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. PROSPECTIVE HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING THE APPLICATION
AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS
OF CHANGES IN UNITED STATES OR OTHER TAX LAWS.
117
<PAGE> 119
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Private
Notes may be offered for resale, resold and otherwise transferred by any Holder
thereof (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement with any person to
participate in the distribution of such Exchange Notes. Accordingly, any Holder
using the Exchange Offer to participate in a distribution of the Exchange Notes
will not be able to rely on such no-action letters. Notwithstanding the
foregoing, each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 120 days from the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver, and by delivering, a prospectus as required, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 120 days from the Expiration Date, the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company will pay all the expenses incident to
the Exchange Offer (which shall not include the expenses of any Holder in
connection with resales of the Exchange Notes). The Company has agreed to
indemnify the Initial Purchasers and any broker-dealers participating in the
Exchange Offer against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Bryan Cave LLP, St. Louis, Missouri.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1996
and 1997 and for each of the three years in the period ended June 30, 1997
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
118
<PAGE> 120
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DTI HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997.... F-3
Consolidated Statements of Operations for the years ended
June 30, 1995, 1996 and 1997.............................. F-4
Consolidated Statements of Stockholders' Deficit for the
years ended
June 30, 1995, 1996 and 1997.............................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997.............................. F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Balance Sheet as of December 31, 1997
(unaudited)............................................... F-16
Consolidated Statements of Operations for the six months
ended December 31, 1996 and 1997 (unaudited).............. F-17
Consolidated Statements of Cash Flows for the six months
ended December 31, 1996 and 1997 (unaudited).............. F-18
Notes to Unaudited Consolidated Financial Statements........ F-19
</TABLE>
F-1
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of DTI Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of DTI
Holdings, Inc., and subsidiary (the "Company") as of June 30, 1996 and 1997 and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 30, 1996
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
September 10, 1997
(April 10, 1998
as to Notes 13 and 14)
F-2
<PAGE> 122
DTI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 817,391 $ 4,366,906
Restricted cash (Note 4).................................. 459,522 --
Accounts receivable, less allowance for doubtful accounts
of $-0- and $48,000.................................... 77,990 159,268
Prepayment of suppliers................................... 554,261 --
Prepaid and other current assets.......................... 25,725 23,764
----------- -----------
Total current assets................................. 1,934,889 4,549,938
Network and equipment, at cost less accumulated depreciation
of $479,467 and $1,235,640 (Note 3)....................... 13,064,169 34,000,634
Deferred tax asset.......................................... -- 1,214,331
Other assets................................................ 26,700 84,233
----------- -----------
Total................................................ $15,025,758 $39,849,136
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 1,658,836 $ 5,086,830
Notes payable (Note 4).................................... 6,500,000 --
Deferred revenues -- current portion (Note 7)............. 138,780 259,680
Interest payable (Note 4)................................. 118,796 --
Taxes payable (other than income taxes)................... -- 923,104
----------- -----------
Total current liabilities............................ 8,416,412 6,269,614
Deferred revenues (Note 7).................................. 6,595,948 9,420,224
----------- -----------
Total liabilities.................................... 15,012,360 15,689,838
Commitments and contingencies (Notes 10, 11, 12 and 13)
Redeemable Convertible Series A Preferred Stock -- $0.01 par
value, 30,000 shares authorized, 0 and 18,500 shares
issued and outstanding (Notes 5, 8, 13 and 14)............ -- 28,889,165
Common stock warrants (Note 4).............................. 1,114,101 --
Stockholders' deficit:
Preferred stock, $0.01 par value, 20,000,000 shares
authorized, no shares issued and outstanding (Note 5
and 14)................................................ -- --
Common stock, $0.01 par value, 50,000,000 and 100,000,000
shares authorized, 30,000,000 shares issued and
outstanding (Notes 6, 13 and 14)....................... 300,000 300,000
Common stock warrants (Note 6)............................ 450,000
Accumulated deficit....................................... (1,400,703) (5,479,867)
----------- -----------
Total stockholders' deficit.......................... (1,100,703) (4,729,867)
----------- -----------
Total....................................................... $15,025,758 $39,849,136
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 123
DTI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Telecommunications services
Carrier's carrier services............................. -- $ 188,424 $ 807,347
End-user services...................................... $ 199,537 488,377 515,637
----------- ---------- ---------
199,537 676,801 1,322,984
Other services........................................... -- -- 711,006
----------- ---------- ---------
Total revenues...................................... 199,537 676,801 2,033,990
----------- ---------- ---------
OPERATING EXPENSES:
Telecommunications services............................ 165,723 296,912 847,190
Other services......................................... -- -- 364,495
Selling, general and administrative.................... 240,530 548,613 1,118,809
Depreciation and amortization.......................... 70,500 425,841 757,173
----------- ---------- ---------
Total operating expenses............................ 476,753 1,271,366 3,087,667
----------- ---------- ---------
Loss from operations................................ (277,216) (594,565) (1,053,677)
OTHER INCOME (EXPENSES):
Interest income........................................ 153,261 193,049 101,914
Interest expense....................................... (162,777) (384,859) (152,937)
Loan commitment fees (Note 6).......................... -- -- (784,500)
Equity in earnings of joint venture (Note 8)........... -- -- 37,436
----------- ---------- ---------
Loss before income tax benefit...................... (286,732) (786,375) (1,851,764)
----------- ---------- ---------
INCOME TAX BENEFIT (Note 9).............................. -- -- 1,214,331
----------- ---------- ---------
NET LOSS................................................. $ (286,732) $ (786,375) $(637,433)
=========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 124
DTI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL COMMON EARNINGS/ STOCKHOLDERS'
PREFERRED COMMON PAID-IN STOCK (ACCUMULATED EQUITY
STOCK STOCK CAPITAL WARRANTS DEFICIT) (DEFICIT)
--------- ------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994....... $ -- $ -- $ -- $ -- $ 19,094 $ 19,094
Capital contribution (Note
6)..................... -- -- 30,000 -- 30,000
Net loss for the year..... -- -- -- -- (286,732) (286,732)
-------- -------- -------- -------- ----------- -----------
BALANCE, JUNE 30, 1995...... -- -- 30,000 -- (267,638) (237,638)
Issuance of common stock
(Notes 6 and 13)....... -- 300,000 (30,000) -- (269,970) 30
Accretion to put value of
common stock warrants
(Note 4)............... -- -- -- -- (76,720) (76,720)
Net loss for the year..... -- -- -- -- (786,375) (786,375)
-------- -------- -------- -------- ----------- -----------
BALANCE, JUNE 30, 1996...... -- 300,000 -- -- (1,400,703) (1,100,703)
Accretion/repurchase of
common stock warrants
(Note 4)............... -- -- -- -- (1,585,899) (1,585,899)
Accretion of redeemable
convertible preferred
stock to redemption
price (Note 5, 13 and
14).................... -- -- -- -- (1,855,832) (1,855,832)
Common stock warrants
(Note 6)............... -- -- -- 450,000 -- 450,000
Net loss for the year..... -- -- -- -- (637,433) (637,433)
-------- -------- -------- -------- ----------- -----------
BALANCE, JUNE 30, 1997...... $ -- $300,000 $ -- $450,000 $(5,479,867) $(4,729,867)
======== ======== ======== ======== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 125
DTI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (286,732) $ (786,375) $ (637,433)
Adjustments to reconcile net loss to cash provided
by operating activities
Depreciation and amortization................ 70,500 425,841 757,173
Deferred income taxes........................ -- -- (1,214,331)
Loan commitment fees related to common stock
warrants.................................. -- -- 450,000
Changes in assets and liabilities:
Accounts receivable....................... (17,250) (60,740) (81,278)
Prepayments to suppliers.................. (554,261) 554,261
Other assets.............................. (46,019) (15,980) (56,572)
Accounts payable.......................... 2,174,887 (516,051) 3,427,994
Other liabilities......................... 18,285 100,511 1,529,282
Deferred revenues......................... 4,990,213 1,706,765 2,945,176
------------ ----------- ------------
Net cash flows provided by operating activities..... 6,903,884 299,710 7,674,272
------------ ----------- ------------
Cash flows from investing activities:
Increase in network and equipment................. (6,804,176) (5,663,047) (19,876,595)
Change in restricted cash......................... (5,000,000) 4,540,478 459,522
------------ ----------- ------------
Net cash used in investing activities.......... (11,804,176) (1,122,569) (19,417,073)
------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible
preferred stock; including cash from
contributed joint venture of $2,253,045........ -- -- 10,492,316
Proceeds from borrowings under notes payable...... 5,000,000 10,403,305 8,000,000
Principal payments on notes payable............... -- (8,903,305) (500,000)
Repurchase of common stock warrants granted to a
customer....................................... -- -- (2,700,000)
Proceeds from issuance of common stock............ -- 30 --
Capital contribution.............................. 30,000 -- --
------------ ----------- ------------
Net cash provided by financing activities...... 5,030,000 1,500,030 15,292,316
------------ ----------- ------------
Net increase in cash and cash equivalents........... 129,708 677,171 3,549,515
Cash and cash equivalents, beginning of period...... 10,512 140,220 817,391
------------ ----------- ------------
Cash and cash equivalents, end of period............ $ 140,220 $ 817,391 $ 4,366,906
============ =========== ============
Supplemental cash flow disclosures:
Cash paid for interest, net of amounts
capitalized.................................... $ 135,076 $ 474,017 $ 271,732
============ =========== ============
Supplemental disclosure of significant non-cash
activities
Consideration for issuance of redeemable
convertible preferred stock (Notes 5 and 8):
Outstanding principal of KLT Loan.............. $ -- $ -- $ 14,000,000
Accrued interest payable on KLT Loan........... -- -- 794,062
Assets of contributed joint venture............ -- -- 1,816,043
Liabilities assumed of contributed joint
venture...................................... -- -- 69,088
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 126
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
1. DESCRIPTION OF BUSINESS
DTI Holdings, Inc. (the "Company" or "DTI") was incorporated in December
1997 as part of the reorganization of Digital Teleport, Inc., a wholly-owned
subsidiary of DTI ("Digital Teleport"). See Note 14. Digital Teleport was
incorporated in June 1989, and was certified as a telecommunications company in
Missouri by the Missouri Public Service Commission in 1992. DTI commenced
construction of its long-haul network in fiscal year 1995, following an
agreement with the Missouri Highway and Transportation Commission ("MHTC"),
which granted to DTI the exclusive right to build in the interstate highway
systems in Missouri. DTI is a facilities-based provider of non-switched
interexchange and local network telecommunications services to interexchange
carriers ("IXCs"), and business and governmental end users in Missouri. DTI's
network is designed to include high-capacity (i) interexchange long-haul routes
between the larger metropolitan areas in the region, (ii) local networks in such
larger metropolitan areas, and (iii) local networks in secondary and tertiary
markets located along the long-haul routes.
At June 30, 1997, activities were primarily located in the State of
Missouri providing interexchange end-user and carrier's carrier services.
Carrier's carrier services are provided through wholesale network capacity
agreements and "dark fiber" leases. Wholesale network capacity agreements
provide carriers with bandwidth capacity on DTI's network. The carrier customer
in a wholesale network capacity agreement does not have exclusive use of any
particular strand of fiber, but instead has the right to transmit a certain
amount of bandwidth along DTI's network. In a dark fiber lease the Company
leases specified strands of optical fiber (which are used exclusively by the
carrier customer), while the carrier customer is responsible for providing the
electronic equipment necessary to transmit communications along the fiber.
Prior to July 1, 1996, the Company was considered to be a development stage
enterprise focusing on developing its digital optic telecommunications network
and customer base. All of the Company's operations are subject to extensive
federal and state regulation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements as of
and for the year ended June 30, 1997 include the accounts of DTI and its wholly
owned subsidiary, Digital Teleport. In addition, the financial statements
include an entity acquired during the year ended June 30, 1997. The Company
previously held a 50% interest in this entity which was accounted for under the
equity method. All significant intercompany transactions and balances have been
eliminated.
CONCENTRATIONS OF RISK -- The Company currently operates in the
telecommunications industry within the State of Missouri. See Note 7 regarding
concentration of credit risk associated with deferred revenues and revenues.
Additionally, the Company is dependent upon single or limited source suppliers
for its source of fiber optic cable for a number of components and parts used in
its network.
MANAGEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make certain 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. The reported amounts of
revenues and expenses during the reporting period may also be affected by the
estimates and assumptions management is required to make. Actual results may
differ from those estimates.
REVENUES -- The Company recognizes revenue on telecommunication services in
the month such services are provided. Revenue received in advance of services
under wholesale network capacity agreements is recorded as deferred revenue and
recognized over the life of the service contract on a straight-line basis. Funds
received in advance pursuant to dark fiber leases are recorded as deferred
revenue and recognized over the
F-7
<PAGE> 127
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
terms of the related agreements (see Note 7). Other services revenue consists of
work related to the design and installation of innerduct for customers who are
constructing fiber optic cable facilities.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
NETWORK AND EQUIPMENT -- Network and equipment are stated at cost. Costs of
construction are capitalized, including interest costs on funds borrowed to
finance the construction. Maintenance and repairs are charged to operations as
incurred. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Fiber optical cable plant................................... 25 years
Fiber optic network buildings............................... 15 years
Leasehold improvements...................................... 15 years
Fiber optic terminal equipment.............................. 8 years
Furniture, office equipment and other....................... 5 years
</TABLE>
The carrying value of long-lived assets is periodically evaluated by
management for impairment. Upon indication of an impairment, the Company will
record a loss on its long-lived assets if the discounted cash flows estimated to
be generated by those assets are less than the related carrying amount of the
assets.
INCOME TAXES -- The Company accounts for income taxes utilizing the
asset/liability method, and deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities given the provisions of the enacted tax laws.
3. NETWORK AND EQUIPMENT
Network and equipment consists of the following as of June 30:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Fiber optic cable plant............................. $11,058,172 $28,498,465
Fiber optic terminal equipment...................... 2,115,177 5,757,270
Fiber optic network buildings....................... 289,557 757,680
Leasehold improvements.............................. 5,651 131,611
Furniture, office equipment and other............... 75,079 91,248
----------- -----------
13,543,636 35,236,274
Less -- accumulated depreciation.................... 479,467 1,235,640
----------- -----------
$13,064,169 $34,000,634
=========== ===========
</TABLE>
At June 30, 1996 and 1997, fiber optic cable plant, fiber optic terminal
equipment and fiber optic network buildings include $6,421,234 and $19,027,585
of construction in progress, respectively, that was not in service and,
accordingly, has not been depreciated. Also, during the years ended June 30,
1995, 1996 and 1997 $9,516, $1,227,149 and $562,750 of interest costs were
capitalized.
4. BORROWING ARRANGEMENTS
Effective April 30, 1996, and as subsequently amended, the Company entered
into a loan agreement with KLT Telecom Inc. ("KLT"), a wholly-owned subsidiary
of Kansas City Power and Light Company, to provide borrowings for the expansion
of the Company's network not to exceed $14,000,000 bearing interest at 3% above
the prime interest rate (the "KLT Loan"). At June 30, 1996, a total of
$6,000,000 had been borrowed under this facility. During 1997, an additional
$8,000,000 was borrowed, bringing the total amount of
F-8
<PAGE> 128
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the KLT Loan to $14,000,000. The outstanding principal of the KLT Loan, plus
accrued interest, was contributed as consideration under the Stock Purchase
Agreement referred to in Note 5.
In connection with the issuance of a $3,200,000 note payable to a major
customer effective February 20, 1996, approximately $1,037,000 of the proceeds
was allocated to a warrant which was also granted to the customer. The warrant
represented the right to purchase 5% of the common stock of the Company for a
nominal amount. The Company also received an amendment to the contract with the
major customer to provide an additional $1,200,000 in telecommunication services
and modify certain completion dates in the original contract. The note was paid
in full in April 1996. The Company, at its option, purchased the warrant from
the holder for $2,700,000 in February 1997.
During 1995, the Company entered into a Commercial Loan Revolving
Promissory Note Agreement (the "Agreement") with a lender to provide financing
for the acquisition and construction of fiber optic network, the purchase of
equipment related to the construction and operation of the network, and working
capital. At June 30, 1996, the Company had borrowings of $500,000 under the
Agreement which accrued interest at the lender's prime rate. The note was paid
in full in May 1997. Borrowings under this Agreement were collateralized by cash
equivalents maintained at the lender ("restricted cash").
5. REDEEMABLE CONVERTIBLE SERIES A PREFERRED STOCK
During 1997, the Company amended its Articles of Incorporation to provide
for 50,000 authorized shares of preferred stock, $0.01 par value. On December
31, 1996, the Company entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") with KLT to sell 30,000 shares of redeemable convertible
preferred stock (designated "Series A Preferred Stock") for $45,000,000. At the
closing date of the Stock Purchase Agreement on March 12, 1997, 15,100 shares of
Series A Preferred Stock were issued to KLT with the remaining 14,900 shares of
Series A Preferred Stock to be issued as additional capital as required by the
Company upon twenty days notice by DTI to KLT and verification by DTI as to the
use of the monies pursuant to the terms of the Stock Purchase Agreement. The
consideration for the 15,100 shares of Series A Preferred Stock was calculated
as follows:
<TABLE>
<S> <C>
Outstanding principal of KLT Loan........................... $14,000,000
Accrued interest on the KLT Loan at March 11, 1997.......... 794,062
KLT investment in KCDT LLC (Note 8)......................... 4,000,000
Cash........................................................ 3,855,938
-----------
Total consideration for 15,100 shares of Series A
preferred stock...................................... 22,650,000
Less: transaction costs..................................... 716,667
-----------
Net consideration for 15,100 shares of Series A
preferred stock...................................... $21,933,333
===========
</TABLE>
Series A Preferred Stock shareholders are entitled to one common vote for
each share of common stock that would be issuable upon conversion of the Series
A Preferred Stock. Each share of Series A Preferred Stock is convertible into
one-thousand shares (after giving effect to the stock splits discussed in Note
13 and the Reorganization discussed in Note 14) of common stock (the "Conversion
Shares") under the terms of the Stock Purchase Agreement and is entitled to the
number of votes equal to the number of Conversion Shares into which such share
of Series A Preferred Stock is convertible with respect to any and all matters
presented to the shareholders of the Company for their action or consideration.
The Series A Preferred Stock shares will automatically convert into common stock
upon the sale of shares of common stock or debt securities of the Company in a
qualified public offering subject to the satisfaction of certain net proceed
dollar thresholds. Series A Preferred Stock shareholders rank senior to common
shareholders in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company. Series A Preferred Stock shareholders
are entitled to receive such dividends as would be declared and paid on each
share of common stock. Each additional share of Series A Preferred Stock issued
will result in $150,000 of contributed capital.
F-9
<PAGE> 129
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additionally, under the terms of the Certificate of Designation
establishing and governing the Series A Preferred Stock there are two different
redemption features. The first feature provides that commencing July 1, 1999, if
the Company has not met certain financial ratios, the Series A Preferred Stock
shareholders will have the option to require the Company to redeem all of the
shares of Series A Preferred Stock outstanding at the redemption price which is
calculated as a 25% internal rate of return on all amounts paid for the Series A
Preferred Stock. Accordingly, the Series A Preferred Stock is being accreted to
its redemption price. The second feature provides that from and after April 1,
1999, the Company will have the option to require the Series A Preferred Stock
shareholders to sell to the Company all of the shares of Series A Preferred
Stock outstanding at the redemption price as calculated above.
On June 27, 1997, an additional 3,400 shares of Series A Preferred Stock
were issued for a cash payment of $5,100,000. At June 30, 1997, Series A
Preferred Stock issued and outstanding was as follows:
<TABLE>
<S> <C>
Series A Preferred Stock, $0.01 par value, 30,000 shares
designated, 18,500 shares issued and outstanding.......... $ 185
Additional paid-in capital.................................. 27,033,148
Accumulated accretion to redemption price................... 1,855,832
-----------
Total carrying value................................... $28,889,165
===========
</TABLE>
In conjunction with the Stock Purchase Agreement, the Company entered into
a Shareholders' Agreement whereby the Series A Preferred Stock shareholders will
designate two of the four directors of the Company's Board of Directors.
See also Notes 13 and 14.
6. EQUITY TRANSACTIONS
At June 30, 1995, the Company had 30,000,000 shares of common stock, par
value $1.00 per share, authorized and $30,000 of contributed capital. In April
1996, the Company authorized 20,000,000 additional shares of common stock, and
changed the par value of the common stock to $.01 par value per share. The
Company then issued 30,000,000 shares of common stock to the President and Chief
Executive Officer of the Company. In February 1997, the Company authorized
50,000,000 additional shares of common stock.
In connection with a loan commitment from a strategic third party lender
effective December 24, 1996, the Company agreed to issue a warrant representing
the right to purchase 1% of the common stock of the Company for a nominal
amount. Although the warrant had not been issued as of June 30, 1997, the
consolidated financial statements reflect the terms as determined by the
Company. Accordingly, the Company has recorded the fair value of this obligation
and the related expense. The warrant is exercisable at the option of the holder
and expires in the year 2007.
See also Note 13.
7. CUSTOMER CONTRACTS
The Company enters into telecommunication services and fiber usage
agreements with unrelated third parties whereby the Company will provide either
telecommunication services or indefeasible rights to use (IRUs) in multiple
fibers along certain routes for a minimum purchase price paid up front or over
the life of the contract. These amounts are then recognized over the terms of
the related agreements which range from
F-10
<PAGE> 130
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10 to 40 years on a straight line basis. The Company has various contracts
related to telecommunications services and fiber usage comprising the following
at June 30:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Total contract amounts...................................... $16,445,250 $35,563,380
Less: future payments due under contracts................... 9,600,000 25,465,205
----------- -----------
Total amounts collected..................................... 6,845,250 10,098,175
Less: total amounts recognized as revenues.................. 110,522 418,271
----------- -----------
Deferred revenue............................................ 6,734,728 9,679,904
Less: current maturities.................................... 138,780 259,680
----------- -----------
$ 6,595,948 $ 9,420,224
=========== ===========
</TABLE>
The Company has substantial business relationships with several large
customers. Four customers accounted for 59%, 21%, 17% and 2% of deferred
revenues at June 30, 1997. Additionally, these four customers accounted for 21%,
10%, 13% and 56%, respectively, of amounts to be received per the customer
contracts.
During fiscal year 1997, the Company's three largest customers accounted
for 18%, 18% and 16% of telecommunications services revenue. During fiscal year
1996, the Company's three largest customers accounted for 47%, 21% and 10% of
telecommunications services revenue. During fiscal year 1995, one customer
accounted for 99% of end-user services revenue. The Company's contracts provide
for reduced payments and varying penalties for late delivery of route segments,
and allow the customers, after expiration of grace periods, to delete such
non-delivered segment from the system route to be delivered. A significant
reduction in the level of services the Company provides for any of these
customers could have a material adverse effect on the Company's results of
operations or financial condition. In addition, the Company's business plan
assumes increased revenue from its carrier's carrier services operations to fund
the expansion of the DTI network. Many of the Company's customer arrangements
are subject to termination and do not provide the Company with guarantees that
service quantities will be maintained at current levels. The Company is aware
that certain interexchange carriers are constructing or considering new
networks. Accordingly, there can be no assurance that any of the Company's
carrier's carrier services customers will increase their use of the Company's
services, or will not reduce or cease their use of the Company's services,
either of which could have a material adverse effect on the Company's ability to
fund the expansion of the DTI network.
8. INVESTMENT IN JOINT VENTURE
Effective July 1996, the Company entered into an agreement with KLT to form
KCDT LLC ("KCDT") as a limited liability company for the purpose of financing,
establishing, constructing and maintaining a fiber-optic network communications
system ("System") within the Kansas City, Missouri metropolitan area. The
Company received a 50% interest in KCDT for its contribution of an indefeasible
right to use (IRU) the signal transmission capacity of certain optic fiber
strands within the System. KLT received a 50% interest in KCDT for its
contribution of access rights of utility right-of-ways in Kansas City and a
capital contribution not to exceed $5,000,000 in cash, as needed, for the
construction of the System or operations of KCDT.
As part of the Stock Purchase Agreement, which closed March 12, 1997 (Note
5), KLT contributed to the Company its ownership interest in KCDT which amounted
to $4,000,000. Assets and liabilities of the joint venture at the date of
contribution consisted of $2,253,045 in cash, $1,816,043 in network and
equipment and $69,088 in other liabilities.
F-11
<PAGE> 131
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to receipt of KLT's interest in KCDT, the Company accounted for its
investment in KCDT using the equity method. Equity in earnings of joint venture
represents the Company's 50% interest in the operations of KCDT under the equity
method. Upon receipt of KLT's interest in KCDT, operations of KCDT have been
consolidated with the Company's operations.
9. INCOME TAXES
The actual income tax expense for the years ended June 30, 1997, 1996 and
1995 differs from the "expected" income tax expense, computed by applying the
U.S. Federal corporate tax rate of 35% to income before income taxes as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax benefit.................... $ 100,356 $ 275,231 $ 648,117
Change in valuation allowance............................. (103,368) (321,596) 424,964
Other -- net.............................................. 3,012 46,365 141,250
---------- --------- ----------
Income tax benefit................................... $ -- $ -- $1,214,331
========== ========= ==========
</TABLE>
Temporary differences which give rise to long-term deferred taxes as
reported on the balance sheet are as follows at June 30:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred revenues......................................... $ 346,672 $ 571,711
Net operating loss carryforward........................... 326,139 1,175,712
---------- ----------
Total deferred tax assets.............................. 672,811 1,747,423
Deferred tax liabilities -- accelerated depreciation........ (247,847) (533,092)
Valuation allowance......................................... (424,964)
---------- ----------
Net deferred tax assets................................ $ -- $1,214,331
========== ==========
</TABLE>
Even though the Company has incurred tax losses, management believes that
it is more likely than not that it will generate taxable income sufficient to
realize the tax benefit associated with future deductible temporary differences
and net operating loss carryforwards prior to their expiration. This belief is
based primarily upon changes in operations over the last year. As a result, the
Company reversed into income its valuation allowance of $424,964 which was
recorded at June 30, 1996. Tax net operating losses of approximately $3 million
expire in years 2010-2012 if not utilized in future income tax returns. The
availability of the loss carryforwards may be limited in the event of a
significant change in the ownership of the Company or its subsidiary.
10. OPERATING LEASES
The Company has operating leases for equipment and for office space. The
Company's headquarters is leased from the Company's President and Chief
Executive Officer in an amount of $75,000 per year for the term January 1, 1997
to December 31, 1997. Rent expense related to the headquarters for fiscal years
1995, 1996 and 1997 was $33,400, $15,405 and $49,897, respectively.
Additionally, equipment space is leased from
F-12
<PAGE> 132
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
various office buildings throughout the Company's service areas. Minimum rental
commitments under the above leases, some of which contain renewal options and
escalation clauses, are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1998...................................................... $51,629
1999...................................................... 6,436
2000...................................................... 1,629
-------
Total................................................ $59,694
=======
</TABLE>
11. COMMITMENTS
MISSOURI HIGHWAY AND TRANSPORTATION COMMISSION (MHTC) AGREEMENT -- In July
1994, the Company entered into an agreement with MHTC to install and maintain a
buried fiber optic network within the cable corridor along the federal
interstate highway system in Missouri. Under the terms of this agreement, MHTC
will receive certain dedicated dark and lighted fiber optic strands in the
statewide system and the necessary connections thereto and the Company, in turn,
receives exclusive easements within certain of MHTC's airspace for a forty year
period. Pursuant to this contract DTI is obligated to complete by December 31,
1998 construction of 1,200 miles of fiber cable along the Missouri interstate
and state highway system. DTI anticipates meeting this obligation and completing
substantially all of its currently planned network in Missouri by such date. The
Company must complete construction on an additional 800 miles by the end of 1999
to maintain its exclusive rights to such routes. Additionally, the Company was
required to post a $250,000 performance and payment bond under the terms of this
Agreement. In August 1994, the sole stockholder of the Company entered into a
letter of credit with a lender in the amount of $250,000, in connection with
this Agreement.
LICENSING AGREEMENTS -- The Company has entered into various licensing
agreements with municipalities throughout Missouri. Under the terms of these
agreements, the Company maintains certain performance bonds, not in excess of
$250,000, and minimum insurance levels. Additionally, the Company is required to
make certain licensing charges and payments under the terms of these agreements.
EMPLOYMENT AGREEMENTS -- DTI has employment agreements entered into during
fiscal year 1997 with certain senior management personnel. These agreements are
effective for various periods through December 31, 1999, unless terminated
earlier by the executive or DTI, and provide for annual salaries, cost-of-living
adjustments, additional compensation in the form of bonuses based on performance
of the executive, and participation in the various benefit plans of DTI. The
agreements contain certain benefits to the executive if DTI terminates the
executive's employment without cause or if the executive terminates his
employment as a result of change in ownership of DTI. DTI's remaining aggregate
commitments for salaries under such agreements at June 30, 1997 is approximately
$819,000. See also Note 13 regarding the Company's Long-Term Incentive Award
Plans.
SUPPLIER AGREEMENTS -- DTI's supplier agreements are with its major network
construction contractor and an equipment supplier.
PURCHASE COMMITMENTS -- DTI's remaining aggregate purchase commitment for
construction and equipment at June 30, 1997 is approximately $7,220,000.
12. CONTINGENCIES
On June 20, 1995, the Company and its President were named as defendants in
a suit which the plaintiff alleges that (i) the plaintiff entered into an oral
contract with the defendants pursuant to which the plaintiff was to receive a
percentage of the Company's common stock, (ii) the plaintiff provided services
to the
F-13
<PAGE> 133
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company for which the plaintiff was not and should be compensated, and (iii) the
defendants misrepresented certain facts to the plaintiff in order to induce him
to loan money and provide services to the defendants. Based on these
allegations, the plaintiff is suing for breach of contract and fraud and is
seeking actual monetary damages, punitive damages and a percentage of the common
stock of the Company. Management believes the plaintiff's claims are without
merit and intends to vigorously defend the claims. It is not possible to
determine what impact, if any, the outcome of this litigation might have on the
financial condition, results of operations or cash flows of the Company at this
time. The President has agreed personally to indemnify the Company against any
and all losses and damages resulting from any judgments and awards rendered
against the Company in this litigation. However, no guarantee can be made as to
the ability to satisfy all such amounts. The President has also agreed to
indemnify the holder of redeemable convertible preferred stock from such losses
and damages, and has pledged his stock ownership in the Company to secure such
obligation.
The Company is involved in a dispute with a customer related to delays in
providing telecommunications services to the customer. In February 1998, the
Company received notice from a customer that it intends to setoff against
amounts payable to the Company approximately $400,000 as damages and penalties.
Management contends that the delays resulted from the customer's inability to
provide access and does not believe that ultimate settlement of this dispute
will have a material effect on the Company's financial position, results of
operations or cash flows.
From time to time the Company is named as a defendant in routine lawsuits
incidental to its business. The Company believes that none of such current
proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's financial position, results of operations or cash flows.
13. SUBSEQUENT EVENTS
During the six months ended December 31, 1997, an additional 11,500 shares
of Series A Preferred Stock were issued for cash payments of $17,250,000.
On August 22, 1997 and on February 17, 1998, the Company approved stock
splits in the form of stock dividends of 99 shares and 999 shares, respectively,
of common stock for each one share of common stock outstanding. Effective
October 17, 1997 and February 18, 1998, the Company's Articles of Incorporation
were amended to increase the number of authorized shares of common stock to
100,000 and 100,000,000, respectively, and the stock dividends were issued to
the Company's stockholders. All share information included in the accompanying
financial statements has been retroactively adjusted to give effect to the stock
splits. In order to effect the 999 for 1 stock split on February 17, 1998,
$269,970 was charged to accumulated deficit. The Company will record an entry in
the third quarter of fiscal 1998 to reclassify this amount from accumulated
deficit to additional paid-in capital recorded in conjunction with the
reclassification of Series A Preferred Stock on February 13, 1998 as discussed
below.
On August 22, 1997, the Company adopted a Long-Term Incentive Award Plan
(the "Plan"). A total of 3,000,000 shares of common stock of the Company have
been reserved for issuance under the Plan. As of April 10, 1998 the Company has
granted to certain officers and directors of the Company options to purchase an
aggregate of 600,000 shares of common stock under the Plan and is obligated to
grant options to purchase an additional 150,000 shares upon an initial public
offering of common stock. The officers' options vest 100% after five years from
the date of grant or, in the event the Company completes an initial public
offering of its common stock, 25% per year beginning one year from the date of
grant. The directors' options vest 25% per year beginning one year from the date
of grant.
On September 23, 1997, DTI's Board of Directors and stockholders approved
the merger of KCDT with and into the Company, which merger became effective on
October 17, 1997.
In January 1998, Digital Teleport entered into a $30.0 million bank credit
facility (the "Credit Facility") with certain commercial lending institutions
and Toronto Dominion (Texas), Inc., as administrative agent for
F-14
<PAGE> 134
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the lenders ("TD (Texas)"), to fund its working capital requirements. Borrowings
under the Credit Facility bear interest at an adjustable rate based on (i) a
base rate (either the prime rate adopted by TD (Texas) or an adjusted Federal
Funds rate) plus 1.75% or LIBOR plus 3.50% when the borrowing base ratio (total
debt to property, plant and equipment) is less than 30% and (ii) the base rate
plus 1.20% or LIBOR plus 3.00% when the borrowing base ratio is greater than
30%. At February 23, 1998, Digital Teleport had drawn $3.0 million principal
amount under the Credit Facility which was repaid with the net proceeds of the
Senior Discount Notes due 2008 discussed below.
On February 13, 1998, the Company amended its Articles of Incorporation
amending the terms of the Series A Preferred Stock such that the Series A
Preferred Stock is no longer redeemable. The Series A Preferred Stock, as a
result of such an amendment made in conjunction with an unqualified offering by
the Company, will be classified with stockholders' equity subsequent to such
date.
On February 23, 1998, the Company completed the issuance and sale of
506,000 Units consisting of $506.0 million aggregate principal amount at
maturity of Senior Discount Notes due 2008 and warrants to purchase 3,926,560
shares of Common Stock, for which the Company received proceeds, net of
underwriting discounts and expenses, of approximately $264.8 million.
14. REORGANIZATION
On December 23, 1997, the Company completed a corporate reorganization (the
"Reorganization"), pursuant to which DTI was formed as the parent holding
company of Digital Teleport, Inc., which became a wholly-owned subsidiary of
DTI. Pursuant to the Reorganization, the outstanding shares of common and
preferred stock of Digital Teleport were exchanged for the number of shares of
common and preferred stock of DTI having the same relative rights and
preferences as such exchanged shares. The Reorganization was required in
connection with the establishment of the Credit Facility. The business
operations, name, charter, by-laws and board of directors of the Company are
identical in all material respects to those of Digital Teleport, which did not
change as a result of the Reorganization. Accordingly, the consolidated
financial statements have been presented as if Digital Teleport had always been
a wholly owned subsidiary of DTI.
* * * * * *
F-15
<PAGE> 135
DTI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1997
----
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,636,174
Accounts receivable, less allowance for doubtful accounts
of $134,000............................................ 1,489,726
Prepaid and other current assets.......................... 296,083
------------
Total current assets................................. 5,421,983
Network and equipment, at cost less accumulated depreciation
of $2,065,840 (Note 2).................................... 55,097,202
Deferred tax asset.......................................... 1,894,331
Other assets................................................ 43,915
------------
Total................................................ $ 62,457,431
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 6,024,733
Deferred revenues -- current portion...................... 366,000
Taxes payable (other than income taxes)................... 1,731,758
------------
Total current liabilities............................ 8,122,491
Deferred revenues........................................... 13,945,173
------------
Total liabilities.................................... 22,067,664
Commitments and contingencies (Notes 5, 6 and 7)............ --
Redeemable Convertible Series A Preferred Stock -- Preferred
stock, $0.01 par value, 30,000 shares authorized, 30,000
shares issued and outstanding (Notes 3 and 7)............. 51,124,607
Stockholders' deficit:
Preferred stock, $.01 par value, 20,000,000 shares
authorized, no shares issued and outstanding........... --
Common stock, $.01 par value, 100,000,000 shares
authorized, 30,000,000 shares issued and outstanding
(Notes 4 and 7)........................................ 300,000
Common stock warrant...................................... 450,000
Accumulated deficit....................................... (11,484,840)
------------
Total stockholders' deficit.......................... (10,734,840)
------------
Total....................................................... $ 62,457,431
============
</TABLE>
See notes to unaudited consolidated financial statements.
F-16
<PAGE> 136
DTI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
TELECOMMUNICATIONS SERVICES REVENUES:
Carrier's carrier services................................ $ 232,385 $ 744,185
End-user services......................................... 270,879 274,346
----------- -----------
Total revenues....................................... 503,264 1,018,531
----------- -----------
OPERATING EXPENSES:
Telecommunications services............................... 295,278 409,372
Selling, general and administrative....................... 467,491 1,598,136
Depreciation and amortization............................. 313,060 830,700
----------- -----------
Total operating expenses............................. 1,075,829 2,838,208
Loss from operations................................. (572,565) (1,819,677)
OTHER INCOME (EXPENSES):
Interest income........................................... 33,177 120,146
Interest expense.......................................... (96,729) --
Loan Commitment Fees...................................... (784,500) --
Equity in earnings of joint venture....................... 20,640 --
----------- -----------
Loss before income tax benefit....................... (1,399,977) (1,699,531)
Income tax benefit.......................................... 918,000 680,000
----------- -----------
Net loss.................................................... $ (481,977) $(1,019,531)
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-17
<PAGE> 137
DTI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (481,977) $ (1,019,531)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization.......................... 313,060 830,700
Deferred income taxes.................................. (918,000) (680,000)
Loan commitment fees related to common stock
warrants.............................................. 450,000
Changes in assets and liabilities:
Accounts receivable.................................. 51,608 (1,330,458)
Prepayments to suppliers............................. 554,261 --
Other assets......................................... (142,575) (232,502)
Accounts payable..................................... 980,705 958,853
Other liabilities.................................... 823,090 787,705
Deferred revenues.................................... 2,019,304 4,631,269
----------- ------------
Net cash flows provided by operating activities... 3,649,476 3,946,036
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in network and equipment......................... (6,868,057) (21,926,768)
Change in restricted cash................................. 446,664 --
----------- ------------
Net cash used in investing activities............. (6,421,393) (21,926,768)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of redeemable convertible preferred
stock.................................................. -- 17,250,000
Proceeds from borrowings under notes payable.............. 3,000,000 --
Principal payments on notes payable....................... (450,000) --
----------- ------------
Net cash provided by financing activities......... 2,550,000 17,250,000
----------- ------------
Net decrease in cash and cash equivalents................... (221,917) (730,732)
Cash and cash equivalents, beginning of period.............. 817,391 4,366,906
----------- ------------
Cash and cash equivalents, end of period.................... $ 595,474 $ 3,636,174
=========== ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-18
<PAGE> 138
DTI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997 (UNAUDITED)
1. PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Article 10 of Regulation S-X.
Accordingly, the interim financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for annual financial statements.
In the opinion of the management of DTI Holdings, Inc. (the "Company" or
"DTI") the accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position as of December 31, 1997 and the results of
operations and cash flows for the six month periods ended December 31, 1996 and
1997. The results of operations for the six months ended December 31, 1997 are
not necessarily indicative of results that may be expected for any other interim
period or for the full year.
The financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended June 30,
1997 included elsewhere in this document. The accounting policies used in
preparing these financial statements are the same as those described in the June
30, 1997 consolidated financial statements.
On September 23, 1997, DTI's Board of Directors and stockholders approved
the merger of KCDT with and into the Company, which merger became effective on
October 17, 1997.
On December 23, 1997, the Company completed a corporate reorganization (the
"Reorganization"), pursuant to which DTI was formed as the parent holding
company of Digital Teleport, Inc., which became a wholly-owned subsidiary of
DTI. Pursuant to the Reorganization, the outstanding shares of common and
preferred stock of Digital Teleport were exchanged for the number of shares of
common and preferred stock of DTI having the same relative rights and
preferences as such shares. The Reorganization was required in connection with
the establishment of the Credit Facility. The business operations, name,
charter, by-laws and board of directors of the Company are identical in all
material respects to those of Digital Teleport, which did not change as a result
of the Reorganization. Accordingly, the consolidated financial statements have
been presented as if Digital Teleport had always been a wholly owned subsidiary
of DTI.
2. NETWORK AND EQUIPMENT
Network and equipment consists of the following as of December 31, 1997:
<TABLE>
<S> <C>
Fiber optic cable plant..................................... $44,401,650
Fiber optic terminal equipment.............................. 10,359,038
Fiber optic network buildings............................... 1,873,500
Leasehold improvements...................................... 270,130
Furniture, office equipment and other....................... 258,724
-----------
57,163,042
Less -- accumulated depreciation............................ 2,065,840
-----------
$55,097,202
===========
</TABLE>
At December 31, 1997, fiber optic cable plant, fiber optic terminal
equipment and fiber optic network buildings include $13,744,695 of construction
in progress that was not in service and, accordingly, has not been depreciated.
F-19
<PAGE> 139
3. REDEEMABLE CONVERTIBLE SERIES A PREFERRED STOCK
During the six months ended December 31, 1997, an additional 11,500 shares
of Series A Preferred Stock were issued for cash payments of $17,250,000. The
accretion towards redemption value of Series A Preferred Stock for the six month
period ending December 31, 1997 amounted to $4,985,442 which was recorded as a
charge to accumulated deficit. See also Note 7.
4. STOCKHOLDERS DEFICIT
On August 22, 1997 and on February 17, 1998, the Company approved stock
splits in the form of stock dividends of 99 shares and 999 shares, respectively,
of common stock for each one share of common stock outstanding. Effective
October 17, 1997 and February 18, 1998, the Company's Restated Articles of
Incorporation were amended to increase the number of authorized shares of common
stock of DTI to 100,000 and 100,000,000, respectively, and the stock dividends
were issued to the Company's stockholders. All share information included in the
accompanying financial statements has been retroactively adjusted to give effect
to the stock splits. In order to effect the 999 for 1 stock split of February
17, 1998, $269,970 was charged to accumulated deficit. The Company will record
in entry in the third quarter of fiscal 1998 to reclassify this amount from
additional paid-in capital recorded in conjunction with the reclassification of
Series A Preferred Stock on February 13, 1998 as discussed in Note 7.
5. COMMITMENTS
INCENTIVE PLAN -- On August 22, 1997, the Company adopted a Long-Term
Incentive Award Plan (the "Plan"). A total of 3,000,000 shares of common stock
of the Company have been reserved for issuance under the Plan. As of April 10,
1998, the Company has granted to certain officers and directors of the Company
options to purchase an aggregate of 600,000 shares of common stock under the
Plan and is obligated to grant options to purchase an additional 150,000 shares
upon an initial public offering of common stock. The officers' options vest 100%
after five years from the date of grant or, in the event the Company completes
an initial public offering of its common stock, 25% per year beginning one year
from the date of grant. The directors' options vest 25% per year beginning one
year from the date of grant.
PURCHASE COMMITMENTS -- DTI's remaining aggregate commitment for
construction and equipment under these agreements at December 31, 1997 is
approximately $23.7 million.
6. CONTINGENCIES
On June 20, 1995, the Company and its President were named as defendants in
a suit which the plaintiff alleges that (i) the plaintiff entered into an oral
contract with the defendants pursuant to which the plaintiff was to receive a
percentage of the Company's common stock, (ii) the plaintiff provided services
to the Company for which the plaintiff was not and should be compensated, and
(iii) the defendants misrepresented certain facts to the plaintiff in order to
induce him to loan money and provide services to the defendants. Based on these
allegations, the plaintiff is suing for breach of contract and fraud and is
seeking actual monetary damages, punitive damages and a percentage of the common
stock of the Company. Management believes the plaintiff's claims are without
merit and intends to vigorously defend the claims. It is not possible to
determine what impact, if any, the outcome of this litigation might have on the
financial condition, results of operations or cash flows of the Company at this
time. The President has agreed personally to indemnify the Company against any
and all losses and damages resulting from any judgments and awards rendered
against the Company in this litigation. However, no guarantee can be made as to
the ability to satisfy all such amounts. The President has also agreed to
indemnify the holder of redeemable convertible preferred stock from such losses
and damages, and has pledged his stock ownership in the Company to secure such
obligation.
The Company is involved in a dispute with a customer related to delays in
providing telecommunication services to the customer. In February 1998, the
Company received notice from a customer that it intends to setoff against
amounts payable to the Company approximately $400,000 as damages and penalties.
Management contends that the delays resulted from the customer's inability to
provide access and does not believe
F-20
<PAGE> 140
that ultimate settlement of this dispute will have a material effect on the
Company's financial position, results of operations or cash flows.
From time to time the Company is named as a defendant in routine lawsuits
incidental to its business. The Company believes that none of such current
proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's financial position, results of operations or cash flows.
7. SUBSEQUENT EVENTS
In January 1998, Digital Teleport entered into a $30.0 million bank credit
facility (the "Credit Facility") with certain commercial lending institutions
and Toronto Dominion (Texas), Inc., as administrative agent for the lenders ("TD
(Texas)"), to fund its working capital requirements. Borrowings under the Credit
Facility bear interest at an adjustable rate based on (i) a base rate (either
the prime rate adopted by TD (Texas) or an adjusted Federal Funds rate) plus
1.75% or LIBOR plus 3.50% when the borrowing base ratio (total debt to property,
plant and equipment) is less than 30% and (ii) the base rate plus 1.20% or LIBOR
plus 3.00% when the borrowing base ratio is greater than 30%. In January 1998,
$3.0 million was borrowed under the Credit Facility. All amounts borrowed were
repaid in February 1998 using the proceeds of the Senior Discount Notes due 2008
discussed below.
On February 13, 1998, the Company amended its Articles of Incorporation
amending the terms of the Series A Preferred Stock such that the Series A
Preferred Stock is no longer redeemable. The Series A Preferred Stock, as a
result of such an amendment made in conjunction with an unqualified offering by
the Company, will be classified with stockholders' equity subsequent to such
date.
On February 23, 1998, the Company completed the issuance and sale of the
506,000 Units consisting of $506.0 million aggregate principal amount at
maturity of Senior Discount Notes due 2008 and warrants to purchase 3,926,560
shares of Common Stock, for which the Company received proceeds, net of
underwriting discounts and expenses, of approximately $264.8 million.
F-21
<PAGE> 141
ANNEX A
GLOSSARY
Access charges..........The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on the
LECs' local networks.
Access tandem...........An interconnection point on an ILEC local network where
calls from central offices are aggregated for
transmission to other central offices and IXC
facilities.
ATM (Asynchronous
Transfer Mode)..........An information transfer standard that is one of a
general class of packet technologies that relay traffic
by way of an address contained within the first five
bytes of a standard fifty-three-byte-long packet or
cell. The ATM format can be used by many different
information systems, including area networks, to deliver
traffic at varying rates, permitting a mix of voice,
data and video (multimedia).
AT&T....................AT&T Corp.
Bandwidth...............The relative range of analog frequencies or digital
signals that can be passed through a transmission
medium, such as glass fibers, without distortion. The
greater the bandwidth, the greater the information
carrying capacity. Bandwidth is measured in Hertz
(analog) or Bits Per Second (digital).
Capacity................Refers to transmission.
Carrier.................A provider of communications transmission services by
fiber, wire or radio.
Central offices.........The switching centers or central switching facilities of
the ILECs.
Centrex.................Centrex is a service that offers features similar to
those of a Private Branch Exchange (PBX), except the
equipment is located at the carrier's premises and not
at the premises of the customer. These features include
direct dialing within a given phone system, direct
dialing of incoming calls, and automatic identification
of outbound calls. This is a value-added service that
carriers can provide to a wide range of customers who
don't have the size or the funds to support their own
on-site PBX.
Ciena...................Ciena Corporation
CLEC (Competitive Local
Exchange Carrier).......A company that competes with ILECs in local services
markets.
Collocation.............The ability of a CLEC such as the Company to connect its
network to the ILEC's central offices. Physical
collocation occurs when a CLEC places its network
connection equipment inside the ILEC's central offices.
Virtual colocation is an alternative to physical
collocation pursuant to which the ILEC permits a CLEC to
connect its network to the ILEC's central offices on
comparable terms, even though the CLEC's network
connection equipment is not physically located inside
the central offices.
Common carrier..........A government-defined group of private companies offering
telecommunications services or facilities to the general public on a
non-discriminatory basis.
Dark fiber..............Fiber that lacks the requisite electronic and optronic
equipment necessary to use the fiber for transmission.
A-1
<PAGE> 142
Digital.................Describes a method of storing, processing and
transmitting information through the use of distinct
electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission/switching
technologies employ a sequence of discrete, distinct
pulses to represent information, as opposed to the
continuously variable analog signal.
Dense wavelength
division multiplexing...A technique for transmitting eight or more different
light wave frequencies on a single fiber to increase the
information carrying capacity.
Equal access............The basis upon which customers of interexchange carriers
are able to obtain access to their Primary Interexchange
Carriers' (PIC) long distance telephone network by
dialing "1", thus eliminating the need to dial
additional digits and an authorization code to obtain
such access.
FCC.....................Federal Communications Commission.
Frame Relay.............A high-speed, data-packet switching service used to
transmit data between computers. Frame Relay supports
data units of variable lengths at access speeds ranging
from 56 kilobits per second to 1.5 megabits per second.
This service is well-suited for connecting local area
networks, but is not presently well suited for voice and
video applications due to the variable delays which can
occur. Frame Relay was designed to operate at high
speeds on modern fiber optic networks.
Fujitsu.................Fujitsu Network Transmission Systems, Inc.
GTE.....................GTE Corp.
ILEC (Incumbent Local
Exchange Carrier).......The incumbent carrier providing local exchange services,
typically an RBOC created by the divestiture of AT&T.
ISP (Internet Service
Provider)...............A company that provides businesses and consumers with
access to the Internet.
10XXX service...........The ability for a user to access any carrier's long
distance network by dialing the carrier's Carrier
Identification Code (CIC) which is a 1 plus 0 plus three
specifically assigned digits, thereby bypassing the
user's primary interexchange carrier.
Interconnection.........Connection of a telecommunications device or service to
the public switched telephone network.
IXC (Interexchange
Carrier)................A company providing inter-LATA or long distance services
between LATAs on an intrastate or interstate basis.
IXC Carrier.............IXC Carrier, Inc.
KCPL....................Kansas City Power and Light Company
KLT.....................KLT Telecom Inc.
LATAs (Local Access and
Transport Areas)........The approximately 200 geographic areas that define the
areas between which the RBOCs currently are prohibited
from providing long distance services.
Lit or lighted fiber....Fiber activated or equipped with the requisite
electronic and optronic equipment necessary to use the
fiber for transmission.
A-2
<PAGE> 143
LEC (local exchange
carrier)................a company providing local switched services, including
ILECs and CLECs.
Local exchange
services................Local exchange services generally refers to all services
provided by an ILEC or CLEC including local dial tone,
Centrex and long distance access services. Sometimes
also referred to as local switched telephone services
and local telecommunications services.
Local loop..............A circuit that connects an end user to the ILEC central
office within a LATA.
Long-haul circuit.......A dedicated telecommunications circuit generally between
locations in different LATAs.
MCI.....................MCI Communications, Inc.
MFS Communications......MFS Communications Company, Inc., a wholly owned
subsidiary of WorldCom.
MHTC....................Missouri Highway and Transportation Commission
Multiplexing............An electronic or optical process that combines a large
number of lower speed transmission lines into one high
speed line by splitting the total available bandwidth
into narrower bands (frequency division), or by
allotting a common channel to several different
transmitting devices, one at a time in sequence (time
division).
Nortel..................Northern Telecom Inc.
PBX (Private Branch
Exchange)...............A PBX is a switching system within an office building
which allows calls from outside to be routed directly to
the individual instead of through a central number. This
PBX also allows for calling within an office by way of
four-digit extensions. Centrex is a service which can
simulate this service from an outside switching source,
thereby eliminating the need for a large capital
expenditure required for a PBX.
Pirelli.................Pirelli Cable Corporation
POPs
(Points of Presence)....Locations where a long distance carrier has installed
transmission equipment in a service area that serves as,
or relays calls to, a network switching center of that
long distance carrier.
Private line............A private, dedicated telecommunications line connecting
different end user locations or end-user facilities to
LEC or IXC facilities.
PUC (Public Utility
Commission).............A state regulatory body, established in most states,
which regulates utilities, including telephone companies
providing intrastate services.
RBOCs (Regional Bell
Operating Companies)....The seven local telephone companies (formerly part of
AT&T) established as a result of the AT&T Divestiture
Decree.
Regeneration/amplifier...
Devices which automatically re-transmit or boost signals
on an outbound circuit.
Reseller................A carrier that does not own transmission facilities, but
obtains communications services from another carrier for
resale to the public.
A-3
<PAGE> 144
Route miles.............The number of miles of the telecommunications path in
which fiber optic cables are installed as it would
appear on a network map.
SBC.....................SBC Communications, Inc.
Siecor..................Siecor Corporation
Single-mode fiber.......A fiber optic wave guide with a slender core that
confines light to a single path; a fiber that allows the
transmission of only one light beam or lightwave
channel.
SONET (Synchronous
Optical Network
Technology).............An electronics and network architecture for
variable-bandwidth products which enables transmission
of voice, data and video (multimedia) at very high
speeds.
SONET ring..............A network architecture which provides for instantaneous
restoration of service in the event of a fiber cut by
automatically rerouting traffic the other direction
around the ring. This occurs so rapidly (in 50
milliseconds) it is virtually undetectable to the user.
Sprint..................Sprint Corporation
Switch..................A device that selects the paths or circuits to be used
for transmission of information and a connection.
Switching is the process of interconnecting circuits to
form a transmission path between users and it also
captures information for billing purposes.
TelCentral..............Tel Central, Inc.
Telecom Act.............The Telecommunications Act of 1996.
Tier 1 carriers.........AT&T, MCI, Sprint and WorldCom
Union Electric..........Ameren Corporation, formerly known as Union Electric
Company.
United Telephone........United Telephone Company of Missouri, a wholly owned
subsidiary of Sprint.
WorldCom................WorldCom, Inc.
A-4
<PAGE> 145
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER
TO SELL TO, OR THE SOLICITATION OF ANY OFFER TO BUY, ANY SECURITIES OTHER THAN
THE EXCHANGE NOTES OFFERED HEREBY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notice to Investors.................... 3
Available Information.................. 4
Summary................................ 6
Risk Factors........................... 18
The Exchange Offer..................... 30
Use of Proceeds........................ 38
Capitalization......................... 38
Selected Consolidated Financial and
Operating Data....................... 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 41
Industry Overview...................... 49
Business............................... 52
Management............................. 70
Certain Relationships and Related
Transactions......................... 74
Principal Stockholders................. 75
Description of the Notes............... 76
Description of the Warrants............ 102
Book-Entry; Delivery and Form.......... 109
Certain United States Federal Income
Tax Considerations................... 111
Plan of Distribution................... 118
Legal Matters.......................... 118
Experts................................ 118
Index to Consolidated Financial
Statements........................... F-1
Glossary............................... A-1
</TABLE>
================================================================================
================================================================================
[DTI DIGITAL TELEPORT LOGO]
DTI HOLDINGS, INC.
OFFER TO EXCHANGE
12 1/2% SERIES B SENIOR DISCOUNT NOTES
DUE 2008
FOR ALL OUTSTANDING 12 1/2% SENIOR
DISCOUNT NOTES DUE 2008
, 1998
================================================================================
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 351.355(1) and (2) of The General and Business Corporation Law of
the State of Missouri provide that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, except that, in the case of an action or suit by or in the right
of the corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the court in which the action or suit was
brought determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that, to
the extent that a director, officer, employee or agent of the corporation has
been successful in the defense of any such action, suit or proceeding or any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred in connection with
such action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized by
the corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct or which
involved an accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934.
Section 6.5 of the Company's Bylaws provides that the Company shall
indemnify to the full extent authorized by law any person made or threatened to
be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he, his testator or
intestate is or was a director or officer of the Company or any predecessor of
the Company or serves or served any other enterprise as a director, officer or
employee at the request of the Company or any predecessor of the Company.
Section 6.5 of the Bylaws also provides that the Company may, in the sole
discretion of the Board of Directors, indemnify to the full extent authorized by
law any person made or threatened to be made a party to any action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was an employee of the
Company or any predecessor of the Company.
The Company has entered into an indemnification agreement with each
Director pursuant to which the Company agreed to indemnify the Director and hold
him harmless to the full extent authorized or permitted by Missouri law subject
to limitations based on the Director's conduct. The indemnification agreements
provide that the Company shall make advances as reasonably necessary to pay
expenses of the Director incurred in defending an action against the Director in
such capacity.
The directors and officers of the Company are insured under a policy of
directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See index to Exhibits.
II-1
<PAGE> 147
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) That insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(2) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(b) The undersigned registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means; and
(2) to arrange or provide for a facility in the U.S. for the
purpose of responding to such requests. The undertaking in subparagraph
(1) above include information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of St. Louis,
State of Missouri on April 14, 1998.
DTI HOLDINGS, INC.
By: /s/ RICHARD D. WEINSTEIN
------------------------------------
Richard D. Weinstein
President, Chief Executive Officer
and Secretary
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Richard D. Weinstein, Robert F. McCormick
and Jerome W. Sheehy, with full power to act alone, his true and lawful
attorneys-in-fact, with the power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
sign any registration statement for the same offering covered by this
registration statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the securities and
exchange commission, granting unto said attorneys-in-fact full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on April 14, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RICHARD D. WEINSTEIN President, Chief Executive Officer Secretary
- --------------------------------------------- and Director (Principal Executive Officer)
Richard D. Weinstein
/s/ ROBERT F. MCCORMICK Chief Financial Officer (Principal Financial
- --------------------------------------------- and Accounting Officer)
Robert F. McCormick
/s/ JEROME W. SHEEHY Vice President -- Regulatory Affairs and
- --------------------------------------------- Director
Jerome W. Sheehy
/s/ R. G. WASSON Director
- ---------------------------------------------
Ronald G. Wasson
/s/ B. J. BEAUDOIN Director
- ---------------------------------------------
Bernard J. Beaudoin
/s/ JAMES V. O'DONNELL Director
- ---------------------------------------------
James V. O'Donnell
/s/ KENNETH V. HAGER Director
- ---------------------------------------------
Kenneth V. Hager
</TABLE>
II-3
<PAGE> 149
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*3.1 Second Restated Articles of Incorporation of the Registrant.
*3.2 Second Restated Bylaws of the Registrant.
4.1 Indenture by and between the Registrant and The Bank of New
York, as Trustee, for the Registrant's 12 1/2% Senior
Discount Notes due 2008, dated February 23, 1998 (the
"Indenture") (including form of the Company's 12 1/2% Senior
Discount Note due 2008 and 12 1/2% Series B Senior Discount
Note due 2008).
4.2 Note Registration Rights Agreement by and among the
Registrant and the Initial Purchasers named therein, dated
as of February 23, 1998.
4.3 Warrant Agreement by and between the Registrant and The Bank
of New York, as Warrant Agent, dated February 23, 1998.
4.4 Warrant Registration Rights Agreement by and among the
Registrant and the Initial Purchasers named therein, dated
February 23, 1998.
4.5 Digital Teleport, Inc. Shareholders' Agreement between
Richard D. Weinstein and KLT Telecom, Inc., dated March 12,
1997.
4.6 Amendment No. 1 to the Digital Teleport, Inc. Shareholders'
Agreement, dated November 7, 1997.
4.7 Amendment No. 2 to the Digital Teleport, Inc. Shareholders'
Agreement, dated December 18, 1997.
4.8 Amendment No. 3 to the Digital Teleport, Inc. Shareholders'
Agreement, dated February 12, 1998.
4.9 Stock Pledge Agreement between Richard D. Weinstein and KLT
Telecom, Inc., dated March 12, 1997, securing the
performance of Digital Teleport, Inc.'s obligations under
that certain Stock Purchase Agreement dated as of December
31, 1996, as amended.
4.10 Amendment No. 1 to Stock Pledge Agreement between Richard D.
Weinstein and KLT Telecom, Inc., dated December 18, 1997.
4.11 Amendment No. 2 to Stock Pledge Agreement between Richard D.
Weinstein and KLT Telecom, dated February 12, 1998.
4.12 Subordination Agreement, by and among the Registrant,
Digital Teleport, Inc., KLT Telecom, Inc. and Richard D.
Weinstein, dated February 12, 1998.
*5.1 Legal Opinion of Bryan Cave LLP (Missouri).
*8.1 Tax Opinion of Bryan Cave LLP (Missouri).
10.1 Employment Agreement between Digital Teleport, Inc. and
Richard D. Weinstein, dated December 31, 1996.
10.2 Director Indemnification Agreement between the Registrant
and Richard D. Weinstein, dated December 23, 1997.
10.3 Director Indemnification Agreement between the Registrant
and Jerome W. Sheehy, dated December 23, 1997.
10.4 Director Indemnification Agreement between the Registrant
and Bernard J. Beaudoin, dated December 23, 1997.
10.5 Director Indemnification Agreement between the Registrant
and Ronald G. Wasson, dated December 23, 1997.
10.6 Director Indemnification Agreement between the Registrant
and James V. O'Donnell, dated December 23, 1997.
</TABLE>
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.7 Director Indemnification Agreement between the Registrant
and Kenneth V. Hager, dated December 18, 1997.
10.8 1997 Long-Term Incentive Award Plan of the Registrant.
10.9 Employment Agreement between Digital Teleport, Inc. and
Robert F. McCormick, dated September 9, 1997.
10.10 Amendment No. 1 to the Employment Agreement between Digital
Teleport, Inc. and Robert F. McCormick, dated January 28,
1998.
10.11 Amendment No. 2 to the Employment Agreement between Digital
Teleport, Inc. and Robert F. McCormick, dated January 28,
1998.
++10.12 Product Attachment -- Carrier Networks Products Agreement
between Digital Teleport, Inc. and Northern Telecom, Inc.,
effective October 23, 1997.
10.13 Agreement re: Fiber Optic Cable on Freeways in Missouri,
between the Missouri Highway and Transportation Commission
and Digital Teleport, Inc., effective July 29, 1994.
10.14 First Amendment to Agreement re: Fiber Optic Cable on
Freeways in Missouri, between the Missouri Highway and
Transportation Commission and Digital Teleport, Inc.,
effective September 22, 1994.
10.15 Second Amendment to Agreement re: Fiber Optic Cable on
Freeways in Missouri, between the Missouri Highway and
Transportation Commission and Digital Teleport, Inc.,
effective November 7, 1994.
10.16 Third Amendment to Agreement re: Fiber Optic Cable on
Freeways in Missouri, between the Missouri Highway and
Transportation Commission and Digital Teleport, Inc.,
effective October 9, 1996.
10.17 Contract Extension to Agreement re: Fiber Optic Cable on
Freeways in Missouri, between the Missouri Department of
Transportation (as successor to the Missouri Highway and
Transportation Commission) and Digital Teleport, Inc., dated
February 7, 1997.
10.18 Fiber Optic Cable Agreement, between the Arkansas State
Highway and Transportation Department and Digital Teleport,
Inc., dated May 12, 1997.
*10.19 Missouri Interconnection Agreement between Southwestern Bell
Telephone Company and Digital Teleport, Inc., executed July
1, 1997.
*10.20 Arkansas Interconnection Agreement between Southwestern Bell
Telephone Company and Digital Teleport, Inc., executed
August 21, 1997.
*10.21 Kansas Interconnection Agreement between Southwestern Bell
Telephone Company and Digital Teleport, Inc., executed
August 21, 1997.
*10.22 Oklahoma Interconnection Agreement between Southwestern Bell
Telephone Company and Digital Teleport, Inc., executed
August 21, 1997.
*10.23 Arkansas Interconnection, Resale and Unbundling Agreement
between GTE Midwest Incorporated, GTE Arkansas Incorporated
and Digital Teleport, Inc. dated [ ].
*10.24 Oklahoma Interconnection, Resale and Unbundling Agreement
between GTE Southwest Incorporated, GTE Arkansas
Incorporated, Midwest and Digital Teleport, Inc., executed
undated.
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*10.25 Texas Interconnection, Resale and Unbundling Agreement
between GTE Southwest Incorporated and Digital Teleport,
Inc., executed, undated.
*10.26 Master Resale Agreement between United Telephone Company of
Kansas (Sprint) and Digital Teleport, Inc., dated September
30, 1997.
10.27 Commercial Lease between Richard D. Weinstein and Digital
Teleport, Inc., dated December 31, 1996.
10.28 Commercial Lease Extension Agreement between Richard D.
Weinstein and Digital Teleport, Inc., dated December 31,
1997.
10.29 Purchasing Agreement by and between the Registrant and the
Initial Purchasers named therein, dated as of February 13,
1998.
12.1 Statement re Computation of Ratio of Earnings to Fixed
Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Bryan Cave LLP (Missouri) (included in its
opinion filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (contained in signature page).
25.1 Statement of Eligibility and Qualification on form T-1 under
the Trust Indenture Act of 1939 of The Bank of New York, as
Trustee under the Indenture.
*27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
*99.4 Form of Letter to Clients.
*99.5 Guidelines for Certification of Taxpayer Identification
Number on Form W-9.
*99.6 Form of Exchange Agent Agreement.
</TABLE>
- -------------------------
* To be filed by amendment.
++ Confidential treatment will be requested with respect to certain portions of
this exhibit.
<PAGE> 1
EXHIBIT 4.1
EXECUTION COPY
DTI HOLDINGS, INC.
as Issuer
and
THE BANK OF NEW YORK,
Trustee
Indenture
Dated as of February 23, 1998
$ 506,000,000 aggregate principal amount at Maturity
12 1/2% Senior Discount Notes due 2008
12 1/2% Series B Senior Discount Notes due 2008
<PAGE> 2
DTI HOLDING, INC.
Reconciliation and tie between Trust Indenture Act
and Indenture, dated as of February 23, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
Section 310(a)(1)...................... 607
(a)(2)...................... 607
(b)......................... 608
Section 312(c)......................... 701
Section 314(a)......................... 703
(a)(4)...................... 1004
(c)(1)...................... 102
(c)(2)...................... 102
(e)......................... 102
Section 315(b)......................... 601
Section 316(a)(last sentence).......... 101 ("Outstanding")
(a)(1)(A)................... 502, 512
(a)(1)(B)................... 513
(b)......................... 508
(c)......................... 104(d)
Section 317(a)(1)...................... 503
(a)(2)...................... 504
(b)......................... 1003
Section 318(a)......................... 111
</TABLE>
- --------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of this Indenture.
<PAGE> 3
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES......................................................................... 1
RECITALS OF THE COMPANY......................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions....................................................... 1
Accreted Value.................................................... 2
Acquired Indebtedness............................................. 3
Act............................................................... 3
Affiliate......................................................... 3
Agent Members..................................................... 4
Asset Sale........................................................ 4
Attributable Value................................................ 4
Authenticating Agent.............................................. 4
Average Life...................................................... 5
Bankruptcy Law.................................................... 5
Board of Directors................................................ 5
Board Resolution.................................................. 5
Business Day...................................................... 5
Capital Stock..................................................... 5
Capitalized Lease Obligation...................................... 5
Cash Equivalents.................................................. 5
Change of Control................................................. 6
Commission........................................................ 7
Company........................................................... 7
Company Request" or "Company Order................................ 7
Consolidated Adjusted Net Income.................................. 7
Consolidated Indebtedness to Consolidated Operating Cash Flow
Ratio........................................................... 7
Consolidated Interest Expense..................................... 8
Consolidated Operating Cash Flow.................................. 8
Consolidated Tax Expense.......................................... 9
Corporate Trust Office............................................ 9
Currency Agreements............................................... 9
Default........................................................... 9
Defaulted Interest................................................ 9
Depositary........................................................ 9
</TABLE>
<PAGE> 4
ii
<TABLE>
<S> <C>
Disinterested Director........................................... 9
Dollar" or "$.................................................... 9
Event of Default................................................. 9
Exchange Act..................................................... 9
Exchange Notes................................................... 9
Exchange Offer................................................... 10
Exchange Offer Registration Statement............................ 10
Existing Subsidiaries............................................ 10
fair market value................................................ 10
Generally Accepted Accounting Principles" or "GAAP............... 10
Global Notes..................................................... 10
Guarantee........................................................ 10
Holder........................................................... 10
Incur" or "incur................................................. 10
Indebtedness..................................................... 10
Indenture........................................................ 11
Initial Notes.................................................... 11
Interest Payment Date............................................ 12
Interest Rate Agreements......................................... 12
Investment....................................................... 12
Issue Date....................................................... 12
Lien............................................................. 12
Maturity......................................................... 12
Moody's.......................................................... 12
Net Cash Proceeds................................................ 13
Non-Registration Opinion and Supporting Evidence................. 13
Non-U.S. Person.................................................. 13
Note Register" and "Note Registrar............................... 13
Notes............................................................ 13
Notes Registration Rights Agreement.............................. 13
Officers' Certificate............................................ 14
Offshore Global Note............................................. 14
Offshore Note Exchange Date...................................... 14
Offshore Physical Note........................................... 14
Opinion of Counsel............................................... 14
Outstanding...................................................... 14
Participant...................................................... 15
Paying Agent..................................................... 15
Permitted Holder................................................. 15
Permitted Indebtedness........................................... 15
Permitted Investments............................................ 17
Permitted Liens.................................................. 18
Person........................................................... 20
</TABLE>
<PAGE> 5
iii
Physical Notes............................................................. 20
Place of Payment........................................................... 20
Predecessor Note........................................................... 20
Preferred Stock............................................................ 20
Private Placement Legend................................................... 20
Public Equity Offering..................................................... 20
Purchase Money Indebtedness................................................ 20
QIB........................................................................ 21
Qualified Capital Stock.................................................... 21
Redeemable Capital Stock................................................... 21
Registration Statement..................................................... 21
Regular Record Date........................................................ 21
Regulation S............................................................... 21
Regulation S Certificate................................................... 21
Responsible Officer........................................................ 21
Restricted Payment......................................................... 21
Restricted Subsidiary...................................................... 22
Rule 144A Certificate...................................................... 22
S&P........................................................................ 22
Shelf Registration Statement............................................... 22
Significant Subsidiary..................................................... 22
Special Record Date........................................................ 22
Stated Maturity............................................................ 22
Subordinated Indebtedness.................................................. 22
Subsidiary................................................................. 22
Tax........................................................................ 22
Taxing Authority........................................................... 23
Telecommunications Assets.................................................. 23
Telecommunications Business................................................ 23
Trust Indenture Act" or "TIA............................................... 23
Trustee.................................................................... 23
United States.............................................................. 23
United States Dollar Equivalent............................................ 23
Unrestricted Subsidiary.................................................... 24
U.S. Global Note........................................................... 24
U.S. Government Securities................................................. 24
U.S. Physical Notes........................................................ 24
Vice President............................................................. 25
Voting Stock............................................................... 25
Warrant Agreement.......................................................... 25
Wholly Owned............................................................... 25
SECTION 102. Compliance Certificates and Opinions......................... 25
SECTION 103. Form of Documents Delivered to Trustee....................... 26
<PAGE> 6
iv
SECTION 104. Acts of Holders ............................................... 26
SECTION 105. Notices, etc., to Trustee and Company ......................... 28
SECTION 106. Notice to Holders; Waiver ..................................... 28
SECTION 107. Effect of Headings and Table of Contents ...................... 29
SECTION 108. Successors and Assigns ........................................ 29
SECTION 109. Separability Clause ........................................... 29
SECTION 110. Benefits of Indenture ......................................... 29
SECTION 111. Governing Law ................................................. 29
SECTION 112. Legal Holidays ................................................ 29
SECTION 113. Trust Indenture Act Controls .................................. 30
SECTION 114. No Recourse Against Others .................................... 30
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally ............................................... 30
SECTION 202. Form of Trustee's Certificate of Authentication ............... 31
SECTION 203. Restrictive Legends ........................................... 32
SECTION 204. Form of Certificate to Be Delivered upon Termination of
Restricted Period ............................................. 35
ARTICLE THREE
THE NOTES
SECTION 301. Amount ........................................................ 36
SECTION 302. Denominations ................................................. 36
SECTION 303. Execution, Authentication, Delivery and Dating ................ 37
SECTION 304. Temporary Notes ............................................... 38
SECTION 305. Registration, Registration of Transfer and Exchange ........... 38
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes ................... 40
SECTION 307. Payment of Interest; Interest Rights Preserved ................ 40
SECTION 308. Persons Deemed Owners ......................................... 42
SECTION 309. Cancellation .................................................. 42
SECTION 310. Computation of Interest ....................................... 42
SECTION 311. Book-Entry Provisions for Global Notes ........................ 43
SECTION 312. Transfer Provisions ........................................... 44
SECTION 313. [Reserved] .................................................... 52
SECTION 314. Form of Regulation S Certificate .............................. 52
SECTION 315. Form of Rule 144A Certificate ................................. 54
SECTION 316. CUSIP Numbers ................................................. 55
<PAGE> 7
v
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture........................ 55
SECTION 402. Application of Trust Money..................................... 56
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.............................................. 57
SECTION 502. Acceleration of Maturity; Rescission and Annulment............. 58
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee 60
SECTION 504. Trustee May File Proofs of Claim............................... 61
SECTION 505. Trustee May Enforce Claims Without Possession of Notes......... 62
SECTION 506. Application of Money Collected................................. 62
SECTION 507. Limitation on Suits............................................ 62
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest....................................................... 63
SECTION 509. Restoration of Rights and Remedies............................. 63
SECTION 510. Rights and Remedies Cumulative................................. 64
SECTION 511. Delay or Omission Not Waiver................................... 64
SECTION 512. Control by Holders............................................. 64
SECTION 513. Waiver of Past Defaults........................................ 64
SECTION 514. Waiver of Stay or Extension Laws............................... 65
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults............................................. 65
SECTION 602. Certain Rights of Trustee...................................... 66
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes...... 67
SECTION 604. May Hold Notes................................................. 68
SECTION 605. Money Held in Trust............................................ 68
SECTION 606. Compensation and Reimbursement................................. 68
SECTION 607. Corporate Trustee Required; Eligibility........................ 69
SECTION 608. Resignation and Removal; Appointment of Successor.............. 69
SECTION 609. Acceptance of Appointment by Successor......................... 71
SECTION 610. Merger, Conversion, Consolidation or Succession to Business.... 71
SECTION 611. Appointment of Authenticating Agent............................ 72
<PAGE> 8
vi
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders...................73
SECTION 702. Reports by Trustee.............................................74
SECTION 703. Reports by Company.............................................74
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms...........75
SECTION 802. Successor Substituted..........................................76
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.............76
SECTION 902. Supplemental Indentures with Consent of Holders................77
SECTION 903. Execution of Supplemental Indentures...........................78
SECTION 904. Effect of Supplemental Indentures..............................79
SECTION 905. Conformity with Trust Indenture Act............................79
SECTION 906. Reference in Notes to Supplemental Indentures..................79
SECTION 907. Notice of Supplemental Indentures..............................79
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest...........79
SECTION 1002. Maintenance of Office or Agency...............................80
SECTION 1003. Money for Notes Payments to Be Held in Trust..................80
SECTION 1004. Corporate Existence...........................................82
SECTION 1005. Payment of Taxes and Other Claims.............................82
SECTION 1006. Maintenance of Properties.....................................82
SECTION 1007. Statement by Officers As to Default...........................83
SECTION 1008. Limitation on Indebtedness....................................83
SECTION 1009. Limitation on Restricted Payments.............................84
SECTION 1010. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.......................................87
SECTION 1011. Limitation on Transactions with Affiliates....................88
<PAGE> 9
vii
SECTION 1012. Limitation on Liens......................................... 88
SECTION 1013. Limitations on Issuances of Guarantees of Indebtedness
by Restricted Subsidiaries.................................. 89
SECTION 1014. Purchase of Notes upon a Change of Control.................. 89
SECTION 1015. Limitation on Sale of Assets................................ 91
SECTION 1016. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries........................... 93
SECTION 1017. Limitation on Investments in Unrestricted Subsidiaries...... 94
SECTION 1018. Limitation on Sale-Leaseback Transactions................... 94
SECTION 1019. Business of the Company..................................... 95
SECTION 1020. Provision of Financial Statements and Reports............... 95
SECTION 1021. Waiver of Certain Covenants................................. 95
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption......................................... 96
SECTION 1102. Redemption.................................................. 96
SECTION 1103. Applicability of Article.................................... 97
SECTION 1104. Election to Redeem; Notice to Trustee....................... 97
SECTION 1105. Selection by Trustee of Notes to Be Redeemed................ 97
SECTION 1106. Notice of Redemption........................................ 98
SECTION 1107. Deposit of Redemption Price................................. 98
SECTION 1108. Notes Payable on Redemption Date............................ 99
SECTION 1109. Notes Redeemed in Part...................................... 99
ARTICLE TWELVE
[Reserved]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance......................................... 100
SECTION 1302. Defeasance and Discharge.................................... 100
SECTION 1303. Covenant Defeasance......................................... 101
SECTION 1304. Conditions to Defeasance or Covenant Defeasance............. 101
SECTION 1305. Deposited Money and Government Securities to Be Held
in Trust; Other Miscellaneous Provisions.................... 103
SECTION 1306. Reinstatement............................................... 103
<PAGE> 10
INDENTURE, dated as of February 23, 1998, between DTI HOLDINGS, INC., a
corporation duly organized and existing under the laws of the State of Missouri
(herein called the "Company"), having its principal office at 11111 Dorsett
Road, St. Louis, Missouri 63043, and THE BANK OF NEW YORK, a New York banking
corporation, Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its 12
1/2% Senior Discount Notes due 2008 (the "Initial Notes"), and its 12 1/2%
Series B Senior Discount Notes due 2008 (the "Exchange Notes" and, together
with the Initial Notes, the "Notes"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the effectiveness of
the Shelf Registration Statement (as defined herein), this Indenture shall be
subject to, and shall be governed by the provisions of, the Trust Indenture Act
that are required to be part of or deemed to be part of and to govern the
indentures qualified thereunder.
All things necessary have been done to make the Notes, when duly executed
and duly issued by the Company and authenticated and delivered hereunder by the
Trustee or the Authenticating Agent, the valid obligations of the Company and
to make this Indenture a valid agreement of the Company, in accordance with
their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
It is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
<PAGE> 11
2
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted at the date hereof;
and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Accreted Value" means, for any specified date (the "Specified Date") the
amount calculated pursuant to clause (i), (ii), (iii) or (iv) below with
respect to each $1,000 principal amount at Maturity of Securities:
(i) if the Specified Date occurs on one or more of the following
dates (each a "Semiannual Accrual Date"), the Accreted Value shall equal
$543.92 on the Issue Date, and for any Semiannual Accrual Date
thereafter, the amount set forth below:
<TABLE>
<CAPTION>
Semiannual Accrual Date Accreted Value
<S> <C>
September 1, 1998 ........................... $579.48
March 1, 1999 ............................... 615.70
September 1, 1999 ........................... 654.18
March 1, 2000 ............................... 695.07
September 1, 2000 ........................... 738.51
March 1, 2001 ............................... 784.66
September 1, 2001 ........................... 833.71
March 1, 2002 ............................... 885.81
September 1, 2002 ........................... 941.18
March 1, 2003 ............................... 1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semiannual
Accrual Date, the Accreted Value shall equal the sum of (a) the original
issue price and (b) an amount
<PAGE> 12
3
equal to the product of (1) the Accreted Value for the first Semiannual
Accrual Date less the original issue price multiplied by (2) a fraction,
the numerator of which is the number of days from the date of the
Indenture to the specified date, using a 360-day year of twelve 30-day
months, and the denominator of which is the number of days elapsed from
the date of the Indenture to the first Semiannual Accrual Date, using a
360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semiannual Accrual
Dates, the Accreted Value shall equal the sum of (A) the Accreted Value
for the Semiannual Accrual Date immediately preceding such Specified Date
and (B) an amount equal to the product of (i) the Accreted Value for the
immediately following Semiannual Accrual Date less the Accreted Value for
the immediately preceding Semiannual Accrual Date, and (ii) a fraction,
the numerator of which equals the number of days from the immediately
preceding Semiannual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; and
(iv) if the Specified Date is on or after the last Semiannual
Accrual Date, the Accreted Value shall equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary or such acquisition; provided that, for purposes of
Section 1008, such Indebtedness shall be deemed to be incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Restricted Subsidiary.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person
that owns, directly or indirectly, 5% or more of such specified Person's Voting
Stock or any executive officer or director of any such specified Person or
other Person or, with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent Members" has the meaning specified in Section 311.
<PAGE> 13
4
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the
properties and assets of the Company or its Subsidiaries; or (iii) any other
properties or assets of the Company or any Subsidiary, other than in the
ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any transfer of properties or assets (A) that is
governed by the provisions of Article Eight, (B) of the Company to any
Restricted Subsidiary, or of any Restricted Subsidiary to the Company or any
Restricted Subsidiary in accordance with the terms of this Indenture, (C)
having a fair market value of less than $500,000 (or, to the extent not
denominated in United States dollars, the United States Dollar Equivalent
thereof) in any given fiscal year, (D) in any Permitted Telecommunications
Asset Sale, or (E) by the Company or a Restricted Subsidiary to a Person who is
not an Affiliate of the Company in exchange for Telecommunications Assets (or
not less than 66 2/3% of the outstanding Voting Stock of a Person that becomes
a Restricted Subsidiary, the assets of which consist primarily of
Telecommunications Assets) or related telecommunications services where in the
good faith judgment of the Company the fair market value of the
Telecommunications Assets (or such Voting Stock) or services so received is at
least equal to the fair market value of the properties or assets disposed of
or, if less, the difference is received by the Company in cash in an amount at
least equal to such difference.
"Attributable Value" means, with respect to any lease at the time of
determination, the present value (discounted at the interest rate implicit in
the lease or, if not known, at the Company's incremental borrowing rate) of the
obligations of the lessee of the property subject to such lease for rental
payments during the remaining term of the lease included in such transaction,
including any period for which such lease has been extended or may, at the
option of the lessor, be extended, or until the earliest date on which the
lessee may terminate such lease without penalty or upon payment of penalty (in
which case the rental payments shall include such penalty), after excluding
from such rental payments all amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water utilities and
similar charges.
"Authenticating Agent" means any Person authorized by the Trustee to act
on behalf of the Trustee to authenticate Notes.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount
of each such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
<PAGE> 14
5
any similar United States federal or state law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the Secretary
or any assistant secretary of the Company to have been duly adopted by the
Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment or any
other particular location referred to in this Indenture or in the Notes, means
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in that Place of Payment or other location are
authorized or obligated by law, regulation or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participations, rights in or other
equivalents (however designated and whether voting or non-voting) of such
Person's capital stock, and any rights (other than debt securities convertible
into capital stock), warrants or options exchangeable for or convertible into
such capital stock, whether now outstanding or issued after the Issue Date.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required
to be classified and accounted for as a capital lease obligation under GAAP
and, for the purposes of this Indenture, the amount of such obligation at any
date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) certificates of deposit or acceptances with a maturity
of 180 days or less of any financial institution that is a member of the
Federal Reserve System, in each case having combined capital and surplus and
undivided profits of not less than $500,000,000; (iii) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate
of the Company and is organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by S&P or at least
P-l by Moody's; and (iv) money market funds which invest substantially all of
their assets in securities of the type described in the preceding clauses (i)
through (iii).
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the
<PAGE> 15
6
Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total outstanding Voting Stock of the Company; (b) the Company
consolidates with, or merges with or into another Person or conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with or merges with or into the Company, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction (i) where the outstanding Voting
Stock of the Company is not converted or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
Company) or is converted into or exchanged for (A) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (B)
Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation and cash, securities and other property in an amount
that could be paid by the Company as a Restricted Payment as described under
Section 1009 and (ii) immediately after such transaction, no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than Permitted Holders, is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total outstanding Voting Stock of the surviving or transferee corporation; (c)
during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors (together with any new directors
whose election to such Board of Directors, or whose nomination for election by
the shareholders of the Company, was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; (d) the Company is liquidated or dissolved or a
special resolution is passed by the shareholders of the Company approving the
plan of liquidation or dissolution other than in a transaction which complies
with the provisions of Section 801 or (e) a Permitted Holder holds (i) less
than 15% of the outstanding Common Stock at any time prior to an Initial Public
Equity Offering or (ii) more than 65% of the outstanding Common Stock at any
time after an Initial Public Equity Offering.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph
of this Indenture until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor Person.
<PAGE> 16
7
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, its Chief Operating Officer, its Chief
Financial Officer, any Vice President, its Treasurer or any assistant
treasurer, and delivered to the Trustee.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, (c) the portion of net income (or
loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash dividends or distributions during such period, (d) net
income (but not loss) of any Person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior
to the date of combination, (e) the net income of any Restricted Subsidiary, to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary or its
shareholders and (f) any gain or loss, net of taxes, realized upon the
termination of any employee benefit plan.
"Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio"
means, at any date of determination, the ratio of (i) the aggregate amount of
Indebtedness of the Company and its Restricted Subsidiaries outstanding at the
date of determination as determined on a consolidated basis in accordance with
GAAP to (ii) the aggregate amount of Consolidated Operating Cash Flow for the
then most recent four full fiscal quarters for which consolidated financial
statements of the Company are available preceding the date of the transaction
giving rise to the need to calculate the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio (such four fiscal quarter period being
referred to as the "Four Quarter Period").
"Consolidated Interest Expense" of the Company means, for any period,
without duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of debt discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) accrued interest, (v) the consolidated amount
of any interest capitalized by the Company and (vi) amortization of debt
issuance costs, plus (b) the interest component of Capitalized Lease
Obligations of the Company and its Restricted Subsidiaries paid, accrued and/or
scheduled to be paid or accrued during such period, excluding, however, any
amount of such interest of any Restricted Subsidiary if the net
<PAGE> 17
8
income of such Restricted Subsidiary is excluded in the calculation of
Consolidated Adjusted Net Income pursuant to clause (e) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Consolidated Adjusted Net Income
pursuant to clause (e) of the definition thereof); provided that the
Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a pro forma basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest, shall be computed
by applying, at the option of the Company, either the fixed or the floating
rate.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Adjusted Net Income for such period (a) increased by (to the
extent included in computing Consolidated Adjusted Net Income) the sum of (i)
the Consolidated Tax Expense for such period (other than taxes attributable to
extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated
Interest Expense for such period; (iii) depreciation of the Company and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; (iv) amortization of the Company and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; and (v) any other non-cash charges that were deducted in computing
Consolidated Adjusted Net Income (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period) of the Company
and its Restricted Subsidiaries for such period in accordance with GAAP and (b)
decreased by any non-cash gains that were included in computing Consolidated
Adjusted Net Income.
"Consolidated Tax Expense" means, for any period, the provision for
federal, state, provincial, local and foreign income taxes of the Company and
all Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Corporate Trust Office" means the principal corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
administered, which office on the date of execution of this Indenture is
located at 101 Barclay Street, New York, New York 10286.
"Currency Agreements" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries designed solely to protect against or manage exposure to
fluctuations in currency exchange rates.
"Default" means any event that after notice or passage of time or both
would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
<PAGE> 18
9
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Indenture, a member
of the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that (i) such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act, and (ii) certain provisions relating to an increase
in the stated rate of interest thereon shall be eliminated) that are issued and
exchanged for the Initial Notes in accordance with the Exchange Offer, as
provided for in the Registration Rights Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Notes Registration Rights Agreement.
"Existing Subsidiaries" means Digital Teleport, Inc.
"fair market value" means, with respect to any asset or property, the
price that could be negotiated in an arm's length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, fair market value shall be determined in good faith by the
Company's officers.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States on the date of this
Indenture.
<PAGE> 19
10
"Global Notes" has the meaning set forth in Section 201.
"Guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder" means the Person in whose name a Note is registered in the Note
Register.
"Incur" or "incur" means, with respect to any Indebtedness, to create,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of, or otherwise incur such Indebtedness; provided that neither
the accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities, contingent or otherwise, of such Person: (i) for borrowed
money (including overdrafts), (ii) in connection with any letters of credit and
acceptances issued under letter of credit facilities, acceptance facilities or
other similar facilities, (iii) evidenced by bonds, notes, debentures or other
similar instruments, (iv) for the deferred purchase price of property or
services or created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person, or (v)
for Capitalized Lease Obligations; (b) all obligations of such Person under or
in respect of Interest Rate Agreements or Currency Agreements; (c) all
indebtedness referred to in (but not excluded from) the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or with respect to
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured); (d) all guarantees by such Person of Indebtedness
referred to in this definition of any other Person; and (e) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends.
The amount of Indebtedness of any Person at any date shall be the outstanding
principal balance at such date (or, in the case of a revolving credit or other
similar facility, the total amount of funds outstanding and/or available for
borrowing on the date of determination) of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation;
provided that the amount outstanding at any time of any Indebtedness issued
with original issue
<PAGE> 20
11
discount shall equal the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount with respect to such
Indebtedness at such time as determined in conformity with GAAP. For purposes
hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Redeemable Capital Stock as if such Redeemable Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
market value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock. Notwithstanding the foregoing, trade
accounts and accrued liabilities arising in the ordinary course of business and
any liability for federal, state or local taxes or other taxes owed by such
Person shall not be considered Indebtedness for purposes of this definition.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Notes" has the meaning specified in the recitals to this
Indenture.
"Interest Payment Date", when used with respect to any Note, means the
Stated Maturity of an installment of interest on such Note.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and other
similar agreements) designed solely to protect the Company or any Restricted
Subsidiary against fluctuations in interest rates in respect of Indebtedness of
the Company or any Restricted Subsidiary.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or
other securities or evidences of Indebtedness issued or owned by, any other
Person and all other items that would be classified as investments on a balance
sheet prepared in accordance with GAAP. In addition, the fair market value of
the net assets of any Subsidiary at the time that such Subsidiary is designated
an Unrestricted Subsidiary shall be deemed to be an "Investment" made by the
Company in such Unrestricted Subsidiary at such time. "Investments" shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices and any loans, advances or extensions of
credit to an employee of the Company or any Subsidiaries made in the ordinary
course of business; provided that such loans, advances or extensions of credit
shall not have an aggregate principal amount in excess of $1,000,000 at any one
time outstanding.
<PAGE> 21
12
"Issue Date" means the date of this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired. A Person shall be deemed to own subject to a Lien any
property which such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties which are the subject
of such Asset Sale, (iv) amounts required to be paid to any Person (other than
the Company or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Redeemable Capital Stock that have been converted into or exchanged for
Qualified Capital Stock, as referred to under Section 1009, the proceeds of such
issuance or sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary of the Company), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
<PAGE> 22
13
payable as a result thereof.
"Non-Registration Opinion and Supporting Evidence" has the meaning
specified in Section 312.
"Non-U.S. Person" means a person who is not a U.S. person as defined in
Regulation S.
"Note Register" and "Note Registrar" have the respective meanings specified
in Section 305.
"Notes" has the meaning stated in the first recital of this Indenture.
"Notes Registration Rights Agreement" means the Notes Registration Rights
Agreement dated as of February 23, 1998, among the Company and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and TD Securities (USA)
Inc.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer or any Vice President, and by the Treasurer, any
assistant treasurer, the Secretary or any assistant secretary of the Company,
and delivered to the Trustee.
"Offshore Global Note" has the meaning set forth in Section 201.
"Offshore Note Exchange Date" has the meaning set forth in Section 203.
"Offshore Physical Note" has the meaning set forth in Section 201.
"Opinion of Counsel" means a written opinion of legal counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or repayment at
the option of the Holder money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of
such Notes;
<PAGE> 23
14
(iii) Notes, except to the extent provided in Sections 1302 and
1303, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Thirteen; and
(iv) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands such Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount at Maturity of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder and, for
the purpose of making the calculations required by TIA Section 313, Notes owned
by the Company or any other obligor upon the Notes or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which a
Responsible Officer of the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or such other obligor.
"Participant" is defined to mean, with respect to the Depositary, Persons
who have accounts with the Depositary.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to make payments in respect of any Notes on
behalf of the Company.
"Permitted Holder" means either of (a) (i) collectively, Richard Weinstein,
his spouse, issues or other members of his immediate family (collectively, the
"Weinstein Family"), (ii) trusts or other entities created for the benefit of
any member of the Weinstein Family, (iii) entities controlled by any of the
Weinstein Family and (iv) in the event of the death of any member of the
Weinstein Family, the heirs or testamentary legatees of such member of the
Weinstein Family, or (b) collectively, KLT and any of its controlled Affiliates
(as defined under Rules 13d-3 and 13d-5 under the Exchange Act).
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company pursuant to the Notes;
<PAGE> 24
15
(b) Indebtedness of the Company owing to any Restricted Subsidiary
(but only so long as such Indebtedness is held by such Restricted
Subsidiary); provided that any Indebtedness of the Company owing to any
such Restricted Subsidiary is subordinated in right of payment from and
after such time as the Notes shall become due and payable (whether at
Stated Maturity, by acceleration or otherwise) to the payment and
performance of the Company's obligations under the Notes; provided
further that any transaction pursuant to which any Restricted Subsidiary
to which such Indebtedness is owed, ceases to be a Restricted Subsidiary
shall be deemed to be an incurrence of such Indebtedness by such
Restricted Subsidiary that is not permitted by this clause (b);
(c) Indebtedness of the Company or any Restricted Subsidiaries
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with one or more commercial bank
facilities permitted under clause (j) of this definition or in connection
with the acquisition of or disposition of assets, including, without
limitation, shares of Capital Stock;
(d) Indebtedness of the Company or any Restricted Subsidiary under
letter of credit facilities that are used to finance trade payables in
the ordinary course of business and under which recourse to the Company
or any Restricted Subsidiary is limited to the cash securing such letters
of credit;
(e) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements and Interest Rate Agreements entered into in the
ordinary course of business; provided that such agreements do not
increase the Indebtedness of the obligor outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation payable
thereunder;
(f) Indebtedness of the Company or any Restricted Subsidiary in
addition to that permitted to be incurred pursuant to clauses (a) through
(e) above in an aggregate principal amount not in excess of $25,000,000
(or, to the extent not denominated in United States dollars, the United
States Dollar Equivalent thereof) at any one time outstanding;
(g) Purchase Money Indebtedness;
(h) Indebtedness of any Restricted Subsidiary to the Company;
(i) Prior to December 31, 2000, Indebtedness of the Company or any
Restricted Subsidiary not to exceed, at any one time outstanding, two
times (A) the Net Cash Proceeds received by the Company after the date of
this Indenture as a capital contribution or from the issuance and sale of
its Qualified Capital Stock to a Person
<PAGE> 25
16
that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to clause (a)(3)(B) or clauses (b)(ii)
and (iii) of Section 1009 to make a Restricted Payment and (B) 80% of the
fair market value of property (other than cash and Cash Equivalents)
received by the Company after the date of this Indenture as a contribution
of capital or from the sale of its Qualified Capital Stock to a Person that
is not a Subsidiary of the Company, to the extent such capital contribution
or sale of Qualified Capital Stock has not been used pursuant to clause
(a)(3)(B) of Section 1009 to make a Restricted Payment; provided that such
Indebtedness does not mature prior to the Stated Maturity of the Notes and
has an Average Life longer than the Notes;
(j) Indebtedness of the Company or any Restricted Subsidiary under
one or more commercial bank facilities outstanding at any time in an
aggregate principal amount not to exceed $70,000,000 plus the greater of
(x) 80% of the accounts receivable of the Company or (y) $30,000,000; and
(k) any renewals, extensions, substitutions, refinancings or
replacements (each, for purpose of this clause, a "refinancing") of any
Indebtedness of the Company (including all or any part of the Notes) or
any Restricted Subsidiary by the Company, or any refinancing of any
Indebtedness of any Restricted Subsidiary by such Restricted Subsidiary,
other than Indebtedness incurred pursuant to clauses (b) through (f) and
(h) through (j) of this definition, including any successive
refinancings, so long as (i) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if such
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced, plus the amount of any premium reasonably determined as
necessary to accomplish such refinancing and the amount of expenses of
the Company incurred in connection with such refinancing, (ii) in the
case of any refinancing of Subordinated Indebtedness, such new
Indebtedness is made subordinate to the Notes at least to the same extent
as the Indebtedness being refinanced, (iii) in the case of any
refinancing of Indebtedness that is pari passu in right of payment with
the Notes, such new Indebtedness is made pari passu in right of payment
with, or subordinate in right of payment to, the Notes and (iv) (A) if
such indebtedness being refinanced has an Average Life longer than the
Average Life of the Notes, such new Indebtedness has an Average Life
longer than the Average Life of the Notes and a final Stated Maturity
later than the final Stated Maturity of the Notes and (B) if such
Indebtedness being refinanced has an Average Life shorter than the
Average Life of the Notes, such Indebtedness has an Average Life longer
than, and a Final Stated Maturity Date later than, such Indebtedness
being so refinanced.
"Permitted Investments" means any of the following:
<PAGE> 26
17
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any Restricted Subsidiary;
(c) Investments by the Company or any Restricted Subsidiary in
another Person, if as a result of such Investment (i) such other Person
becomes a Restricted Subsidiary and the Company or another Restricted
Subsidiary owns at least 66 2/3% of the outstanding Voting Stock of such
other Person or (ii) such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets to,
the Company or a Restricted Subsidiary;
(d) Investments by the Company or any Restricted Subsidiary in any
Person engaged in the delivery of telephony or other telecommunications
or data transmission services in North America, the sum of which does not
exceed $20,000,000 at any one time outstanding; or
(e) Investments in existence on the date of this Indenture.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of the issuance of the Notes;
(b) Liens on any property or assets of a Subsidiary granted in favor
of the Company or any Restricted Subsidiary;
(c) Liens securing the Notes;
(d) any interest or title of a lessor under any Capitalized Lease
Obligation or of a seller under any Purchase Money Indebtedness permitted
by this Indenture;
(e) Liens securing Indebtedness incurred under clause (j) of the
definition of "Permitted Indebtedness";
(f) statutory Liens or landlord's and carrier's, warehouseman's,
mechanic's, supplier's, materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate
proceeding, if a reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made therefor;
(g) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall
have been made therefor;
<PAGE> 27
18
(h) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature (including, without limitation, indefeasible rights to use)
incurred in the ordinary course of business (other than contracts for the
payment of money);
(i) easements, servitudes, rights-of-way, restrictions (including,
without limitation, zoning restrictions) and other similar charges or
encumbrances not interfering in any material respect with the business of
the Company or any Subsidiary incurred in the ordinary course of
business;
(j) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired;
(k) Liens securing Acquired Indebtedness created prior to (and not
in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary; provided that such Lien
does not extend to any property or assets of the Company or any
Subsidiary other than the assets acquired in connection with the
incurrence of such Acquired Indebtedness;
(l) Liens securing Interest Rate Agreements or Currency Agreements
permitted to be incurred pursuant to clause (e) of the definition of
"Permitted Indebtedness" or any collateral for the Indebtedness to which
such Interest Rate Agreements or Currency Agreements relate;
(m) Liens arising from purchase money mortgages and purchase money
security interests; provided that (i) the related Indebtedness shall not
be secured by any property or assets of the Company or any Subsidiary
other than the property and assets so acquired and (ii) the Lien securing
such Indebtedness shall be created within 60 days of such acquisition;
(n) Liens with respect to assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company or a Restricted Subsidiary
to secure Indebtedness owing to the Company or such Restricted
Subsidiary;
(o) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations; and
<PAGE> 28
19
(p) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (a) through (o); provided
that any such extension, renewal or replacement shall be no more
restrictive in any material respect than the Lien so extended, renewed or
replaced and shall not extend to any additional property or assets.
"Permitted Telecommunications Asset Sale" means any transfer, conveyance,
sale, lease or other disposition of a capital asset that is a
Telecommunications Asset, the proceeds of which are treated as revenues
(including deferred revenues) by the Company in accordance with GAAP.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, business
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Physical Notes" has the meaning set forth in Section 201.
"Place of Payment" means the office or agency maintained by the Company
where the principal of (and premium, if any, on) and interest on the Notes are
payable as specified in Section 1002.
"Predecessor Note" of any particular Note, means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Private Placement Legend" has the meaning set forth in Section 203.
"Public Equity Offering" means an underwritten public offering or flotation
of Common Stock of the Company which has been registered under the Securities
Act.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiaries incurred at any time within 270 days of, and for the
purpose of financing all or any part of the cost of, the construction,
expansion, installation, acquisition or improvement by the Company or any
Restricted Subsidiary of the Company of any new Telecommunications Assets or not
less than 66 2/3 percent of the outstanding Voting Stock of a Person that
becomes a Restricted Subsidiary the assets of which consist primarily of
<PAGE> 29
20
Telecommunications Assets constructed, expanded, installed, acquired or
improved after the date of this Indenture; provided that the proceeds of such
Indebtedness are expended for such purposes within such 270-day period; and
provided further that the Net Cash Proceeds from the issuance of such
Indebtedness does not exceed, as of the date of incurrence of such
Indebtedness, 100% of the lesser of cost or fair market value of such
Telecommunications Assets.
"QIB" means a "Qualified Institutional Buyer" within the meaning of Rule
144A under the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity; provided that any Capital Stock that would not constitute Redeemable
Capital Stock but for provisions thereof giving holders thereof the right to
require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Redeemable Capital Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable in any material respect to the holders of such
Capital Stock than the provisions contained in Sections 1015 and 1014 are to the
Holders, and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
the Sections 1015 and 1014.
"Registration Statement" means the Registration Statement as defined in the
Notes Registration Rights Agreement.
"Regular Record Date" has the meaning specified in Section 301.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Certificate" has the meaning specified in Section 314.
"Responsible Officer", when used with respect to the Trustee, means
any Vice President, any assistant secretary, any assistant treasurer, any trust
officer or assistant trust officer, or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above-designated officers, and also means, with respect to a particular
<PAGE> 30
21
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Restricted Payment" has the meaning specified in Section 1009.
"Restricted Subsidiary" means the Existing Subsidiaries and any Subsidiary
that is not designated an Unrestricted Subsidiary by the Board of Directors.
"Rule 144A Certificate" has the meaning specified in Section 315.
"S&P" means Standard and Poor's Ratings Services, a division of
McGraw-Hill, Inc., and its successors.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Notes Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its subsidiaries, (i) for the most
recent fiscal year of the Company accounted for more than 10% of the
consolidated revenues of the Company and the Restricted Subsidiaries, (ii) as of
the end of such fiscal year, was the owner of more than 10% of the consolidated
assets of the Company and the Restricted Subsidiaries, in each case as set forth
on the most recently available consolidated financial statements of the Company
and the Restricted Subsidiaries for such fiscal year, or (iii) owns one or more
licenses or concessions to provide telecommunications or data transmission
services in the United States.
"Special Record Date" for the payment of any Defaulted Interest on the
Notes means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
"Tax" is defined to mean any tax, duty, levy, impost, assessment or other
<PAGE> 31
22
governmental charge (including penalties, interest and any other liabilities
related thereto).
"Taxing Authority" is defined to mean any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Telecommunications Assets" means, with respect to any Person, all
assets, rights (contractual or otherwise) and properties, whether tangible or
intangible, used or intended for use in connection with a Telecommunications
Business; provided that such assets are accounted for as "property, plant and
equipment" on the Company's consolidated balance sheet in accordance with GAAP.
"Telecommunications Business" means the
business of (i) transmitting, or providing services relating to the
transmission of, voice, video or data through owned or leased transmission
facilities, (ii) constructing, creating, developing or marketing communications
related network equipment, software and other devices for use in a
telecommunications business or (iii) evaluating, participating or pursuing any
other activity or opportunity that is primarily related to those identified in
clause (i) or (ii) above; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of
Directors.
"Trust Indenture Act" or "TIA" means the Trust
Indenture Act of 1939, as amended, as in force at the date as of which this
Indenture was executed, except as provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean or include each Person who is then a Trustee hereunder.
"United States" means the United States of America (including the
states and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction.
"United States Dollar Equivalent" means, with respect to any monetary
amount in a currency other than the United States dollar, at any time for the
determination thereof, the amount of United States dollars obtained by
converting such foreign currency involved in such computation into United States
dollars at the spot rate for the purchase of United States dollars with the
applicable foreign currency as quoted by Reuters at approximately 11:00 a.m.
(New York City time) on the date not more than two business days prior to such
determination. For purposes of determining whether any Indebtedness can be
Incurred (including Permitted Indebtedness), any Investment can be made and any
transaction described in Section 1011 can be undertaken (a "Tested
Transaction"), the United States Dollar Equivalent of such Indebtedness,
Investment or transaction described in Section 1011. 1011 shall be determined
<PAGE> 32
23
on the date Incurred, made or undertaken and no subsequent change in the United
States Dollar Equivalent shall cause such Tested Transaction to have been
incurred, made or undertaken in violation of this Indenture.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither the Company nor any other Subsidiary is
directly or indirectly liable for or provides credit support for or guarantees
any Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any other
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as a result of designating such Subsidiary
an Unrestricted Subsidiary will not violate the provisions of Section 1017,
(iv) neither the Company nor any other Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
persons who are not Affiliates of the Company and (v) neither the Company nor
any other Subsidiary has any obligation (1) to subscribe for additional shares
of Capital Stock or other equity interest in such Subsidiary or (2) to maintain
or preserve such Subsidiary's financial condition or to cause such Subsidiary
to achieve certain levels of operating results. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing a board
resolution with the Trustee giving effect to such designation. The Board of
Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary
if, immediately after giving effect to such designation, there would be no
Default or Event of Default under this Indenture and the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant
to Section 1008. In no event shall the Existing Subsidiaries be designated as
Unrestricted Subsidiaries.
"U.S. Global Note" has the meaning set forth in Section
201.
"U.S. Government Securities" means securities
that are (i) direct obligations of the United States of America for the payment
of which its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America (x) the payment of which is unconditionally guaranteed
as a full faith and credit obligation by the United States of America or (y)
that are rated at least "Aaa" (or the then equivalent grade) by Moody's or
"AAA" (or the then equivalent grade) by S&P.
"U.S. Physical Notes" has the meaning set forth in
Section 201.
"Vice President", when used with respect to the Company or the
Trustee, means
<PAGE> 33
24
any vice president, whether or not designated by a number or a word or words
added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or
classes of Capital Stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person (irrespective of
whether or not, at the time, stock of any other class or classes shall have, or
might have, voting power by reason of the happening of any contingency).
"Warrant Agreement" means the Warrant Agreement dated as of
February 23, 1998, by and between the Company and The Bank of New York, as
Warrant Agent.
"Wholly Owned" means, with respect to any Subsidiary, such Subsidiary
if all the outstanding Capital Stock of such Subsidiary (other than any
directors' qualifying shares) is owned directly by the Company or by the
Company and one or more Wholly Owned Restricted Subsidiaries.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture (including any covenant compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel to the effect that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of any such documents is specifically required by any provision of
this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture (other than pursuant to Section 1007)
shall include:
(1) a statement to the effect that each individual or firm signing
such certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement to the effect that, in the opinion of each such
individual or such firm, he or she has or they have made such examination
or investigation as is
<PAGE> 34
25
necessary to enable him, her or them to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual or such firm, such covenant or condition has been complied
with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his or her certificate or opinion is
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders of
the Outstanding Notes may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agents duly appointed in writing. Except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and conclusive in favor
of the Trustee and the Company, if made in the manner provided in this Section.
<PAGE> 35
26
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The principal amount at Maturity and serial numbers of Notes held by
any Person, and the date of holding the same, shall be proved by the Note
Register.
(d) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company
may, at its option, by or pursuant to Board Resolution, fix in advance a record
date for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. Notwithstanding TIA Section 316(c), such
record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to
the first solicitation of Holders generally in connection therewith and not
later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Notes shall be computed as of such
record date; provided that no such authorization, agreement or consent by the
Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Note.
<PAGE> 36
27
SECTION 105. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other documents provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office, for the attention
of the Chief Financial Officer, specified in the first paragraph of this
Indenture or at any other address previously furnished in writing to the
Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders of Notes
by the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each such Holder affected by such event, at its address as
it appears in the Note Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder
actually receives such notice.
In case, by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impractical to mail notice
of any event to Holders when such notice is required to be given pursuant to
any provision of this Indenture, then any manner of giving such notice as shall
be satisfactory to the Trustee shall be deemed to be sufficient giving of such
notice for every purpose hereunder.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
<PAGE> 37
28
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in any Note shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto, any Authenticating Agent, any
Paying Agent, any Notes Registrar and their successors hereunder and the
Holders any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 111. Governing Law.
This Indenture and the Notes shall be governed by and construed in
accordance with the law of the State of New York. Upon the effectiveness of
the Shelf Registration Statement or the consummation of the Exchange Offer,
this Indenture will be subject to the provisions of the Trust Indenture Act
that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date or Stated Maturity or Maturity
of any Note shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of any Note) payment
of interest or principal (and premium, if any) need not be made at such Place
of Payment on such date, but may be made on the next succeeding Business Day at
such Place of Payment with the same force and effect as if made on the Interest
Payment Date or at the Stated Maturity or Maturity; provided that no interest
shall accrue for the period from and after such Interest Payment Date, Stated
Maturity or Maturity, as the case may be.
<PAGE> 38
29
SECTION 113. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the
TIA, the provision required by the TIA shall control.
SECTION 114. No Recourse Against Others.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or this Indenture, as applicable, or for any claim based on, in respect of or
by reason of such obligations or their creation. By accepting a Note, each
Holder shall waive and release all such liability. The waiver and release
shall be part of the consideration for the issue of the Notes.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
The Initial Notes shall be known as the "12 1/2% Senior Discount Notes due
2008" and the Exchange Notes shall be known as the "12 1/2% Series B Senior
Discount Notes due 2008", in each case of the Company. The Notes and the
Trustee's certificate of authentication shall be in substantially the forms set
forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers of the Company executing such Notes, as evidenced by
their execution of the Notes. Any portion of the text of any Note may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Note.
The definitive Notes shall be printed, typewritten, photocopied,
lithographed or engraved on steel-engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing such
Notes, as evidenced by their execution of such Notes.
Initial Notes offered and sold in reliance on Rule 144A under the
Securities Act may be issued in the form of one or more permanent global Notes
in substantially the form set forth in Exhibit A and contain each of the
legends set forth in Section 203 (the "U.S. Global Note"), deposited with the
Trustee, as custodian for the Depositary or its nominee, duly
<PAGE> 39
30
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the U.S. Global Note may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold in offshore transactions in reliance on
Regulation S under the Securities Act shall be issued in the form of a single
permanent global Note in substantially the form set forth in Exhibit A (the
"Offshore Global Note") deposited with the Trustee, as custodian for the
Depositary or its nominee, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount at
Maturity of the Offshore Global Note may from time to time be increased or
decreased by adjustments made in the records of the Trustee, as custodian for
the Depositary or its nominee, as herein provided.
Initial Notes issued pursuant to Section 305 in exchange for or upon
transfer of beneficial interests in the U.S. Global Note or the Offshore Global
Note may be in the form of either (i) permanent certificated Notes containing
the Private Placement Legend as set forth in Section 203 (the "U.S. Physical
Notes") or (ii) permanent certificated Notes (the "Offshore Physical Notes")
containing the Private Placement Legend as set forth in Section 203 until such
time as the conditions set forth in Section 203 are satisfied, respectively, in
either case in substantially the form set forth in Exhibit A, as provided in
Section 312.
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes". The U.S. Global Note
and the Offshore Global Note are sometimes collectively referred to as the
"Global Notes".
Exchange Notes shall be issued in substantially the form set forth in
Exhibit A.
SECTION 202. Form of Trustee's Certificate of Authentication.
Subject to Section 611, the Trustee's certificate of authentication shall
be in substantially the following form:
This is one of the Notes referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK,
Trustee
Dated: __________________ By Authorized Signatory
<PAGE> 40
31
SECTION 203. Restrictive Legends.
Unless and until (i) an Initial Note is sold pursuant to an effective Shelf
Registration Statement or (ii) an Initial Note is exchanged for an Exchange Note
in an Exchange Offer pursuant to an effective Exchange Offer Registration
Statement, in each case pursuant to the Notes Registration Rights Agreement, (A)
each U.S. Global Note and U.S. Physical Note shall bear the following legend set
forth below (the "Private Placement Legend") on the face thereof and (B) the
Offshore Global Note shall bear the Private Placement Legend on the face thereof
until (x) at least 41 days after the Issue Date (the "Offshore Note Exchange
Date") and (y) receipt by the Company and the Trustee of a certificate
substantially in the form provided in Section 204:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO REGULATION S, (2) AGREES
THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SHORTER
PERIOD AS MAY BE PRESCRIBED BY RULE 144(K) (OR ANY SUCCESSOR PROVISION
THEREOF) UNDER THE SECURITIES ACT) AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON
WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF
ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION
TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT
(A) TO THE ISSUER OR ITS SUBSIDIARY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES TO NON-
<PAGE> 41
32
U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S
OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THESE SECURITIES
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. THIS LEGEND WILL
BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
Each Global Note, whether or not an Initial Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 311 AND 312 OF THE INDENTURE.
<PAGE> 42
34
SECTION 204. Form of Certificate to Be Delivered upon Termination of
Restricted Period.
On or after April 4, 1998
THE BANK OF NEW YORK
101 Barclay Street
New York, NY 10286
Attention: Corporate Trust Trustee Administration
Re: DTI HOLDINGS, INC. (the "Company") 12 1/2% Senior Discount Notes
due 2008 (the "Notes")
Ladies and Gentlemen:
This letter relates to $__________ principal amount at Maturity of Notes
represented by the offshore global note certificate (the "Offshore Global
Note"). Pursuant to Section 203 of the Indenture dated as of February 23, 1998
relating to the Notes (the "Indenture"), we hereby certify that (1) we are the
beneficial owner of such principal amount of Notes represented by the Offshore
Global Note and (2) we are a Non-U.S. Person to whom the Notes could be
transferred in accordance with Rule 904 of Regulation S promulgated under the
Securities Act of 1933, as amended ("Regulation S"). Accordingly, you are
hereby requested to issue an Offshore Physical Note representing the
undersigned's interest in the principal amount at Maturity of Notes represented
by the Offshore Global Note, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
Authorized Signature
<PAGE> 43
35
ARTICLE THREE
THE NOTES
SECTION 301. Amount.
The aggregate principal amount at Maturity of Notes which may be
authenticated and delivered under this Indenture is limited to $506,000,000,
except for Notes authenticated and delivered upon registration or transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305,
306, 311, 312, 906, 1014 or 1015 or pursuant to an Exchange Offer.
The Stated Maturity of the Notes shall be March 1, 2008, and they shall
accrete original issue discount at the rate of 12 1/2% per annum, compounded
semiannually, to an aggregate principal amount of $506,000,000 by March 1, 2003,
and shall bear cash interest at the rate of 12 1/2% per annum accruing from
March 1, 2003, or from the most recent Interest Payment Date to which cash
interest has been paid or duly provided for, payable initially on September 1,
2003 and semi-annually thereafter on March 1 and September 1 in each year, until
the principal amount at Maturity thereof is paid in full and to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the February 15 or August 15 immediately preceding such Interest
Payment Date (each, a "Regular Record Date"). Interest will be computed on the
Notes as specified in Section 310 hereof.
The Accreted Value or principal of (and premium, if any) and interest on
the Notes shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid (a) by check mailed to
addresses of the Persons entitled thereto as such addresses shall appear on the
Note Register or (b) by wire transfer to an account maintained by the payee in
the United States.
Holders shall have the right to require the Company to purchase their
Notes, in whole or in part, in the event of a Change of Control pursuant to
Section 1014 and in the event of certain Asset Sales pursuant to Section 1015.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 and any integral multiple thereof.
<PAGE> 44
36
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chairman of
the Board, its Chief Executive Officer, its Chief Operating Officer, its Chief
Financial Officer or any Vice President. The signature of any of these
officers on the Notes may be the manual or facsimile signatures of the present
or any future such authorized officer and may be imprinted or otherwise
reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
On Company Order, the Trustee shall manually authenticate for original
issue Initial Notes in an aggregate principal amount at Maturity not to exceed
$506,000,000. On Company Order, the Trustee shall authenticate for original
issue Exchange Notes in an aggregate principal amount at Maturity not to exceed
$506,000,000; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount at Maturity in accordance with an Exchange Offer pursuant to the Notes
Registration Rights Agreement. In each case, the Trustee shall be entitled to
receive an Officers' Certificate and an Opinion of Counsel of the Company that
it may reasonably request in connection with such authentication of Notes.
Such order shall specify the amount of Notes to be authenticated and the date
on which the original issue of Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose unless there appears on such Note a certificate
of authentication substantially in the form provided for in Section 202, duly
executed by the Trustee by manual signature of an authorized signatory, and
such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated with
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person that shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to
<PAGE> 45
37
time, at the request of the successor Person, be exchanged for other Notes
executed in the name of the successor Person with such changes in phraseology
and form as may be appropriate, but otherwise in substance of like tenor as the
Notes surrendered for such exchange and of like principal amount at Maturity;
and the Trustee, upon Company Order of the successor Person, shall authenticate
and make available for delivery Notes as specified in such request for the
purpose of such exchange. If Notes shall at any time be authenticated and
delivered in any new name of a successor Person pursuant to this Section 303 in
exchange or substitution for or upon registration of transfer of any Notes,
such successor Person, at the option of the Holders but without expense to
them, shall provide for the exchange of all Notes at the time Outstanding for
Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may execute, and
upon Company Order the Trustee shall authenticate and make available for
delivery, temporary Notes which are printed, lithographed, typewritten,
photocopied or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes to
be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company in a
Place of Payment, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes, the Company shall execute and,
upon Company Order, the Trustee shall authenticate and make available for
delivery in exchange therefor a like principal amount at Maturity of definitive
Notes of authorized denominations. Until so exchanged, the temporary Notes
shall in all respects be entitled to the same benefits under this Indenture as
definitive Notes.
<PAGE> 46
38
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register for the Notes (the register maintained in the Corporate
Trust Office of the Trustee and in any other office or agency of the Company in
a Place of Payment being herein sometimes collectively referred to as the "Note
Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Notes and of
transfers of Notes. The Note Register shall be in written form or any other
form capable of being converted into written form within a reasonable time. At
all reasonable times, the Note Register shall be open to inspection by the
Trustee. The Trustee is hereby initially appointed as note registrar (the
Trustee in such capacity, together with any successor Trustee in such capacity,
the "Note Registrar") for the purpose of registering Notes and transfers of
Notes as herein provided.
Upon surrender for registration of transfer of any Note at the office or
agency in a Place of Payment, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in the name of the designated
transferee, one or more new Notes, of any authorized denominations and of a
like aggregate principal amount at Maturity and tenor.
At the option of the Holder, Notes may be exchanged for other Notes, of
any authorized denomination and of a like aggregate principal amount at
Maturity, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Company shall execute,
and the Trustee shall authenticate and make available for delivery, the Notes
which the Holder making the exchange is entitled to receive; provided that no
exchange of Initial Notes for Exchange Notes shall occur until an Exchange
Offer Registration Statement shall have been declared effective by the
Commission, the Trustee shall have received an Officers' Certificate confirming
that the Exchange Offer Registration Statement has been declared effective by
the Commission and the Initial Notes to be exchanged for the Exchange Notes
shall have been cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other
<PAGE> 47
39
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Notes, other than exchanges pursuant to Section 304,
906, 1014 or 1015 not involving any transfer.
The Company shall not be required to issue, register the transfer of or
exchange any Note which has been surrendered for repayment at the option of the
Holder, except the portion, if any, of such Note not to be so repaid.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
If any mutilated Note is surrendered to the Trustee, the Company shall
execute, and the Trustee shall authenticate and make available for delivery in
exchange therefor, a new Note of like tenor and principal amount at Maturity
and bearing a number not contemporaneously outstanding, or, in case any such
mutilated Note has become or is about to become due and payable, the Company in
its discretion may, instead of issuing a new Note, pay such Note.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Note and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon Company Order the Trustee shall
authenticate and make available for delivery, in lieu of any such destroyed,
lost or stolen Note, a new Note of like tenor and principal amount at Maturity
and bearing a number not contemporaneously outstanding, or, in case any such
destroyed, lost or stolen Note has become or is about to become due and
payable, the Company in its discretion may, instead of issuing a new Note, pay
such Note.
Upon the issuance of any new Note under this Section 306, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 306 in lieu of any
destroyed, lost or stolen Note, shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionately with any and
all other Notes duly issued hereunder.
The provisions of this Section 306 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
<PAGE> 48
40
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the Place of Payment;
provided, however, that each installment of interest on any Note may at the
Company's option be paid (i) by mailing a check for such interest, payable to
or upon the written order of the Person entitled thereto pursuant to Section
308, to the address of such Person as it appears on the Note Register or (ii)
by wire transfer to an account located in the United States maintained by the
payee.
Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such defaulted interest and, if applicable, interest on
such defaulted interest (to the extent lawful) at the rate specified in the
Notes (such defaulted interest and, if applicable, interest thereon herein
collectively called "Defaulted Interest") may be paid by the Company, at its
election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the
date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to
the date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not
more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
to be given in the manner provided in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having been
so given, such Defaulted Interest shall be paid to the Persons in whose
name the Registered Notes (or their respective Predecessor Notes) are
registered at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following clause (2).
<PAGE> 49
41
(2) The Company may make payment of any Defaulted Interest on the
Notes in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such Notes may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section 307 and Section 305,
each Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Note is registered as the owner of such Note for the
purpose of receiving payment of principal of (and premium, if any, on) and
(subject to Sections 305 and 307) interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
All Notes surrendered for payment, repayment at the option of the Holder,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Notes so delivered to the
Trustee shall be promptly cancelled by it. The Company may at any time deliver
to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation, any Notes previously authenticated hereunder
which the Company has not issued and sold, and all Notes so delivered shall be
promptly cancelled by the Trustee. If the Company shall so acquire any of the
Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance
with its customary procedures unless by Company Order the Company shall direct
that cancelled Notes be returned to it.
<PAGE> 50
42
SECTION 310. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months.
SECTION 311. Book-Entry Provisions for Global Notes.
(a) Each Global Note initially shall (i) be registered in the name of the
Depositary for such Global Notes or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 203.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee
from giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a beneficial owner of any Note. The registered holder of a Global
Note may grant proxies and otherwise authorize any person, including Agent
Members and persons that may hold interests through Agent Members, to take any
action which a Holder is entitled to take under this Indenture or the Notes.
(b) Interests of beneficial owners in a Global Note may be transferred in
accordance with the applicable rules and procedures of the Depositary and the
provisions of Section 312. Transfers of a Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees, except (i) as otherwise set forth in
Section 312 and (ii) U.S. Physical Notes or Offshore Physical Notes shall be
transferred to all beneficial owners in exchange for their beneficial interests
in the U.S. Global Note or the Offshore Global Note, respectively, in the event
that the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for the applicable Global Note or the Depositary ceases
to be a "Clearing Agency" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days. In connection with
a transfer of an entire Global Note to beneficial owners pursuant to clause
(ii) of this paragraph (b), the applicable Global Note shall be deemed to be
surrendered to the Trustee for cancellation, and the Company shall execute, and
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depositary in exchange for its beneficial interest in the applicable
Global Note, an equal aggregate principal amount at Maturity of U.S. Physical
Notes (in the case of the U.S. Global Note) or Offshore Physical Notes (in the
case of the Offshore Global Note), as the case may be, of authorized
denominations.
<PAGE> 51
43
(c) Any beneficial interest in one of the Global Notes that is transferred
to a person who takes delivery in the form of an interest in the other Global
Note will, upon transfer, cease to be an interest in such Global Note and
become an interest in the other Global Note and, accordingly, will thereafter
be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) Any U.S. Physical Note delivered in exchange for an interest in the
U.S. Global Note pursuant to paragraph (b) of this Section shall, unless such
exchange is made on or after (i) an Initial Note is sold pursuant to an
effective Shelf Registration Statement, pursuant to the Notes Registration
Rights Agreement, (ii) an Initial Note is exchanged for an Exchange Note in an
Exchange Offer pursuant to an effective Exchange Offer Registration Statement,
pursuant to the Notes Registration Rights Agreement, or (iii) two years after
the later of the original issue date of the Initial Note and the last date on
which the Company or any affiliate of the Company was the owner of the Initial
Note, (the "Resale Restriction Termination Date"), and, except as otherwise
provided in Section 312, bear the Private Placement Legend.
SECTION 312. Transfer Provisions.
Unless and until (i) an Initial Note is sold pursuant to an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in the Exchange Offer pursuant to an effective Registration Statement, in
each case, pursuant to the Notes Registration Rights Agreement, the following
provisions shall apply:
(a) General. The provisions of this Section 312 shall apply to all
transfers involving any Physical Note and any beneficial interest in any Global
Note.
(b) Certain Definitions. As used in this Section 312 only, "delivery" of
a certificate by a transferee or transferor means the delivery to the Note
Registrar by such transferee or transferor of the applicable certificate duly
completed; "holding" includes both possession of a Physical Note and ownership
of a beneficial interest in a Global Note, as the context requires;
"transferring" a Global Note means transferring that portion of the principal
amount at Maturity of the transferor's beneficial interest therein that the
transferor has notified the Note Registrar that it has agreed to transfer; and
"transferring" a Physical Note means transferring that portion of the principal
amount at Maturity thereof that the transferor has notified the Note Registrar
that it has agreed to transfer.
As used in this Indenture, "Regulation S Certificate" means a certificate
substantially in the form set forth in Section 314; "Rule 144A Certificate"
means a certificate substantially in the form set forth in Section 315; and
"Non-Registration Opinion and Supporting Evidence" means a written opinion of
counsel reasonably acceptable to the Company to the effect that, and such other
certification or information as the Company may
<PAGE> 52
44
reasonably require to confirm that, the proposed transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
(c) [Intentionally Omitted]
(d) Deemed Delivery of a Rule 144A Certificate in Certain Circumstances. A
Rule 144A Certificate, if not actually delivered, will be deemed delivered if
(i) (A) the transferor advises the Company and the Trustee in writing that the
relevant offer and sale were made in accordance with the provisions of Rule
144A (or, in the case of a transfer of a Physical Note, the transferor checks
the box provided on the Physical Note to that effect) and (B) the transferee
advises the Company and the Trustee in writing that (x) it and, if applicable,
each account for which it is acting in connection with the relevant transfer,
is a QIB within the meaning of Rule 144A, (y) it is aware that the transfer of
Notes to it is being made in reliance on the exemption from the provisions of
Section 5 of the Securities Act provided by Rule 144A, and (z) prior to the
proposed date of transfer it has been given the opportunity to obtain from the
Company the information referred to in Rule 144A(d)(4), and has either declined
such opportunity or has received such information (or, in the case of a
transfer of a Physical Note, the transferee signs the certification provided on
the Physical Note to that effect); or (ii) the transferor holds the U.S. Global
Note and is transferring to a transferee that will take delivery in the form of
the U.S. Global Note.
(e) Procedures and Requirements.
1. If the proposed transfer occurs prior to the Offshore Note Exchange
Date, and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note Registrar,
and the proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the Note Registrar shall (x) register such transfer in the
name of such transferee and record the date thereof in its books
and records, (y) cancel such surrendered U.S. Physical Note and (z)
deliver a new U.S. Physical Note to such transferee duly registered
in the name of such transferee in principal amount at Maturity
equal to the principal amount at Maturity being transferred of such
surrendered U.S. Physical Note;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
U.S. Global Note, then the Note Registrar shall
<PAGE> 53
45
(x) cancel such surrendered U.S. Physical Note, (y) record an
increase in the principal amount at Maturity of the U.S. Global
Note equal to the principal amount at Maturity being transferred of
such surrendered U.S. Physical Note and (z) notify the Depositary
in accordance with the procedures of the Depositary that it
approves of such transfer; or
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
Offshore Global Note, then the Note Registrar shall (x) cancel such
surrendered U.S. Physical Note, (y) record an increase in
the principal amount at Maturity of the Offshore Global Note equal
to the principal amount at Maturity being transferred of such
surrendered U.S. Physical Note and (z) notify the Depositary in
accordance with the procedures of the Depositary that it approves
of such transfer; provided, however, that until the Offshore Note
Exchange Date occurs, beneficial interests in the Offshore Global
Note may be held only in or through accounts maintained at the
Depositary by Euroclear or Cedel (or by Agent Members acting for
the account thereof), and no person shall be entitled to effect any
transfer or exchange that would result in any such interest being
held otherwise than in or through such an account.
In any of the cases described in this Section 312(e)(1)(A), the Note
Registrar shall deliver to the transferor a new U.S. Physical Note in
principal amount at Maturity equal to the principal amount at Maturity
not being transferred of such surrendered U.S. Physical Note, as
applicable.
(B) the U.S. Global Note, and the proposed transferee or transferor,
as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the Note Registrar shall (w) register such transfer in the
name of such transferee and record the date thereof in its books
and records, (x) record a decrease in the principal amount at
Maturity of the U.S. Global Note in an amount equal to the
beneficial interest therein being transferred, (y) deliver a new
U.S. Physical Note to such transferee duly registered in the name
of such transferee in principal amount at Maturity equal to the
amount of such decrease and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of such
transfer;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a
<PAGE> 54
46
beneficial interest in the U.S. Global Note, then the transfer
shall be effected in accordance with the procedures of the
Depositary therefor; or
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
Offshore Global Note, then the Note Registrar shall (w) register
such transfer in the name of such transferee and record the date
thereof in its books and records, (x) record a decrease in the
principal amount at Maturity of the U.S. Global Note in an amount
equal to the beneficial interest therein being transferred, (y)
record an increase in the principal amount at Maturity of the
Offshore Global Note equal to the amount of such decrease and (z)
notify the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer; provided, however,
that until the Offshore Note Exchange Date occurs, beneficial
interests in the Offshore Global Note may be held only in or
through accounts maintained at the Depositary by Euroclear or Cedel
(or by Agent Members acting for the account thereof), and no person
shall be entitled to effect any transfer or exchange that would
result in any such interest being held otherwise than in or through
such an account.
(C) the Offshore Global Note, and the proposed transferee or
transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the Note Registrar shall (w) register such transfer in the
name of such transferee and record the date thereof in its books
and records, (x) record a decrease in the principal amount at
Maturity of the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) deliver a new
U.S. Physical Note to such transferee duly registered in the name
of such transferee in principal amount at Maturity equal to the
amount of such decrease and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of such
transfer;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
U.S. Global Note, then the Note Registrar shall (x) record a
decrease in the principal amount at Maturity of the Offshore Global
Note in an amount equal to the beneficial interest therein being
transferred, (y) record an increase in the principal amount at
Maturity of the U.S. Global Note equal to the amount of such
decrease and (z) notify the Depositary in accordance with the
procedures of the Depositary that it approves of such
<PAGE> 55
47
transfer; or
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
Offshore Global Note, then the transfer shall be effected in
accordance with the procedures of the Depositary therefor;
provided, however, that until the Offshore Note Exchange Date
occurs, beneficial interests in the Offshore Global Note may be
held only in or through accounts maintained at the Depositary by
Euroclear or Cedel (or by Agent Members acting for the account
thereof), and no person shall be entitled to effect any transfer or
exchange that would result in any such interest being held
otherwise than in or through such an account.
2. If the proposed transfer occurs on or after the Offshore Note Exchange
Date and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note Registrar,
and the proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the procedures set forth in Section 312(e)(1)(A)(i) shall
apply;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
U.S. Global Note, then the procedures set forth in Section
312(e)(1)(A)(ii) shall apply; or
(iii) delivers a Regulation S Certificate, then the Note
Registrar shall cancel such surrendered U.S. Physical Note and at
the direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and records
and deliver a new Offshore Physical Note to such transferee
in principal amount at Maturity equal to the principal amount
at Maturity being transferred of such surrendered U.S.
Physical Note, or
(y) if the proposed transferee is or is acting through
an Agent Member, record an increase in the principal amount
of the Offshore Global Note equal to the principal amount at
Maturity being transferred
<PAGE> 56
48
of such surrendered U.S. Physical Note and notify the
Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
In any of the cases described in this Section 312(e)(2)(A), the Note
Registrar shall deliver to the transferor a new U.S. Physical Note in
principal amount at Maturity equal to the principal amount at Maturity
not being transferred of such surrendered U.S. Physical Note, as
applicable.
(B) the U.S. Global Note, and the proposed transferee or transferor,
as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the procedures set forth in Section 312(e)(1)(B)(i) shall
apply; or
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through an Agent Member and requests
that the proposed transferee receive a beneficial interest in the
U.S. Global Note, then the procedures set forth in Section
312(e)(1)(B)(ii) shall apply; or
(iii) delivers a Regulation S Certificate, then the Note
Registrar shall (x) record a decrease in the principal amount at
Maturity of the U.S. Global Note in an amount equal to the
beneficial interest therein being transferred, (y) notify the
Depositary in accordance with the procedures of the Depositary that
it approves of such transfer and (z) at the direction of the
transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and records
and deliver a new Offshore Physical Note to such transferee
in principal amount at Maturity equal to the amount of such
decrease in the principal amount at Maturity of the U.S.
Global Note, or
(y) if the proposed transferee is or is acting through
an Agent Member, record an increase in the principal amount
at Maturity of the Offshore Global Note equal to the amount
of such decrease in the principal amount at Maturity of the
U.S. Global Note.
(C) an Offshore Physical Note which is surrendered to the Note
Registrar, and the proposed transferee or transferor, as applicable:
<PAGE> 57
49
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through an Agent Member and requests
delivery in the form of the U.S. Global Note, then the Note
Registrar shall (x) cancel such surrendered Offshore Physical Note,
(y) record an increase in the principal amount at Maturity of the
U.S. Global Note equal to the principal amount at Maturity being
transferred of such surrendered Offshore Physical Note and (z)
notify the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer;
(ii) where the proposed transferee is or is acting through an
Agent Member, requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the Note
Registrar shall (x) cancel such surrendered Offshore Physical Note,
(y) record an increase in the principal amount at Maturity of the
Offshore Global Note equal to the principal amount at Maturity
being transferred of such surrendered Offshore Physical Note and
(z) notify the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer; or
(iii) does not make a request covered by Section
312(e)(2)(C)(i) or Section 312(e)(2)(C)(ii), then the Note
Registrar shall (x) register such transfer in the name of such
transferee and record the date thereof in its books and records,
(y) cancel such surrendered Offshore Physical Note and (z) deliver
a new Offshore Physical Note to such transferee duly registered in
the name of such transferee in principal amount at Maturity equal
to the principal amount at Maturity being transferred of such
surrendered Offshore Physical Note.
In any of the cases described in this Section 312(e)(2)(C), the Note
Registrar shall deliver to the transferor a new U.S. Physical Note in
principal amount equal at Maturity to the principal amount at Maturity
not being transferred of such surrendered U.S. Physical Note, as
applicable.
(D) the Offshore Global Note, and the proposed transferee or
transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through an Agent Member and requests
delivery in the form of the U.S. Global Note, then the Note
Registrar shall (x) record a decrease in the principal amount at
Maturity of the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) record an
increase in the principal amount at Maturity of the U.S. Global
Note equal to the amount of such decrease and (z) notify the
Depositary in accordance with the procedures of the Depositary
<PAGE> 58
50
that it approves of such transfer;
(ii) where the proposed transferee is or is acting through an
Agent Member, requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the transfer
shall be effected in accordance with the procedures of the
Depositary therefor; or
(iii) does not make a request covered by Section
312(e)(2)(D)(i) or Section 312(e)(2)(D)(ii), then the Note
Registrar shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and records,
(x) record a decrease in the principal amount of the Offshore
Global Note in an amount equal to the beneficial interest therein
being transferred, (y) deliver a new Offshore Physical Note to such
transferee duly registered in the name of such transferee in
principal amount at Maturity equal to the amount of such decrease
and (z) notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer.
(f) Execution, Authentication and Delivery of Physical Notes. In any case
in which the Note Registrar is required to deliver a Physical Note to a
transferee or transferor, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, such Physical Note.
(g) Certain Additional Terms Applicable to Physical Notes. Any transferee
entitled to receive a Physical Note may request that the principal amount at
Maturity thereof be evidenced by one or more Physical Notes in any authorized
denomination or denominations and the Note Registrar shall comply with such
request if all other transfer restrictions are satisfied.
(h) Transfers Not Covered by Section 312(e). The Note Registrar shall
effect and record, upon receipt of a written request from the Company so to do,
a transfer not otherwise permitted by Section 312(e), such recording to be done
in accordance with the otherwise applicable provisions of Section 312(e), upon
the furnishing by the proposed transferor or transferee of a Non-Registration
Opinion and Supporting Evidence.
(i) General. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture. The
Note Registrar shall not register a transfer of any Note unless such transfer
complies with the restrictions with respect thereto set forth in this
Indenture. The Note Registrar shall not be required to determine (but may rely
upon a determination made by the Company) the sufficiency of any such
certifications, legal opinions or other information.
<PAGE> 59
51
(j) Private Placement Legend. Upon the transfer, exchange or replacement
of Notes not bearing the Private Placement Legend, the Note Registrar shall
deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement
Legend, the Note Registrar shall deliver only Notes that bear the Private
Placement Legend unless (i) the circumstances exist contemplated by the fourth
paragraph of Section 201 (with respect to an Offshore Physical Note) or the
requested transfer is at least two years after the original issue date of the
Initial Note (with respect to any Physical Note), (ii) there is delivered to
the Note Registrar an Opinion of Counsel reasonably satisfactory to the Company
and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) such Notes are exchanged for Exchange
Notes pursuant to an Exchange Offer.
SECTION 313. [Reserved].
SECTION 314. Form of Regulation S Certificate.
Regulation S Certificate
To: The Bank of New York,
Trustee (the "Trustee")
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: DTI Holdings, Inc. (the "Company")
12-1/2% Senior Discount Notes due 2008 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $__________ aggregate principal
amount at Maturity of Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S ("Regulation S") under the
Securities Act of 1933, as amended (the "Securities Act"), and accordingly, we
hereby certify as follows:
1. The offer of the Notes was not made to a person in the United
States (unless such person or the account held by it for which it is
acting is excluded from the definition of "U.S. person" pursuant to Rule
902(o) of Regulation S under the circumstances described in Rule
902(i)(3) of Regulation S) or specifically targeted at an identifiable
group of U.S. citizens abroad.
2. Either (a) at the time the buy order was originated, the buyer
was outside the United States or we and any person acting on our behalf
reasonably believed
<PAGE> 60
52
that the buyer was outside the United States or (b) the transaction was
executed in, on or through the facilities of a designated offshore
securities market, and neither we nor any person acting on our behalf
knows that the transaction was pre-arranged with a buyer in the United
States.
3. Neither we, any of our affiliates, nor any person acting on our
or their behalf has made any directed selling efforts in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b)
of Regulation S, as applicable.
4. The proposed transfer of Notes is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
5. If we are a dealer or a person receiving a selling concession or
other fee or remuneration in respect of the Notes, and the proposed
transfer takes place before the Offshore Note Exchange Date referred to
in the Indenture between the Company and the Trustee, or we are an
officer or director of the Company or a distributor, we certify that the
proposed transfer is being made in accordance with the provisions of
Rules 903 and 904(c) of Regulation S.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[NAME OF SELLER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: __________
<PAGE> 61
53
SECTION 315. Form of Rule 144A Certificate.
Rule 144A Certificate
To: The Bank of New York,
Trustee (the "Trustee")
101 Barclay Street, 21W
New York, New York 10286
Attention:Corporate Trust Trustee Administration
Re: DTI Holdings, Inc. (the "Company")
12-1/2% Senior Discount Notes due 2008 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $__________ aggregate principal
amount at Maturity of Notes, we confirm that such sale has been effected
pursuant to and in accordance with Rule 144A ("Rule 144A") under the Securities
Act of 1933, as amended (the "Securities Act"). We are aware that the transfer
of Notes to us is being made in reliance on the exemption from the provisions
of Section 5 of the Securities Act provided by Rule 144A. Prior to the date of
this Certificate we have been given the opportunity to obtain from the Company
the information referred to in Rule 144A(d)(4), and have either declined such
opportunity or have received such information.
You and the Company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:__________________________
Name:
Title:
Address:
Date of this Certificate: __________
<PAGE> 62
54
SECTION 316. CUSIP Numbers.
The Company may use "CUSIP" numbers (if then generally in use) in issuing
the Notes and, if so, the Trustee shall use "CUSIP" numbers in notices to
Holders as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice and that reliance may be
placed only on the other identification numbers printed on the Notes. The
Company will promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further effect
with respect to Notes (except as to any surviving rights of registration of
transfer or exchange of the Notes expressly provided for in this Indenture),
and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(1) either
(A) all the respective Notes theretofore authenticated and
delivered (other than (i) Notes which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section
306, and (ii) Notes for whose payment money has theretofore been
deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter repaid
to the Company, as provided in Section 1003) have been delivered to
the Trustee for cancellation; or
(B) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable,
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at
the expense, of the Company,
<PAGE> 63
55
and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire Indebtedness on such
Notes not theretofore delivered to the Trustee for cancellation,
for Accreted Value of (and premium, if any) and interest to the
date of such deposit (in the case of Notes which have become due
and payable) or to the Stated Maturity or redemption date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606, the obligations of
the Company to any Authenticating Agent under Section 611 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
<PAGE> 64
56
(1) default in the payment of any interest on any Note when it
becomes due and payable and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Note at its Maturity (upon acceleration, required purchase or
otherwise); or
(3) (A) default in the performance, or breach, of any covenant or
agreement of the Company contained in this Indenture (other than a default
in the performance, or breach, of a covenant or agreement which is
specifically dealt with in the immediately preceding clauses (1) and (2)
or in clauses (B), (C) or (D) of this clause (3) of this Section 501), and
continuance of such default or breach for a period of 30 days after there
has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25%
in aggregate principal amount at Maturity of all Outstanding Notes a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder;
(B) default in the performance or breach of the provisions of Section
1015; (C) default in the performance or breach of Article Eight; or (D)
the failure to make or consummate a Change of Control Offer in accordance
with the provisions of Section 1014; or
(4) (A) one or more defaults in the payment of principal of (or
premium, if any, or interest on) Indebtedness of the Company or any
Significant Subsidiary aggregating $7,500,000 or more (or, to the extent
not denominated in United States dollars, the United States Dollar
Equivalent thereof), when the same becomes due and payable at the Stated
Maturity thereof, and such default or defaults shall have continued after
any applicable grace period and shall not have been cured or waived or (B)
Indebtedness of the Company or any Significant Subsidiary aggregating
$7,500,000 or more (or, to the extent not denominated in United States
dollars, the United States Dollar Equivalent thereof) shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment) prior to the Stated Maturity thereof; or
(5) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Significant
Subsidiary or their respective properties for the payment in money, either
individually or in an aggregate amount, in excess of $7,500,000 (or, to
the extent not denominated in United States dollars, the United States
Equivalent thereof) and either (A) an enforcement proceeding shall have
been commenced by any creditor upon such judgment or order or (B) there
shall have been a period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, was not in effect; or
(6) the entry of a decree or order by a court having jurisdiction in
the
<PAGE> 65
57
premises adjudging the Company or any Significant Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under a Bankruptcy Law or any
other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or any Significant Subsidiary or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(7) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under a Bankruptcy Law or any other applicable
federal or state law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or any
Significant Subsidiary or of any substantial part of its property, or the
making by it of a general assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in clause
(6) or (7) of Section 501) shall occur and be continuing, then in every such
case the Trustee or the Holders of not less than 25% in aggregate principal
amount at Maturity of the Outstanding Notes, by written notice to the Company
(and to the Trustee if such notice is given by the Holders), may, and the
Trustee upon the written request of such Holders shall, declare the Accreted
Value of, premium, if any, and accrued interest on all of the Outstanding Notes
to be immediately due and payable, and upon any such declaration all such
amounts payable in respect of the Notes shall become immediately due and
payable. If an Event of Default described in clause (6) or (7) of Section 501
shall occur and be continuing, then the Accreted Value of, premium, if any, and
accrued interest on all the Outstanding Notes shall ipso facto become and
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made under this
Indenture, but before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in aggregate principal amount at Maturity of the
Outstanding Notes, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
<PAGE> 66
58
(i) all overdue interest on all Outstanding Notes,
(ii) the Accreted Value of and premium, if any, on any
Outstanding Notes that have become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal
and premium, if any, at the rate borne by the Notes,
(iii) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne
by the Notes, and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(b) all Events of Default, other than the non-payment of amounts of
principal of, premium, if any, or interest on the Notes at the Maturity
thereof that have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because of Event of Default specified in
Section 501(4) shall have occurred and be continuing, such Event of Default and
all consequences thereof (including, without limitation, any acceleration or
resulting payment default) shall be automatically annulled, waived and
rescinded if the Indebtedness that is the subject of such Event of Default
shall have been discharged or the holders thereof shall have rescinded their
declaration of acceleration in respect of such Indebtedness or the default that
is the basis for such Event of Default has been cured, and written notice of
such discharge or rescission or cure, as the case may be, shall have been given
to the Trustee by the Company and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Notes, and no other
Event of Default shall have occurred during such 30-day period which has not
been cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(1) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default
continues for a period of
<PAGE> 67
59
30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof,
then the Company will, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Notes, the whole amount then due and payable on
such Notes for the Accreted Value of or principal (and premium, if any) and
interest, and interest on any overdue principal (and premium, if any) and, to
the extent that payment of such interest shall be legally enforceable, upon any
overdue installment of interest, at the rate borne by such Notes, and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon such Notes, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal amount at Maturity of the Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of the Accreted Value or the overdue principal,
premium, if any, or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of the Accreted
Value of, or the principal amount at Maturity (and premium, if any) and
interest owing and unpaid in respect of, the Notes and to file such other
papers or documents as may be
<PAGE> 68
60
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of
the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay to the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of the Accreted Value or
principal (or premium, if any) or interest, upon presentation of the Notes and
the notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section
606;
Second: To the payment of the amounts then due and unpaid for the
Accreted Value of or principal amount at Maturity of (and premium, if any,
on) and interest on the Notes in respect of which or for the benefit of
which such money has been
<PAGE> 69
61
collected, ratably, without preference or priority of any kind, according
to the amounts due and payable on such Notes for the Accreted Value or the
principal amount at Maturity (and premium, if any) and interest,
respectively; and
Third: The balance, if any, to the Person or Persons entitled
thereto, including the Company or any other obligor on the Notes, as their
interests may appear or as a court of competent jurisdiction may direct.
SECTION 507. Limitation on Suits.
No Holder of any Note shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment
of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder shall have previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount at
Maturity of the Outstanding Notes shall have made a written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount at Maturity of the Outstanding Notes;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over
any other of such Holders or to enforce any right under this Indenture or any
Note, except in the manner herein provided and for the equal and ratable
benefit of all Holders.
<PAGE> 70
62
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein, of the principal of (and premium, if any, on) and
(subject to Section 307) interest on, such Note on the respective Stated
Maturities expressed in such Note and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders of Notes shall be
restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders of Notes is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
<PAGE> 71
63
SECTION 512. Control by Holders.
The Holders of not less than a majority in aggregate principal amount at
Maturity of the Outstanding Notes shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided
that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) subject to Section 315 of the Trust Indenture Act, the Trustee
may take any other action deemed proper by the Trustee which is not
inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders of Notes not
consenting.
SECTION 513. Waiver of Past Defaults.
Subject to Section 902 and the last paragraph of Section 502, the Holders
of not less than a majority in aggregate principal amount at Maturity of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
defaults hereunder and their consequences under this Indenture, except a
default
(1) in respect of the payment of the principal of (or premium, if
any, on) or interest on any Note at Maturity, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note.
Upon any such waiver, any such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
<PAGE> 72
64
SECTION 514. Waiver of Stay or Extension Laws.
Each of the Company and any other obligor on the Notes covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
each of the Company and any other obligor on the Notes (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within five days after the earlier of receipt from the Company of notice
of the occurrence of any Default or Event of Default hereunder or the date when
such Default or Event of Default becomes known to the Trustee, the Trustee
shall transmit, in the manner and to the extent provided in TIA Section 313(c),
notice of such default hereunder known to the Trustee, unless such Default
shall have been cured or waived; provided, however, that, except in the case of
a Default in the payment of the Accreted Value or the principal amount at
Maturity of (or premium, if any, on) or interest on any Note, the Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders; and provided
further that in the case of any Default of the character specified in Section
501(4) with respect to Notes, no such notice to Holders shall be given until at
least 45 days after the occurrence thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d)
(determined as if the TIA were applicable to this Indenture at all times):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
<PAGE> 73
65
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders of Notes pursuant to this Indenture,
unless such Holders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture;
and
(9) the Trustee shall not be deemed to have notice of any Event of
Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at
<PAGE> 74
66
the Corporate Trust Office of the Trustee, and such notice references the
Notes and this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except for the Trustee's
certificates of authentication, shall be taken as the statements of the
Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Notes, except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Notes and perform its obligations hereunder and
that the statements made by it in its Statement of Eligibility on Form T-1
supplied to the Company are true and accurate, subject to the qualifications
set forth therein. Neither the Trustee nor any Authenticating Agent shall be
accountable for the use or application by the Company of Notes or the proceeds
thereof.
SECTION 604. May Hold Notes.
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other agent of the Company or of the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and,
subject to TIA Sections 310(b) and 311, may otherwise deal with the Company
with the same rights it would have if it were not Trustee, Authenticating
Agent, Paying Agent, Note Registrar or such other agent.
SECTION 605. Money Held in Trust.
All money received by the Trustee shall, until used or applied as herein
provided, be held in trust hereunder for the purposes for which they were
received. Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
<PAGE> 75
67
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as
shall be agreed in writing between the Company and the Trustee for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee and
its agents for, and to hold it harmless against, any and all loss,
liability, damage, claim or expense, including taxes (other than taxes
based on the income of the Trustee) incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any, on)
or interest on particular Notes at Maturity.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(6) or Section 501(7), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation of the Trustee for the services are intended to constitute
expenses of administration under any applicable Federal or state bankruptcy,
insolvency or other similar law.
<PAGE> 76
68
SECTION 607. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible to
act as Trustee under TIA Section 310(a)(1) and shall have a combined capital
and surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time with respect to the Notes by giving
written notice thereof to the Company. If the instrument of acceptance by a
successor Trustee required by Section 609 shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Notes.
(c) The Trustee may be removed at any time with respect to the Notes by
Act of the Holders of not less than a majority in principal amount of the then
Outstanding Notes, delivered to the Trustee and to the Company. If the
instrument of acceptance by a successor Trustee required by Section 609 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of removal, the Trustee being removed may petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Notes.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
<PAGE> 77
69
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee with respect to all Notes, or (ii) subject to TIA Section 315(e), any
Holder who has been a bona fide Holder of a Note for at least six months may,
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all Notes
and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Notes, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Notes shall be appointed by Act of the Holders of a
majority in aggregate principal amount of the then Outstanding Notes delivered
to the Company and the retiring Trustee, the successor Trustee so appointed
shall, forthwith upon its acceptance of such appointment, become the successor
Trustee with respect to the Notes and to that extent supersede the successor
Trustee appointed by the Company. If no successor Trustee with respect to the
Notes shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Notes.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Notes and each appointment of a successor
Trustee with respect to the Notes to the Holders of Notes in the manner
provided for in Section 106. Each notice shall include the name of the
successor Trustee with respect to the Notes and the address of its Corporate
Trust Office.
<PAGE> 78
70
SECTION 609. Acceptance of Appointment by Successor.
(a) Each successor Trustee shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on the request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder.
(b) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all rights, powers and trusts referred to in
paragraph (a) of this Section.
(c) No successor Trustee shall accept its appointment unless at the time
of such acceptance, such successor Trustee shall be qualified and eligible
under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Notes shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Notes so authenticated with the same effect as
if such successor Trustee had itself authenticated such Notes. In case at that
time any of the Notes shall not have been authenticated, any successor Trustee
may authenticate such Notes either in the name of any predecessor hereunder or
in the name of the successor Trustee. In all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this
Indenture; provided that the certificate of authentication the Trustee shall
have; provided, however, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Notes in the name
of any predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
<PAGE> 79
71
SECTION 611. Appointment of Authenticating Agent.
At any time when any of the Notes remain Outstanding, the Trustee may
appoint an Authenticating Agent or Agents with respect to the Notes which shall
be authorized to act on behalf of the Trustee to authenticate Notes and the
Trustee shall give written notice of such appointment to all Holders of Notes
with respect to which such Authenticating Agent will serve, in the manner
provided for in Section 106. Notes so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes
as if authenticated by the Trustee hereunder. Any such appointment shall be
evidenced by an instrument in writing signed by a Responsible Officer of the
Trustee, and a copy of such instrument shall be promptly furnished to the
Company. Wherever reference is made in this Indenture to the authentication
and delivery of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the
United States of America, any state thereof or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by federal or state authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section 611, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time an Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section 611, it
shall resign immediately in the manner and with the effect specified in this
Section 611.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent; provided such corporation shall be otherwise eligible
under this Section 611, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give written notice of
such appointment to all
<PAGE> 80
72
Holders, in the manner provided for in Section 106. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Company agrees to pay to each Authenticating Agent from time to time
such compensation for its services under this Section as shall be agreed in
writing between the Company and such Authenticating Agent.
If an appointment is made pursuant to this Section, the Notes may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
This is one of the Notes designated therein referred to in the
within-mentioned Indenture.
THE BANK OF NEW YORK,
Trustee
By
--------------------------
Authenticating Agent
By
--------------------------
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder, by receiving and holding the same, agrees with the Company
and the Trustee that none of the Company or the Trustee or any agent of either
of them shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with TIA
Section 312, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under TIA Section 312(b).
<PAGE> 81
73
SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first May 15
after the Issue Date, the Trustee shall transmit to the Holders (with a copy to
the Company at the Place of Payment), in the manner and to the extent provided
in TIA Section 313(c), a brief report dated as of such May 15 if required by
TIA Section 313(a).
SECTION 703. Reports by Company.
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may from time to
time by rules and regulations prescribe) which the Company may be required
to file with the Commission pursuant to Section 13 or Section 15(d) of the
Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of said Sections, then the Company
shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of
the supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance
by the Company with the conditions and covenants of this Indenture as may
be required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
<PAGE> 82
74
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
The Company will not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets substantially as an entirety to any other
Person or Persons or permit any Subsidiary to enter into any such transaction
or series of related transactions, if such transaction or series of related
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Subsidiaries on a consolidated
basis substantially as an entirety to any Person or Persons, unless at the time
and immediately after giving effect thereto:
(i) either (a) the Company will be the continuing corporation or (b)
the Person (if other than the Company) formed by such consolidation or
into which the Company or such Subsidiary is merged or the Person which
acquires by sale, conveyance, transfer, lease or other disposition, all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis substantially as an entirety, as the
case may be (the "Surviving Entity"), (1) will be a corporation organized
and validly existing under the laws of the United States of America, any
state thereof or the District of Columbia and (2) will expressly assume,
by a supplemental indenture to this Indenture in form satisfactory to the
Trustee, the Company's obligation pursuant to the Notes for the due and
punctual payment of the principal (including accretion of original issue
discount) of, premium, if any, on and interest on all the Notes and the
performance and observance of every covenant of this Indenture on the part
of the Company to be performed or observed;
(ii) immediately before and after giving effect to such transaction
or series of transactions on a pro forma basis (and treating any
obligation of the Company or any Subsidiary incurred in connection with or
as a result of such transaction or series of transactions as having been
incurred at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred on the first day of the
latest fiscal quarter for which consolidated financial statements of the
Company are available immediately prior to the consummation of such
transaction or series of transactions with the appropriate adjustments
with respect to the transaction or series of transactions being included
in such pro forma calculation), the Company (or the Surviving Entity if
the Company is
<PAGE> 83
75
not the continuing obligor under this Indenture) could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
the provisions of Section 1008; and
(iv) if any of the property or assets of the Company or any of its
Subsidiaries would thereupon become subject to any Lien, the provisions of
Section 1012 are complied with.
In connection with any such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, the Company or the Surviving
Entity shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, and if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the requirements of this Indenture and that all
conditions precedent therein provided for relating to such transaction have
been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and assets of the Company in accordance with Section 801 in which the Company
is not the continuing obligor under this Indenture, the Surviving Entity shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor had
been named as the Company therein. When a successor assumes all the obligations
of its predecessor under this Indenture, the predecessor shall be released from
those obligations; provided that in the case of a transfer by lease, the
predecessor shall not be released from the payment of principal (including
accretion of original issue discount) of, premium, if any, and interest on the
Notes.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized pursuant
to a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company or
any
<PAGE> 84
76
other obligor on the Notes, and the assumption by any such successor of
the covenants of the Company or such obligor contained herein and in the
Notes in accordance with Article Eight; or
(2) to add to the covenants of the Company or any other obligor on
the Notes for the benefit of the Holders or to surrender any right or
power conferred upon the Company or any other obligor on the Notes, herein
and in the Notes, as applicable, in the Indenture or the Notes; or
(3) to cure any ambiguity, to correct or supplement any provision
herein or in the Notes which may be defective or inconsistent with any
other provision herein or in the Notes, or to make any other provisions
with respect to matters or questions arising under this Indenture or the
Notes; provided that, in each case, such provisions shall not adversely
affect the interests of the Holders; or
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification, if any, of this Indenture under the
Trust Indenture Act; or
(5) to evidence and provide the acceptance of the appointment of a
successor Trustee under this Indenture; or
(6) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security
for the payment and performance of the Company's obligations under this
Indenture, in any property or assets, including any of which are required
to be mortgaged, pledged or hypothecated, or in which a security interest
is required to be granted, to the Trustee pursuant to this Indenture or
otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in aggregate
principal amount at Maturity of all then Outstanding Notes that are affected
thereby, by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by or pursuant to a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the Accreted Value thereof
or premium, if any, or the rate of interest thereon, or alter any
redemption provision with respect to the timing or amount of payment
thereof, or change the coin or currency in which the Accreted
<PAGE> 85
77
Value of any Note or any premium, if any, or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the redemption date), or
(2) amend, change or modify any of the provisions of Section 1014 or
Section 1015 including, in each case, amending, changing or modifying any
definitions relating thereto, or
(3) reduce the percentage in principal amount at Maturity of the
Outstanding Notes, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture, or
(4) modify any provisions of this Section, Section 1021 or Section
513, except to increase the percentage in principal amount at Maturity of
the Outstanding Notes required to take any of the actions described
therein or to provide that certain additional provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Note affected thereby, or
(5) except as otherwise permitted under Article Eight, consent to the
assignment or transfer by the Company of their respective rights or
obligations under this Indenture.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
<PAGE> 86
78
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Notes theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for
in such supplemental indenture. If the Company shall so determine, new Notes
so modified as to conform, in the opinion of the Trustee and the Company, to
any such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
<PAGE> 87
79
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest.
The Company covenants and agrees for the benefit of the Holders of Notes
that it will duly and punctually pay the principal of (and premium, if any, on)
and interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the City of New York an office or agency
where Notes may be presented or surrendered for payment (the "Place of
Payment"), where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company hereby designates the
Corporate Trust Office as the Place of Payment.
The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of the Place of Payment. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the same as its agent to
receive such respective presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind any such designation; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in accordance with
the requirements set forth above for Notes for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
<PAGE> 88
80
SECTION 1003. Money for Notes Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to the Notes, it will, on or before each date on which payment shall become due
of the Accreted Value of or principal amount at Maturity of (and premium, if
any) or interest on any of the Notes, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the Accreted
Value or the principal amount at Maturity (and premium, if any) or interest so
becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the Notes,
it will, prior to or on each date on which payment shall become due of the
Accreted Value of or principal amount at Maturity of (and premium, if any, on)
or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay
the Accreted Value or principal amount at Maturity (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such Accreted Value, principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the Accreted Value of
or the principal amount at Maturity of (and premium, if any) and interest
on the Notes in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise disposed of as
herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of Accreted
Value of or principal amount at Maturity of (or premium, if any) or
interest on the Notes; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying
<PAGE> 89
81
Agent to the Trustee, such Paying Agent shall be released from all further
liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the Accreted Value of or principal of
(and premium, if any) or interest on any Note and remaining unclaimed for one
year after such Accreted Value or such principal (and premium, if any) or
interest has become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, The City of New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and
each Restricted Subsidiary; provided, however, that, subject to the other
provisions of this Indenture, the Company shall not be required to preserve any
such right or franchise, or the existence of any Restricted Subsidiary, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries as
a whole and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, would by
law become a lien (other than a Permitted Lien) upon the property of the
Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
<PAGE> 90
82
SECTION 1006. Maintenance of Properties.
The Company will cause all material properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order (except ordinary wear and tear) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company may be necessary so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times; provided, however, that nothing in this Section shall prevent the
Company or any of its Restricted Subsidiaries from discontinuing the
maintenance of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Restricted Subsidiary and not disadvantageous in any material
respect to the Holders.
SECTION 1007. Statement by Officers As to Default.
(a) The Company will deliver to the Trustee, within 50 days after the end
of each fiscal quarter and within 120 days after the end of each fiscal year, a
brief certificate from the principal executive officer, principal financial
officer or principal accounting officer of the Company as to his or her
knowledge of the Company's compliance with all conditions and covenants under
this Indenture since the beginning of such quarter or such year, as the case
may be. For purposes of this Section 1007(a), such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
(b) When any Default has occurred and is continuing under this Indenture,
or if the trustee for or the holder of any other evidence of Indebtedness of
the Company or any Subsidiary gives any notice or takes any other action with
respect to a claimed default (other than with respect to Indebtedness in the
principal amount of less than $7,500,000), the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of its occurrence.
<PAGE> 91
83
SECTION 1008. Limitation on Indebtedness.
The Company will not, and will not permit any Restricted Subsidiary to,
incur any Indebtedness (including any Acquired Indebtedness) other than
Permitted Indebtedness; provided that the Company may Incur Indebtedness if and
at the time of such incurrence (i) the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio would have been less than or equal to
5.5 to 1.0, for Indebtedness incurred on or prior to December 31, 2000, or less
than or equal to 5.0 to 1.0, for Indebtedness incurred thereafter and (ii) no
Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions set forth in this covenant.
In making the foregoing calculation, (A) pro forma effect will be given
to: (i) the incurrence or repayment of any Indebtedness to be incurred or
repaid on the date of the incurrence of such Indebtedness and (ii) the
acquisition (whether by purchase, merger or otherwise) or disposition (whether
by sale, merger or otherwise) of any company, entity or business acquired or
disposed of by the Company or its Restricted Subsidiaries, as the case may be,
since the beginning of the Four Quarter Period (as defined under the
"Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio"
definition in Section 101) through the date of the incurrence of such
Indebtedness (the "Reference Period"), as if it had occurred on the first day
of such Reference Period and (B) the aggregate amount of Indebtedness
outstanding as of the end of the Reference Period will be deemed to include an
amount of funds equal to the average daily balance of Indebtedness outstanding
during the Reference Period under any revolving credit or similar facilities of
the Company and its Restricted Subsidiaries.
For the purposes of determining compliance with this Section 1008, in the
event that an item of Indebtedness or any portion thereof meets the criteria of
more than one of the types of Indebtedness the Company and the Restricted
Subsidiaries are permitted to incur, the Company will have the right, in its
sole discretion, to classify such item of Indebtedness or portion thereof at
the time of its incurrence and will only be required to include the amount and
type of such Indebtedness or portion thereof under the clause permitting the
Indebtedness as so classified.
SECTION 1009. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, take any of the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of its Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or
in options, warrants or other rights to acquire such shares of Qualified
Capital Stock);
<PAGE> 92
84
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of its Capital Stock or any Capital
Stock of any of its Affiliates (other than Capital Stock of any Wholly
Owned Restricted Subsidiary) or any options, warrants or other rights to
acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease
or otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) make any Investment (other than any Permitted Investment); or
(v) declare or pay any dividend or distribution on any Capital Stock
of any Restricted Subsidiary to any Person (other than any of its Wholly
Owned Restricted Subsidiaries) other than pro rata dividends or
distributions on a class of Voting Stock of any Restricted Subsidiary, the
majority of which is owned by the Company or a Wholly Owned Restricted
Subsidiary; provided that no Restricted Subsidiary shall declare or pay
such pro rata dividends or distributions on its Voting Stock to any Person
(other than the Company or a Wholly Owned Restricted Subsidiary) at a time
when it has outstanding Indebtedness owed to the Company or another
Restricted Subsidiary;
(such payments or other actions described in (but not excluded from) clauses
(i) through (v) are collectively referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, as
determined by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution), (1) no Default or Event of Default shall
have occurred and be continuing, (2) the Company could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
1008, and (3) the aggregate amount of all Restricted Payments declared or made
after the date of this Indenture shall not exceed the sum of:
(A) the remainder of (x) cumulative Consolidated Operating Cash Flow
of the Company during the period (taken as a single accounting period)
beginning on the first day of the fiscal quarter of the Company beginning
after the date of this Indenture and ending on the last day of the last
full fiscal quarter immediately preceding the date of such Restricted
Payment for which quarterly or annual consolidated financial statements of
the Company are available minus (y) the product of 1.5 times cumulative
Consolidated Interest Expense of the Company during such period; plus
(B) the aggregate Net Cash Proceeds and fair market value of
Telecommunications Assets or Voting Stock of a Person that becomes a
Restricted Subsidiary the assets of which consist primarily of
Telecommunications Assets received
<PAGE> 93
85
by the Company after the date of this Indenture as capital contributions
or from the issuance or sale (other than to any Subsidiary) of shares of
Qualified Capital Stock of the Company (including upon the exercise of
options, warrants or rights) or warrants, options or rights to purchase
shares of Qualified Capital Stock of the Company; plus
(C) the aggregate Net Cash Proceeds and fair market value of
Telecommunications Assets or Voting Stock of a Person that becomes a
Restricted Subsidiary the assets of which consist primarily of
Telecommunications Assets received by the Company after the date of this
Indenture from the issuance or sale (other than to any Subsidiary) of debt
securities or Redeemable Capital Stock that have been converted into or
exchanged for Qualified Capital Stock of the Company, together with the
aggregate Net Cash Proceeds and fair market value of Telecommunications
Assets or Voting Stock of a Person that becomes a Restricted Subsidiary
the assets of which consist primarily of Telecommunications Assets
received by the Company at the time of such conversion or exchange; plus
(D) to the extent not otherwise included in the Consolidated
Operating Cash Flow of the Company, an amount equal to the sum of (i) the
net reduction in Investments in any Person (other than Permitted
Investments) resulting from the payment in cash of dividends, repayments
of loans or advances or other transfers of assets, in each case to the
Company or any Restricted Subsidiary after the date of this Indenture from
such Person and (ii) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that in the case of
(i) or (ii) above the foregoing sum shall not exceed the amount of
Investments previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary.
(b) Notwithstanding paragraph (a) above, the Company and any Restricted
Subsidiary may take the following actions so long as (with respect to clauses
(ii), (iii), (iv) and (v) below) no Default or Event of Default shall have
occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such dividend would
have complied with the provisions of paragraph (a) above and such payment
will be deemed to have been paid on such date of declaration for purposes
of the calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the Net Cash Proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company;
<PAGE> 94
86
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for, or
out of the Net Cash Proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of shares of, Qualified
Capital Stock of the Company;
(iv) the purchase of any Subordinated Indebtedness at a purchase
price not greater than 101% of the principal amount thereof in the event
of a Change of Control in accordance with provisions similar to Section
1014; provided that prior to such purchase the Company has made the Change
of Control Offer as provided in such covenant with respect to the Notes
and has purchased all Notes validly tendered for payment in connection
with such Change of Control Offer;
(v) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out
of the Net Cash Proceeds of a substantially concurrent incurrence (other
than to a Subsidiary) of, new Subordinated Indebtedness so long as (A) the
principal amount of such new Subordinated Indebtedness does not exceed the
principal amount (or, if such Subordinated Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration thereof, such lesser amount
as of the date of determination) of the Subordinated Indebtedness being so
purchased, redeemed, defeased, acquired or retired, plus the amount of any
premium required to be paid in connection with such refinancing pursuant
to the terms of such Subordinated Indebtedness being refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus, in either case, the amount of expenses
of the Company incurred in connection with such refinancing; (B) such new
Subordinated Indebtedness is subordinated to the Notes to the same extent
as such Subordinated Indebtedness so purchased, redeemed, defeased,
acquired or retired; and (C) such new Subordinated Indebtedness has an
Average Life longer than the Average Life of the Notes and a final Stated
Maturity of principal later than the final Stated Maturity of principal of
the Notes; and
(vi) the payment of cash in lieu of fractional shares of Common Stock
pursuant to the Warrant Agreement.
The actions described in clauses (i), (ii), (iii), (iv) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a), and the actions described in clause (v) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph (b) and shall not reduce the amount that would otherwise be available
for Restricted Payments under clause (3) of paragraph (a) above.
<PAGE> 95
87
SECTION 1010. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to,
issue or sell any Capital Stock of a Restricted Subsidiary (other than to the
Company or a Wholly Owned Restricted Subsidiary) except that the provisions of
this Section 1010 shall not prohibit (i) the ownership by directors of
director's qualifying shares or the ownership by foreign nationals of shares of
Capital Stock of any Restricted Subsidiary, to the extent mandated by
applicable law; (ii) issuances or sales of Capital Stock if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer be a Restricted Subsidiary and any Investment in such Person remaining
after giving effect to such issuance or sale would have been permitted to be
made under Section 1009 if made on the date of such issuance and sale; or (iii)
the issuance and sale of all, but not less than all, of the issued and
outstanding Capital Stock of any Restricted Subsidiary owned by the Company and
the Restricted Subsidiaries in compliance with Section 1015.
<PAGE> 96
88
SECTION 1011. Limitation on Transactions with Affiliates.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into or suffer to exist, directly or indirectly, any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with, or for the
benefit of, any Affiliate of the Company or any Restricted Subsidiary unless
(i) such transaction or series of related transactions are on terms that are no
less favorable to the Company or such Restricted Subsidiary, as the case may
be, than those that could have been obtained in an arm's length transaction
with unrelated third parties who are not Affiliates, (ii) with respect to any
transaction or series of related transactions involving aggregate consideration
equal to or greater than $5,000,000 (or, to the extent not denominated in
United States dollars, the United States Dollar Equivalent thereof), the
Company will deliver an Officers' Certificate to the Trustee certifying that
such transaction or series of related transactions complies with clause (i)
above and (iii) with respect to any transaction or series of related
transactions involving aggregate consideration in excess of $10,000,000 (or, to
the extent not denominated in United States dollars, the United States Dollar
Equivalent thereof), the Company shall deliver the Officers' Certificate
described in clause (ii) above which shall also certify that such transaction
or series of related transactions has been approved by a majority of the
Disinterested Directors on the Board of Directors, or that the Company has
obtained a written opinion from a nationally recognized U.S. investment banking
firm certifying that such transaction or series of related transactions is fair
to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view; provided, however, that this provision will not
restrict (1) any transaction or series of related transactions among the
Company and Wholly Owned Restricted Subsidiaries or among Wholly Owned
Restricted Subsidiaries, (2) Investments in Qualified Capital Stock of the
Company by any Person, including an Affiliate of the Company, (3) the Company
from paying reasonable and customary regular compensation and fees to directors
of the Company or any Restricted Subsidiary who are not employees of the
Company or any Restricted Subsidiary, (4) the making of any Restricted Payment
not prohibited by Section 1009 or (5) any transaction or series of transactions
in an aggregate amount of up to $1,500,000.
SECTION 1012. Limitation on Liens.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on or with respect to any of its property or
assets, including any shares of stock or Indebtedness of any Restricted
Subsidiary, whether owned on the Issue Date or thereafter acquired, or any
income, profits or proceeds therefrom, or assign or otherwise convey any right
to receive income thereon, unless (x) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (y) in the case
of any other Lien, the Notes are equally and ratably secured with the
obligation or liability secured by such Lien.
<PAGE> 97
89
SECTION 1013. Limitations on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries.
(a) The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company (the "Guaranteed Indebtedness")
unless (i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for the guarantee (a "Subsidiary Guarantee")
of payment of the Notes by such Restricted Subsidiary; provided that this
paragraph (a) shall not be applicable to (x) any guarantee of any Restricted
Subsidiary that existed at the time such Person became a Restricted Subsidiary
and was not incurred in connection with or in contemplation of such Person
becoming a Restricted Subsidiary or (y) any guarantee of any Restricted
Subsidiary of Indebtedness incurred pursuant to clause (j) under the "Permitted
Indebtedness" definition. If the Guaranteed Indebtedness is (A) pari passu in
right of payment with the Notes, then the guarantee of such Guaranteed
Indebtedness shall be pari passu in right of payment with, or subordinated in
right of payment to, the Subsidiary Guarantee or (B) subordinated in right of
payment to the Notes, then the guarantee of such Guaranteed Indebtedness shall
be subordinated in right of payment to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated in right of payment to
the Notes.
(b) Notwithstanding the foregoing, any Subsidiary Guarantee created
pursuant to the provisions described in the foregoing paragraph (a) shall
provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
who is not an Affiliate of the Company, of all of the Company's Capital Stock
in, or all or substantially all the assets of, such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by this Indenture) or (ii)
the release by the holders of the Indebtedness of the Company described in the
preceding paragraph of their guarantee by such Restricted Subsidiary (including
any deemed release upon payment in full of all obligations under such
Indebtedness, except by or as a result of payment under such guarantee), at a
time when (A) no other Indebtedness of the Company has been guaranteed by such
Restricted Subsidiary or (B) the holders of all such other Indebtedness which
is guaranteed by such Restricted Subsidiary also release their guarantee by
such Restricted Subsidiary (including any deemed released upon payment in full
of all obligations under such Indebtedness).
SECTION 1014. Purchase of Notes upon a Change of Control.
(a) If a Change in Control shall occur at any time, then each Holder of
Notes shall have the right to require that the Company purchase, and the
Company shall make an offer to purchase, from such Holder all of its Notes, in
whole or in part and in integral multiples of $1,000, at a purchase price (the
"Change in Control Purchase Price") in cash in an amount equal to (i) 101% of
the Accreted Value thereof as of the date of purchase (the "Change in Control
Purchase Date") if such date is on or before March 1, 2003, and (ii) 101%
<PAGE> 98
90
of the principal amount at Maturity of the Notes, plus accrued and unpaid cash
interest, if any, to the Change in Control Purchase Date if such date is after
March 1, 2003, pursuant to the offer described in this Section 1014 (the
"Change in Control Offer") and the other procedures set forth in this
Indenture.
(b) Within 15 days following any Change in Control, the Company shall
notify the Trustee thereof and give written notice of such Change in Control
Offer to each Holder by first-class mail, postage prepaid, at the address of
such Holder appearing in the Note Register, stating, among other things, (i)
the Change in Control Purchase Price and the Change in Control Purchase Date,
which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act or any applicable securities
laws or regulations; (ii) that any Note not tendered will continue to accrete
original issue discount and/or accrue interest, as the case may be; (iii) that,
unless the Company defaults in the payment of the Change in Control Purchase
Price, any Notes accepted for payment pursuant to the Change in Control Offer
shall cease to accrete original issue discount and/or accrue interest, as the
case may be, after the Change in Control Purchase Date; (iv) that Holders
electing to have any Notes purchased pursuant to a Change in Control Offer
shall be required to surrender the Notes, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the third Business Day preceding the Change in Control Purchase Date; (v) that
Holders shall be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change in Control Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing its election to have such Notes purchased; (vi) that Holders whose
Notes are being purchased only in part shall be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof; (vii) the instructions that the Holders must follow in order
to tender their Notes; and (viii) the circumstances and relevant facts
regarding such Change in Control.
(c) The Company shall comply to the extent applicable with the
requirements of the tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws and regulations in connection
with a Change in Control Offer.
(d) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under Indebtedness as in effect on the date of this Indenture) that
would materially impair the ability of the Company to make a Change in Control
Offer to purchase the Notes or, if such Change in Control Offer is made, to pay
for the Notes tendered for purchase.
SECTION 1015. Limitation on Sale of Assets.
<PAGE> 99
91
(a) The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the shares or assets sold
(as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) and (ii) the consideration
received by the Company or the relevant Restricted Subsidiary in respect of
such Asset Sale consists of at least 75% cash or Cash Equivalents.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof, within 12 months after such
Asset Sale, to (i) permanently repay or prepay any then outstanding senior
Indebtedness of the Company or Indebtedness of any Restricted Subsidiary or
(ii) invest (or enter into a legally binding agreement to invest) in properties
and assets to replace the properties and assets that were the subject of the
Asset Sale or in properties and assets that will be used in the businesses of
the Company or a Restricted Subsidiary, as the case may be, existing on the
Issue Date. If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, then the Company may, within 60 days of such
termination or within 12 months of such Asset Sale, whichever is later, apply
or invest such Net Cash Proceeds as provided in clause (i) or (ii) (without
regard to the parenthetical contained in such clause (ii)) above. The amount of
such Net Cash Proceeds not so used as set forth above in this paragraph (b)
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000 (or,
to the extent not denominated in United States dollars, the United States
Dollar Equivalent thereof) the Company shall, within 15 business days, make an
offer to purchase (an "Excess Proceeds Offer") from all Holders, on a pro rata
basis, in accordance with the procedures set forth below, the maximum principal
amount at Maturity of Notes (expressed as a multiple of $1,000) that may be
purchased with the Excess Proceeds. The offer price (the "Excess Proceeds
Offer Price") as to each Note shall be payable in cash in an amount equal to
(a) 100% of the Accreted Value of the Note, if such purchase date is on or
before March 1, 2003, and (b) 100% of the principal amount at Maturity of such
Note, plus accrued and unpaid cash interest, if any, to the date of purchase,
if such purchase date is after March 1, 2003. To the extent that the aggregate
Excess Proceeds Offer Price of Notes tendered pursuant to an Excess Proceeds
Offer is less than the Excess Proceeds, the Company may use such deficiency for
general corporate purposes. If the aggregate Excess Proceeds Offer Price of
Notes validly tendered and not withdrawn by Holders thereof exceeds the Excess
Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset to zero.
(d) Whenever the Excess Proceeds received by the Company exceed
$10,000,000, such Excess Proceeds shall be set aside by the Company in a
separate account pending (i) deposit with the Trustee or a paying agent of the
amount required to purchase the
<PAGE> 100
92
Notes tendered in an Excess Proceeds Offer, (ii) delivery by the Company of the
Exceeds Proceeds Offer Price to the Holders tendered in an Excess Proceeds
Offer and (iii) application, as set forth above, of Excess Proceeds for any
lawful purposes. Such Excess Proceeds may be invested in Cash Equivalents;
provided that the maturity date of any investment shall not be later than the
date of the Excess Proceeds Offer. The Company shall be entitled to any
interest or dividends accrued, earned or paid on such Cash Equivalents.
(e) If the Company becomes obligated to make an Excess Proceeds Offer
pursuant to clause (c) above, the Notes shall be purchased by the Company, at
the option of the Holders thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to Holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act, subject to proration in the event the amount of Excess Proceeds is less
than the aggregate Excess Proceeds Offer Price of all Notes tendered.
(f) Within 15 days after the obligation of the Company to make an Excess
Proceeds Offer arises, the Company shall notify the Trustee of such obligation
and give written notice of such Excess Proceeds Offer to each Holder of Notes
by first-class mail, postage prepaid, at the address of such Holder appearing
in the Note Register, stating, (i) the Excess Proceeds Offer Price and the date
of the purchase of Notes pursuant to the Excess Proceeds Offer (the "Excess
Proceeds Offer Date"), which shall be a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act or any
applicable securities laws or regulations; (ii) that any Note not tendered will
continue to accrue interest; (iii) that, unless the Company defaults in the
payment of the Excess Proceeds Offer Price, any Notes accepted for payment
pursuant to the Excess Proceeds Offer shall cease to accrue interest after the
Excess Proceeds Offer Date; (iv) that Holders electing to have any Notes
purchased pursuant to an Excess Proceeds Offer shall be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Excess Proceeds Offer Date; (v) that Holders shall be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Excess Proceeds Offer Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount at Maturity of Notes delivered for purchase, and a
statement that such Holder is withdrawing its election to have such Notes
purchased; (vi) that Holders whose Notes are being purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount at Maturity or an integral multiple thereof; (vii) the
instructions that the Holders of Notes must follow in order to tender their
Notes; and (viii) the circumstances and relevant facts regarding such Excess
Proceeds Offer.
(g) The Company shall comply to the extent applicable with the
<PAGE> 101
93
requirements of the tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws and regulations in connection
with an Excess Proceeds Offer.
SECTION 1016. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any
other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
Investments in the Company or any other Restricted Subsidiary, (d) transfer any
of its properties or assets to the Company or any other Restricted Subsidiary
or (e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) any agreement in effect on the Issue Date, (ii) applicable law,
(iii) customary non-assignment provisions of any lease governing a leasehold
interest of the Company or any Restricted Subsidiary, (iv) any agreement or
other instrument of a Person acquired by the Company or any Restricted
Subsidiary in existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, (v) the refinancing of
Indebtedness incurred under the agreements existing on the Issue Date, so long
as such encumbrances or restrictions are no less favorable in any material
respect to the Company or any Restricted Subsidiary than those contained in the
respective agreement as in effect on the Issue Date, (vi) restrictions
contained in any security agreement (including a capital lease obligation)
securing Indebtedness of the Company or a Restricted Subsidiary otherwise
permitted under this Indenture, (vii) customary nonassignment provisions
entered into in the ordinary course of business in leases and other agreements,
(viii) any restriction with respect to a Restricted Subsidiary of the Company
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary made in accordance with
Section 1015, (ix) pursuant to this Indenture and the Notes or (x) any
agreement or instrument governing or relating to Indebtedness under any senior
commercial bank facility (each, a "Bank Facility") if such encumbrance or
restriction applies only to (A) amounts which at any point in time (other than
during such periods as are described in the following clause (B)) (1) exceed
amounts due and payable (or which are to become due and payable within 30 days)
in respect of the Notes or this Indenture for interest, premium and principal
or (2) if paid, would result in an event described in the following clause (B)
of this sentence, or (B) during the pendency of any event that causes, permits
or, after notice or lapse of time, would cause or permit the holder(s) of
Indebtedness governed by such Bank Facility to declare such Indebtedness to be
immediately due and payable or to require cash collateralization or cash cover
for such Indebtedness for so long as such cash collateralization or cash cover
has not been provided.
<PAGE> 102
94
SECTION 1017. Limitation on Investments in Unrestricted Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to Section 1009. Any
Investment in an Unrestricted Subsidiary permitted to be made pursuant to this
Section 1017 (i) shall be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or any
Restricted Subsidiary, without duplication, under the provisions of clause (iv)
of paragraph (a) of Section 1009 and (ii) may be made in cash or property (if
made in property, the fair market value thereof as determined by the Company,
whose determination shall be conclusive) and shall be deemed to be the amount
of such Investment for the purpose of clause (i) of this Section 1017.
SECTION 1018. Limitation on Sale-Leaseback Transactions.
The Company shall not, and shall not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction shall not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with Section 1015.
SECTION 1019. Business of the Company.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any business activity other than (i) the delivery of
telephony or other telecommunications or data transmission services in North
America, (ii) telecommunications network construction services and (iii) any
business or activity reasonably related thereto, including, without limitation,
any business conducted by any Restricted Subsidiary on the date of this
Indenture and the acquisition, holding or exploitation of any
telecommunications licenses, permits, franchises or rights of way related to
the delivery of the services described in clause (i) above.
<PAGE> 103
95
SECTION 1020. Provision of Financial Statements and Reports.
(a) Prior to the consummation of the Exchange Offer or the effectiveness
of a Shelf Registration Statement, the Company shall make available, upon
request, to any holder of Notes or prospective purchasers of Notes the
information specified in Rule 144A(d)(4) under the Securities Act, unless the
Company furnishes information to the Commission pursuant to Section 13 or 15(d)
of the Exchange Act.
(b) After the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, the Company shall file on a timely basis with the
Commission, to the extent such filings are accepted by the Commission and
whether or not the Company has a class of securities registered under the
Exchange Act, the annual reports, quarterly reports and other documents that
the Company would be required to file if it were subject to Section 13 or 15(d)
of the Exchange Act. The Company shall also be required (a) to file with the
Trustee, copies of such reports and documents within 15 days after the date on
which such reports and documents are filed with the Commission or the date on
which the Company would be required to file such reports and documents if the
Company were so required, and (b) to provide to each Holder of Notes, without
cost to such Holder, copies of such reports and documents within 15 days after
the filing thereof with the Trustee.
SECTION 1021. Waiver of Certain Covenants.
The Company and the Restricted Subsidiaries may omit in any particular
instance to comply with any term, provision or condition set forth in Sections
1007 to 1012, inclusive, and Sections 1015 to 1020, inclusive, if before or
after the time for such compliance the Holders of at least a majority in
aggregate principal amount at Maturity of all Outstanding Notes affected by
such term, provision or covenant, by Act of such Holders, waive such compliance
in such instance with such term, provision or condition, but no such waiver
shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company, the Restricted Subsidiaries and the duties of the
Trustee, as applicable, in respect of any such term, provision or condition
shall remain in full force and effect.
<PAGE> 104
96
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
[reserved]
SECTION 1102. Redemption.
The Notes shall be redeemable, at the option of the Company, as a whole or
from time to time in part, at any time on or after March 1, 2003, subject to
the conditions and at the Redemption Prices specified in the form of Note, on
not less than 30 nor more than 60 days' prior notice at the redemption prices
(expressed as percentages of principal amount at Maturity) set forth below,
together with accrued interest, if any, to the redemption date, if redeemed
during the 12-month period beginning on March 1 of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on a relevant Interest Payment Date):
<TABLE>
<S> <C>
Redemption
Year Price
---- ----------
2003 ................. 106.25%
2004 ................. 104.17
2005 ................. 102.08
2006 and thereafter .. 100.00
</TABLE>
At any time or from time to time on or prior to March 1, 2001, the Company
may redeem within 60 days of one or more Public Equity Offerings up to 33 1/3%
of the aggregate principal amount at Maturity of the originally issued Notes
with the net proceeds of such offering at a redemption price equal to 112.5% of
the Accreted Value (determined at the redemption date) of such principal amount
at Maturity of Notes; provided that immediately after giving effect to any such
redemption, at least 66 2/3% of the aggregate principal amount at Maturity of
the originally issued Notes remain outstanding.
On and after the redemption date, original issue discount, on or prior to
March 1, 2003, and cash interest, after March 1, 2003, will cease to accrue on
Notes or portions thereof called for redemption and accepted for payment.
SECTION 1103. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted
<PAGE> 105
97
or required by any provision of this Indenture, shall be made in accordance
with such provision and this Article.
SECTION 1104. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section 1101
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, not less than 45 nor more than 60
days prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and of the principal amount at Maturity of Notes to be redeemed and shall
deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Notes to be redeemed pursuant to Section 1105.
SECTION 1105. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Notes; provided, however, that no such partial redemption shall reduce the
portion of the principal amount at Maturity of a Note not redeemed to less than
$1,000.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed. Notice of redemption
will be mailed, first-class postage prepaid, at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at its
registered address.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Notes shall relate, in the case of any
Note redeemed or to be redeemed only in part, to the portion of the principal
amount of such Note which has been or is to be redeemed.
SECTION 1106. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in Section
106 not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
<PAGE> 106
98
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1108, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon surrender of such Note, the Holder will receive, without charge, a
new Note or Notes of authorized denominations for the principal amount
thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1108) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date, and
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1107. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and accrued interest on, all the
Notes which are to be redeemed on that date.
<PAGE> 107
99
SECTION 1108. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to accrue original issue discount or cash interest. Upon surrender
of any such Note for redemption in accordance with said notice, such Note shall
be paid by the Company at the Redemption Price, together with accretion of
original issue discount or accrued interest, if any, to the Redemption Date;
provided, however, that accretion of original issue discount or installments of
interest, if any, whose Stated Maturity is on or prior to the Redemption Date
shall be payable to the Holders of such Notes, or one or more Predecessor
Notes, registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
SECTION 1109. Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be surrendered at the
office or agency of the Company maintained for such purpose pursuant to Section
1002 (with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Note without service charge, a
new Note or Notes, of any authorized denomination as requested by such Holder,
in aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Note so surrendered.
ARTICLE TWELVE
[Reserved]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
<PAGE> 108
100
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option and at any time, effect defeasance of the
Notes under Section 1302, or covenant defeasance of the Notes under Section
1303, in accordance with the terms of the Notes and in accordance with this
Article.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option applicable to
this Section 1302, the Company shall be deemed to have been discharged from
their obligations with respect to the Outstanding Notes on the date the
conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the Outstanding
Notes, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1305 and the other Sections of this Indenture referred to
in (A) and (B) below, and to have satisfied all its other obligations under the
Notes and this Indenture insofar as the Notes are concerned (and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (A) the rights of Holders of such
Outstanding Notes to receive, solely from the trust fund described in Section
1304 and as more fully set forth in such Section, payments in respect of the
Accreted Value of or the principal amount at Maturity of (and premium, if any)
and interest on such Notes when such payments are due, (B) the Company's
obligations with respect to such Notes under Sections 304, 305, 306, 1002 and
1003, (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (D) this Article Thirteen. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303 with
respect to such Notes.
<PAGE> 109
101
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option applicable to
this Section 1303, the Company shall be released from its obligations under
Section 802 and Sections 1005 through 1020 with respect to the Outstanding
Notes on and after the date the conditions set forth in Section 1304 are
satisfied (hereinafter, "covenant defeasance"), and such Notes shall thereafter
be deemed not to be "Outstanding" for the purposes of any direction, waiver,
consent or declaration or Act of Holders (and the consequences of any thereof)
in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to such Outstanding Notes, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 501(3) or 501(4) or otherwise, as
the case may be, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Notes:
(1) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Notes, (A) an
amount in cash in United States dollars, or (B) U.S. Government Securities
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one
day before the due date of any payment of the Accreted Value or the
principal amount at Maturity (including premium, if any) and interest, if
any, on such Notes, money in an amount, or (C) a combination thereof, in
each case in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the Accreted Value of or the principal amount at Maturity
of (and premium, if any, on) and interest on such Outstanding Notes on the
Stated Maturity of such principal (and premium, if any) or installment of
interest (or upon redemption, if applicable); provided that the Trustee
(or such qualifying trustee) shall have been irrevocably instructed to
apply such money or
<PAGE> 110
102
the proceeds of such U.S. Government Securities to said payments with
respect to such Notes;
(2) no Default or Event of Default with respect to such Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (6) and (7) of Section 501 are concerned, at any time during
the period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period);
(3) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
is a party or is bound;
(4) in the case of an exercise under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since February 13, 1998, there has been a
change in the applicable federal income tax law or interpretation of such
federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of such Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred;
(5) in the case of an exercise under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred;
(6) in the case of defeasance or covenant defeasance, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that after the 90th day following the deposit or after the date such
Opinion of Counsel is delivered, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; and
(7) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section
1302 or the covenant defeasance under Section 1303 (as the case may be)
have been complied with.
<PAGE> 111
103
SECTION 1305. Deposited Money and Government Securities to Be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Sections 1304 and 1306 in respect of
such Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of the Accreted
Value or the principal amount at Maturity (and premium, if any) and interest,
but such money need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Securities
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of such Outstanding Notes.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Securities (or other property and any
proceeds therefrom) held by it as provided in Section 1304 which, in the
opinion of a nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
defeasance or covenant defeasance, as applicable, in accordance with this
Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and such Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1302 or 1303, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1305; provided, however, that if the Company makes any payment of Accreted
Value or the principal of (or premium, if any) or interest on any such Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
<PAGE> 112
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
--------------------------------
Name: Richard D. Weinstein
Title: Chief Executive Officer
THE BANK OF NEW YORK,
Trustee
By: /s/ Robert A. Massimillo
--------------------------------
Authorized Signatory
<PAGE> 113
Exhibit A
[FACE OF NOTE]
DTI HOLDINGS, INC.
12 1/2% [Series B]** Senior Discount Note due 2008
CUSIP ___________
No. _______
DTI HOLDINGS, INC., a Missouri corporation (the "Company", which term
includes any successor under this Indenture hereinafter referred to), for value
received, promises to pay to ___________, or its registered assigns, the
principal sum of _____________ Dollars ($________), on March 1, 2008.
The following information is supplied for purposes of Sections 1273 and
1275 of the Internal Revenue Code:
<TABLE>
<S> <C>
Issue Date: February 23, 1998
Issue Price $524.21
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $1,100.79
Yield to Maturity 12.94%
[Initial]*** Interest Rate: 12 1/2% per annum.
Interest Payment Dates: March 1 and September 1 of each year commencing
September 1, 2003.
Regular Record Dates: February 15 and August 15 of each year.
</TABLE>
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set
- ----------
** Include only for Exchange Notes
***Include only for Initial Notes
<PAGE> 114
A-2
forth at this place.
<PAGE> 115
A-3
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.
Date: __________ DTI HOLDINGS, INC.
By: ___________________________
Name: Richard D. Weinstein
Title: Chief Executive Officer
(Form of Trustee's Certificate of Authentication)
This is one of the Notes referred to in the within-mentioned Indenture.
Dated: __________ THE BANK OF NEW YORK, Trustee
By: ___________________________
Authorized Signatory
<PAGE> 116
A-4
[REVERSE SIDE OF NOTE]
DTI HOLDINGS, INC.
12 1/2% [Series B]* Senior Discount Note due 2008
1. Principal and Interest.
The Company shall pay the principal of this Note on March 1, 2008.
The Company promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth below, at the rate of 12 1/2% per
annum, except that additional interest accrued on this Note pursuant to the
fourth paragraph of this Section 1 and pursuant to the Notes Registration Rights
Agreement (as defined herein) will accrue at the rate or rates borne by the
Notes from time to time as set forth in the Notes Registration Rights Agreement.
Interest shall be payable semi-annually (to the Holders of record of the
Notes (or any Predecessor Notes) at the close of business on the February 15 or
August 15 immediately preceding the Interest Payment Date) on each Interest
Payment Date, commencing September 1, 2003.
The Holder of this Note shall be entitled to the benefits of the Notes
Registration Rights Agreement dated as of February 23, 1998, among the Company
and the Purchasers named therein (the "Notes Registration Rights Agreement").
In the event that (a) the Exchange Offer Registration Statement (as such term
is defined in the Notes Registration Rights Agreement) is not filed with the
Securities and Exchange Commission on or prior to the 50th calendar day
following the date of original issue of the Notes, (b) the Exchange Offer
Registration Statement (as such term is defined in the Notes Registration
Rights Agreement) has not been declared effective on or prior to the 180th
calendar day following the date of original issue of the Notes, (c) the
Exchange Offer (as such term is defined in the Notes Registration Rights
Agreement) is not consummated or, if required, a Shelf Registration Statement
(as such term is defined in the Notes Registration Rights Agreement) with
respect to the Notes is not declared effective on or prior to the 210th
calendar day following the date of original issue of the Notes or (d) the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable except in
accordance with the Notes Registration Rights Agreement, the Company shall pay
additional interest on the Notes (in addition to the interest otherwise due on
- ----------
*Include only for Exchange Notes
<PAGE> 117
A-5
the Notes) in cash in arrears on each Interest Payment Date in an amount equal
to one-half of one percent per annum of the principal amount of the Notes with
respect to the first 90-day period following any of such events described in
clauses (a) through (d) above, which rate shall be increased by an additional
one-half of one percent per annum for each subsequent 90-day period until such
Registration Default has been cured; provided that the aggregate increase in
such annual interest rate shall in no event exceed one and one-half percent per
annum for each subsequent 90-day period. Upon (w) the filing of the Exchange
Offer Registration Statement after the 50-day period described in clause (a)
above, (x) the effectiveness of the Exchange Offer Registration Statement after
the 180-day period described in clause (b) above, (y) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 210-day period described in clause (c) above or (z) the
cure of any event described in clause (d) above, such additional interest rate
borne by this Note from the date of such filing, effectiveness, consummation or
cure, as the case may be, shall cease to accrue; provided, however, that, if
after any such additional interest ceases to accrue, a different event
specified in clause (a), (b), (c) or (d) above occurs, such additional interest
rate may again be increased pursuant to the foregoing provisions.
Interest on this Note shall accrete original issue discount at the rate of
12 1/2% per annum, compounded semiannually, to an aggregate principal amount of
$506,000,000 by March 1, 2003, and shall bear cash interest at the rate of
12 1/2% per annum accruing from March 1, 2003, or from the most recent Interest
Payment Date to which cash interest has been paid or duly provided for; provided
that, if there is no existing default in the payment of interest and if this
Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum equal to the rate of interest applicable to the Notes.
2. Method of Payment.
The Company shall pay interest (except defaulted interest) on the
principal amount of the Notes on each March 1 and September 1 (commencing
September 1, 2003) to the Persons who are Holders (as reflected in the Note
Register at the close of business on the February 15 and August 15 immediately
preceding the Interest Payment Date), in each case, even if the Note is
cancelled on registration of transfer or registration of exchange after such
Regular Record Date; provided that, with respect to the payment of principal,
the Company will make payment to the Holder that surrenders this Note to any
Paying Agent on or after March 1, 2008.
<PAGE> 118
A-6
The Company shall pay principal (and premium, if any) and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal
(and premium, if any) and interest by its check payable in immediately
available funds. The Company may pay interest on the Notes either (a) by
mailing a check for such interest to a Holder's registered address (as
reflected in the Note Register) or (b) by wire transfer to an account located
in the United States maintained by the payee. If a payment date is a date
other than a Business Day at a place of payment, payment may be made at that
place on the next succeeding day that is a Business Day and no interest shall
accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee shall act as Paying Agent and Note Registrar. The
Company may change any Paying Agent or Note Registrar upon written notice
thereto. The Company and any Person authorized by the Company may act as
Paying Agent, Note Registrar or co-Note Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of February 23,
1998 (the "Indenture"), among the Company and The Bank of New York, trustee
(the "Trustee"). Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control.
The Notes are unsecured senior obligations of the Company. The Indenture
limits the aggregate principal amount at maturity of the Notes to $506,000,000.
<PAGE> 119
A-7
5. Redemption.
The Notes shall be redeemable, at the option of the Company, as a whole or
from time to time in part, at any time on or after March 1, 2003 on not less
than 30 nor more than 60 days' prior notice at the redemption prices (expressed
as percentages of principal amount at Maturity) set forth below, together with
accrued interest, if any, to the redemption date, if redeemed during the
12-month period beginning on March 1 of the years indicated below (subject to
the right of holders of record on relevant record dates to receive interest due
on a relevant Interest Payment Date):
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003 ................. 106.25%
2004 ................. 104.17
2005 ................. 102.08
2006 and thereafter .. 100.00
</TABLE>
At any time or from time to time on or prior to March 1, 2001, the Company
may redeem within 60 days of one or more Public Equity Offerings up to 33 1/3%
of the aggregate principal amount at Maturity of the originally issued Notes
with the net proceeds of such offering at a redemption price equal to 112.5% of
the Accreted Value (determined at the redemption date) of such principal amount
at Maturity of Notes; provided that immediately after giving effect to any such
redemption, at least 66 2/3% of the aggregate principal amount at Maturity of
the originally issued Notes remain outstanding.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by such method as the Trustee will deem fair and appropriate;
provided, however, that no such partial redemption will reduce the principal
amount at Maturity of a Note not redeemed to less than $1,000. Notice of
redemption will be mailed, first-class postage prepaid, at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. On and after the redemption date, original
issue discount, on or prior to March 1, 2003, and cash interest, after March 1,
2003, will cease to accrue on Notes or portions thereof called for redemption
and accepted for payment.
6. Repurchase upon a Change in Control and Asset Sales.
Upon the occurrence of a Change of Control, the Company is obligated to
make an offer to purchase all outstanding Notes at a purchase price of (i) 101%
of the Accreted Value thereof as the date of purchase if such a date is on or
before March 1, 2003 and (ii)
<PAGE> 120
A-8
101% of the principal amount thereof, plus accrued and unpaid cash interest, if
any, to the date of purchase if such date is after March 1, 2003. Upon the
occurrence of certain Asset Sales, the Company may be obligated to make offers
to purchase Notes with a portion of the Net Cash Proceeds of such Asset Sales
at a purchase price of (i) 100% of the Accreted Value thereof as the date of
purchase if such date is on or before March 1, 2003 and (ii) 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase if such date is after March 1, 2003.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons, in denominations of
$1,000 and multiples of $1,000 in excess thereof. A Holder may register the
transfer or exchange of Notes in accordance with the Indenture. The Note
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture.
8. Persons Deemed Owners.
A Holder may be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of the Accreted Value or principal (and premium,
if any) or interest remains unclaimed for one year, the Trustee and the Paying
Agent will pay the money back to the Company at its request. After that,
Holders entitled to the money must look to the Company for payment, unless an
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
10. Discharge Prior to Maturity.
If the Company irrevocably deposits, or causes to be deposited, with the
Trustee money or U.S. Government Securities (or a combination thereof)
sufficient to pay the then outstanding Accreted Value or the principal amount
at Maturity (including premium, if any) and accrued interest, if any, on the
Notes on the Stated Maturity (or upon redemption, if applicable), and complies
with the other applicable conditions set forth in the Indenture, the Company
will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, or from certain covenants set forth
in the Indenture.
<PAGE> 121
A-9
11. Amendment; Supplement; Waiver.
Subject to certain exceptions and conditions, the Indenture or the Notes
may be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at Maturity of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Notes then outstanding. Without notice to or the consent of any
Holder, the parties thereto may amend or supplement the Indenture or the Notes
to, among other things, cure any ambiguity, defect or inconsistency and make
any change that does not adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture contains certain covenants, including, without limitation,
covenants with respect to the following matters: (i) Indebtedness; (ii)
Restricted Payments; (iii) issuances and sales of Capital Stock of Restricted
Subsidiaries; (iv) transactions with Affiliates; (v) Liens; (vi) guarantees of
Indebtedness; (vii) disposition of proceeds of Asset Sales; (viii) dividend and
other payment restrictions affecting Restricted Subsidiaries; (ix)
consolidation, merger and certain transfers of assets; and (x) investments in
Unrestricted Subsidiaries. Within 120 days after the end of each fiscal year
and within 60 days after May 15 of each year, the Company must report to the
Trustee on compliance with such limitations.
13. Successor Persons.
When a successor person or other entity assumes all the obligations of its
predecessor under the Notes and the Indenture, the predecessor person will be
released from those obligations.
<PAGE> 122
A-10
14. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount at Maturity of the Notes then outstanding may declare all the
Notes to be immediately due and payable. If a bankruptcy or insolvency default
with respect to the Company or any of its Significant Subsidiaries occurs and
is continuing, the Notes automatically become immediately due and payable.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders
of at least a majority in aggregate principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power.
15. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Notes and may make loans to, accept deposits
from, perform services for, and otherwise deal with, the Company and its
Affiliates as if it were not the Trustee.
16. Authentication.
This Note shall not be valid until the Trustee signs the certificate of
authentication on the other side of this Note.
17. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to DTI Holdings, Inc.,
11111 Dorsett Road, St. Louis, Missouri 63043, Attention: Chief Financial
Officer.
<PAGE> 123
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
______________________________________________________________________________
______________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
______________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
______________________________________________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of the date of an effective Registration Statement or the
Resale Restriction Termination Date, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
<TABLE>
<S> <C>
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided
by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
</TABLE>
<PAGE> 124
A-12
If none of the foregoing boxes is checked, the Trustee or other Note Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 312 of the Indenture shall have
been satisfied.
Date: ______________________ _________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee: ________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: ______________________ _________________________________________
NOTICE: To be executed by an
executive officer
<PAGE> 125
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to Section
1014 or Section 1015 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1014 or Section 1015 of the Indenture, state the amount (in
original principal amount) below:
$_____________________.
Date: _____________________
Your Signature: ___________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
<PAGE> 1
EXHIBIT 4.2
EXECUTION COPY
NOTES REGISTRATION RIGHTS AGREEMENT
Dated as of February 23, 1998
among
DTI Holdings, Inc.,
Issuer
and
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and
TD Securities (USA) Inc.,
Initial Purchasers
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions................................................ 1
1933 Act............................................... 1
1934 Act............................................... 1
Depositary............................................. 1
Exchange Notes......................................... 1
Exchange Offer......................................... 2
Exchange Offer Registration............................ 2
Exchange Offer Registration Statement.................. 2
Holders................................................ 2
Indenture.............................................. 2
Initial Purchasers..................................... 2
Majority Holders....................................... 2
Original Issue Date.................................... 2
Person 2
Prospectus............................................. 2
Purchase Agreement..................................... 3
Registrable Notes...................................... 3
Registration Expenses.................................. 3
Registration Statement................................. 4
SEC 4
Shelf Registration..................................... 4
Shelf Registration Statement........................... 4
Trustee................................................ 4
2. Registration Under the 1933 Act............................ 4
(a)Exchange Offer Registration................. 4
(b)Shelf Registration.......................... 6
(c)Expenses.................................... 8
(d)Effective Registration Statement............ 8
(e)Accrual and Payment of Additional Interest.. 9
(f)Specific Enforcement........................ 10
3. Registration Procedures.................................... 10
4. Underwritten Registrations................................. 18
5. Indemnification and Contribution........................... 18
</TABLE>
<PAGE> 3
27
<TABLE>
<S> <C> <C> <C>
6. Miscellaneous....................................... 22
(a) Rule 144 and Rule 144A............ 22
(b) No Inconsistent Agreements........ 22
(c) Amendments and Waivers............ 22
(d) Notices........................... 22
(e) Successors and Assigns............ 23
(f) Third Party Beneficiary........... 23
(g) Counterparts...................... 23
(h) Headings.......................... 23
(i) GOVERNING LAW..................... 24
(j) Severability...................... 24
</TABLE>
<PAGE> 4
NOTES REGISTRATION RIGHTS AGREEMENT
THIS NOTES REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of February 23, 1998, by and among DTI HOLDINGS, INC., a
Missouri corporation ("the "Company"), and MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED ("Merrill Lynch") and TD SECURITIES (USA)
INC. (together with Merrill Lynch, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated February
13, 1998 among the Company and the Initial Purchasers (the "Purchase
Agreement"), with respect to the issue and sale by the Company and the purchase
by the Initial Purchasers of the respective number of the Company's Units (the
"Units"), each Unit consisting of $1,000 principal amount at maturity of the
Company's 12 1/2% Senior Discount Notes due 2008 (the "Notes") and five warrants
(the "Warrants"), each initially entitling the holder thereof to purchase 1.552
shares of common stock, par value $0.01 per share (the "Common Stock"), of the
Company. In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide to the Initial Purchasers and
their respective direct and indirect transferees and assigns the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the SEC
promulgated thereunder.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Issuer; provided, however, that any such
depositary must have an address in the Borough of Manhattan, in the City
of New York.
"Exchange Notes" shall mean 12 1/2% Series B Senior Discount Notes
due 2008 of the Company, issued under the Indenture containing terms
identical to the respective Notes (except that (i) interest on the
Exchange Notes shall accrue from the last date on which interest was paid
on the Notes or, if no such interest has been paid, from February 23,
1998, (ii) the transfer restrictions thereon shall be eliminated and
(iii) certain provisions relating to payment of additional interest shall
be eliminated) to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
<PAGE> 5
2
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Holders" shall mean the Initial Purchasers, for so long as they own
any Registrable Notes, and each of their respective successors, assigns
and direct and indirect transferees who become registered owners of
Registrable Notes under the Indentures.
"Indenture" shall mean the Indenture relating to the Notes dated as
of February 23, 1998, between the Company and The Bank of New York,
trustee (the "Trustee"), and as the same may be amended from time to time
in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in
the preamble of this Agreement.
"Majority Holders" shall mean the Holders of a majority of
the aggregate principal amount at maturity of Registrable Notes
outstanding; provided that whenever the consent or approval of Holders of
a specified percentage of Registrable Notes is required hereunder,
Registrable Notes held by the Company or any of its affiliates (as such
term is defined in Rule 405 under the 1933 Act) shall be disregarded in
determining whether such consent or approval was given by the Holders of
such required percentage or amount.
"Original Issue Date" shall mean the date of original
issuance of the Notes.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus supplement,
including a prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Notes covered by a Shelf
Registration Statement, and by all other amendments and supplements to a
<PAGE> 6
3
prospectus, including post-effective amendments, and in each case including
all material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in
the preamble of this Agreement.
"Registrable Notes" shall mean the Notes; provided, however,
that the Notes shall cease to be Registrable Notes when (i) a
Registration Statement with respect to such Notes shall have been
declared effective under the 1933 Act and such Notes shall have been
disposed of pursuant to such Registration Statement, (ii) such Notes
shall have been sold to the public pursuant to Rule 144 (or any similar
provision then in force, but not Rule 144A) under the 1933 Act, (iii)
such Notes shall have ceased to be outstanding or (iv) such Notes have
been exchanged for Exchange Notes upon consummation of the Exchange
Offer.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. ("NASD") registration
and filing fees, (ii) all fees and expenses incurred in connection with
compliance with state or other securities or blue sky laws and compliance
with the rules of the NASD (including reasonable fees and disbursements
of United States and local counsel for any underwriters and Holders in
connection with state or other securities or blue sky qualification of
any of the Exchange Notes or Registrable Notes), (iii) all expenses of
any Persons in preparing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements, certificates
representing the Exchange Notes and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency
fees, (v) all fees and expenses incurred in connection with the listing,
if any, of any of the Registrable Notes on any securities exchange or
exchanges, (vi) all fees and disbursements relating to the qualification
of the Indenture under applicable securities laws, (vii) the reasonable
fees and disbursements of counsel for the Issuer and the Guarantor and of
the independent public accountants of the Issuer and the Guarantor,
including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance, (viii) the
fees and expenses of a "qualified independent underwriter" as defined by
Conduct Rule 2720 of the NASD, if required by the NASD rules, in
connection with the offering of the Registrable Notes, and (ix) the
reasonable fees and expenses of the Trustee, including its counsel, and
any escrow agent or custodian. Notwithstanding the foregoing, the
holders of the Registrable Securities being registered shall pay all
agency or brokerage fees and commissions and underwriting discounts and
commissions attributable to the sale of such Registered Securities and
the fees and disbursements of any counsel or other advisors or experts
retained by such holders (severally or jointly), other than (i) counsel
and (ii) , in the case of a Shelf Registration Statement under Section
2(b)
<PAGE> 7
4
hereof, the reasonable fees and disbursements of (A) one counsel for the
Holders (which counsel shall be selected by a majority of the Holders and
may be counsel for the Initial Purchasers) and (B) experts retained by the
Company in connection with any Registration Statement, transfer taxes on
resale of any of the Securities by such holders and any advertising
expenses customarily required to be paid by issuers or sellers of
securities.
"Registration Statement" shall mean any registration
statement of the Issuer which covers any of the Exchange Notes or
Registrable Notes pursuant to the provisions of this Agreement, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of this
Agreement which covers all of the Registrable Notes on an appropriate form
under Rule 415 under the 1933 Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Trustee" shall mean the Trustee under the Indenture.
2. Registration Under the 1933 Act. (a) Exchange Offer Registration. To
the extent not prohibited by any applicable law or applicable interpretation of
the staff of the SEC, the Company shall (A) use its best efforts to cause to
be filed an Exchange Offer Registration Statement with the SEC within 50 days
after the Original Issue Date covering the offer by the Company to the Holders
to exchange Exchange Notes for all of their Registrable Notes, (B) use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
be declared effective under the 1933 Act within 180 days after the Original
Issue Date and (C) use its best efforts to consummate the Exchange Offer within
210 days after the Original Issue Date. Upon the effectiveness of the Exchange
Offer Registration Statement, the Company shall promptly commence the Exchange
Offer, it being the objective of such Exchange Offer to enable each Holder
(other than Participating Broker-Dealers (as defined in Section 3(f))) eligible
and electing to exchange Registrable Notes for Exchange Notes (assuming that
such Holder is not an affiliate of the Issuer within the meaning of Rule 405
under the 1933 Act, acquires the Exchange Notes in the ordinary course of such
Holder's business and has no arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes) to
<PAGE> 8
5
trade such Exchange Notes from and after their receipt without any limitations
or restrictions under the 1933 Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the United
States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 20 business days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) use the services of the Depositary for the Exchange Offer with
respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York City time, on the last
business day on which the Exchange Offer shall remain open, by sending to
the institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the
principal amount of Registrable Notes delivered for exchange, and a
statement that such Holder is withdrawing its election to have such Notes
exchanged; and
(v) otherwise comply with all applicable laws relating to the
Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the Company
shall:
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the
Company; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in principal
amount at maturity to the principal amount at maturity of the Registrable
Notes of such Holder so accepted for exchange.
Original issue discount will accrete, if on or prior to March 1, 2003, and
interest will accrue, if after March 1, 2003, on each Exchange Note exchanged
for a Note, in either case from the last date on which original issue discount
accreted or interest was paid, as the case may be, on the Notes surrendered in
exchange therefor. If no interest has been paid on the Notes, such
<PAGE> 9
6
interest will be payable from September 1, 2003. The Exchange Offer shall not
be subject to any conditions, other than (i) that the Exchange Offer, or the
making of any exchange by a Holder, does not violate applicable law or any
applicable interpretation of the staff of the SEC and (ii) the tendering of
Registrable Notes in accordance with the Exchange Offer. Each Holder of
Registrable Notes (other than Participating Broker-Dealers) who wishes to
exchange such Registrable Notes for Exchange Notes in the Exchange Offer shall
have represented that (i) it is not an affiliate (as defined in Rule 405 under
the 1933 Act) of the Company, (ii) any Exchange Notes to be received by it were
acquired in the ordinary course of its business, (iii) at the time of the
commencement of the Exchange Offer it has no arrangement with any person to
participate in the distribution (within the meaning of the 1933 Act) of the
Exchange Notes and (iv) it shall have made such other representations as may be
reasonably necessary under applicable SEC rules, regulations or interpretations
to render the use of Form S-4 or another appropriate form under the 1933 Act
available. To the extent permitted by law and ascertainable by the Company, the
Company shall inform the Initial Purchasers of the names and addresses of the
Holders to whom the Exchange Offer is made, and the Initial Purchasers shall
have the right to contact such Holders and otherwise facilitate the tender of
Registrable Notes in the Exchange Offer.
(b) Shelf Registration. (i) If, because of any change in law or applicable
interpretations thereof by the staff of the SEC, the Company is not permitted to
effect the Exchange Offer as contemplated by Section 2(a) hereof, or (ii) if for
any other reason the Exchange Offer is not consummated within 210 days following
the Original Issue Date, or (iii) if any Holder (other than an Initial
Purchaser) is not eligible to participate in the Exchange Offer or (iv) upon the
request of either Initial Purchaser following the consummation of the Exchange
Offer if such Initial Purchaser shall hold Registrable Notes which it acquired
directly from the Company and if such Initial Purchaser is not permitted, in the
opinion of counsel to such Initial Purchaser, pursuant to applicable law or
applicable interpretation of the staff of the SEC to participate in the Exchange
Offer, the Company shall, at its cost:
(A) as promptly as practicable, file with the SEC a Shelf Registration
Statement relating to the offer and sale of the Registrable Notes by the
Holders from time to time in accordance with the methods of distribution
elected by the Majority Holders of such Registrable Notes and set forth in
such Shelf Registration Statement, and use their reasonable best efforts to
cause such Shelf Registration Statement to be declared effective under the
Securities Act within 210 days after the Original Issue Date, provided
that, with respect to Exchange Notes received by a broker-dealer in
exchange for any securities that were acquired by such broker-dealer as a
result of market making or other trading activities, the Company may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or 508,
as applicable, in satisfaction of its obligations under this paragraph (A)
solely with respect to broker-dealers who acquired their Securities as a
result of market making or other trading activities, and any such Exchange
Offer Registration Statement, as so amended, shall be
<PAGE> 10
7
referred to herein as, and governed by the provisions herein applicable to,
a Shelf Registration Statement. In the event that the Company is required
to file a Shelf Registration Statement upon the request of any Holder
(other than an Initial Purchaser) not eligible to participate in the
Exchange Offer pursuant to clause (iii) above or upon the request of either
Initial Purchaser pursuant to clause (iv) above, the Company shall file and
use its best efforts to have declared effective by the SEC both an Exchange
Offer Registration Statement pursuant to Section 2(a) with respect to all
Registrable Notes and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Notes held by
such Holder or such Initial Purchaser, as applicable, after completion of
the Exchange Offer;
(B) use its reasonable best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus forming
part thereof to be usable by Holders for a period of two years after its
effective date (or until one year after the effective date of the Shelf
Registration Statement if such Shelf Registration Statement is filed upon
the request of either Initial Purchaser pursuant to clause (iv) above) or
such shorter period which will terminate when all of the Registrable Notes
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement; and
(C) notwithstanding any other provisions hereof, use its reasonable
best efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the 1933 Act and
the rules and regulations thereunder, (ii) any Shelf Registration Statement
and any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
The Company further agrees, if necessary, to supplement or amend the Shelf
Registration Statement if reasonably requested by the Majority Holders with
respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
practicable thereafter and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
<PAGE> 11
8
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) and 2(b) and, in the
case of any Shelf Registration Statement, will reimburse the Holders or the
Initial Purchasers for the reasonable fees and disbursements of one counsel (in
addition to any local counsel) designated in writing by the Majority Holders to
act as counsel for the Holders of the Registrable Notes in connection therewith.
Each Holder shall pay all expenses of its counsel other than as set forth in the
preceding sentence, underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable Notes
pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Company will be deemed not
to have used its reasonable best efforts to cause a Registration Statement to
become, or to remain, effective during the requisite periods set forth herein if
the Company voluntarily takes any action that could reasonably be expected to
result in any such Registration Statement not being declared effective or in the
Holders of Registrable Notes covered thereby not being able to exchange or offer
and sell such Registrable Notes during that period unless (A) such action is
required by applicable law or (B) such action is taken by the Company in good
faith and for valid business reasons (but not including avoidance of the
Company's obligations hereunder), including a material corporate transaction, so
long as the Company promptly complies with the requirements of Section 3(k)
hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Notes pursuant to a Registration Statement is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Registration Statement will be
deemed not to have been effective during the period of such interference, until
the offering of Registrable Notes pursuant to such Registration Statement may
legally resume.
(iii) During any 365-day period, the Company may suspend the availability
of a Shelf Registration Statement and the use of the related Prospectus, as
provided in Section 3(e)(vi) and the last paragraph of Section 3 hereof, for up
to two periods of up to 45 consecutive days (except for the consecutive 45-day
period immediately prior to maturity of the Notes), but no more than an
aggregate 60 days during any 365-day period, if any event shall occur as a
result of which it shall be necessary, in the good faith determination of the
board of directors of the Company, to amend the Shelf Registration Statement or
amend or supplement any prospectus or prospectus supplement thereunder in order
that each such document not include any untrue statement of fact or omit to
state a material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made.
<PAGE> 12
9
(e) Accrual and Payment of Additional Interest. In the event that (i) the
Exchange Offer Registration Statement is not filed with the SEC on or prior to
the 50th calendar day following the Original Issue Date, (ii) the Exchange Offer
Registration Statement is not declared effective on or prior to the 180th
calendar day following the Original Issue Date, (iii) the Exchange Offer is not
consummated or, if required, a Shelf Registration Statement with respect to the
Notes is not declared effective on or prior to the 210th calendar day following
the Original Issue Date or (iv) the Exchange Offer Registration Statement or the
Shelf Registration Statement is declared effective but thereafter ceases to be
effective or usable except in accordance with Section 2(d)(iii) hereof (each
event referred to in clauses (i) through (iv) above, a "Registration Default"),
then the Company shall pay additional interest on the Notes (in addition to the
interest otherwise due on the Notes) in cash in arrears on each Interest Payment
Date (as defined in the Indenture) in an amount equal to one-half of one percent
(0.5%) per annum of the principal amount of the Notes, with respect to the first
90-day period following such Registration Default. The amount of such
additional interest will increase by an additional one-half of one percent
(0.5%) to a maximum of one and one-half percent (1.5%) per annum for each
subsequent 90-day period until such Registration Default has been cured. Upon
(w) the filing of the Exchange Offer Registration Statement after the 50-day
period described in clause (i) above, (x) the effectiveness of the Exchange
Offer Registration Statement after the 180-day period described in clause (ii)
above, (y) the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after the 210-day period
described in clause (iii) above, or (z) the cure of any Registration Default
described in clause (iv) above, such additional interest shall cease to accrue
on the Notes from the date of such filing, effectiveness, consummation or cure,
as the case may be, if the Company is otherwise in compliance with this
paragraph; provided, however, that if, after any such additional interest ceases
to accrue, a different event specified in clause (i), (ii), (iii) or (iv) above
occurs, such additional interest shall begin to accrue again pursuant to the
foregoing provisions.
(f) Specific Enforcement. Without limiting the remedies available to the
Initial Purchasers and the Holders, the Company acknowledges that any failure by
it to comply with its obligations under Sections 2(a) and 2(b) hereof may result
in material irreparable injury to the Initial Purchasers or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Sections 2(a)
and 2(b).
3. Registration Procedures. In connection with the obligations of the
Company with respect to the Registration Statements pursuant to Sections 2(a)
and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within the
time period specified in Section 2, on the appropriate form under the 1933
Act, which form (i) shall be selected by the Company, (ii) shall, in the
case of a Shelf Registration, be available
<PAGE> 13
10
for the sale of the Registrable Notes by the selling Holders thereof and
(iii) shall comply as to form in all material respects with the
requirements of the applicable form and include or incorporate by reference
all financial statements required by the SEC to be filed therewith, and use
their best efforts to cause such Registration Statement to become effective
and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the
applicable period; cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the 1933 Act; and comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by each Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least ten days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being filed
and advising such Holders that the distribution of Registrable Notes will
be made in accordance with the method elected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Notes, to counsel for the
Initial Purchasers, to counsel for the Holders and to each underwriter of
an underwritten offering of Registrable Notes, if any, without charge, as
many copies of each Prospectus, including each preliminary Prospectus, and
any amendment or supplement thereto and such other documents as such Holder
or underwriter may reasonably request, including financial statements and
schedules and, if the Holder so requests, all exhibits (including those
incorporated by reference) in order to facilitate the public sale or other
disposition of the Registrable Notes; and (iii) subject to the last
paragraph of this Section 3, hereby consent to the use of the Prospectus,
including each preliminary Prospectus, or any amendment or supplement
thereto by each of the selling Holders of Registrable Notes in connection
with the offering and sale of the Registrable Notes covered by the
Prospectus or any amendment or supplement thereto;
(d) use its reasonable best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable Notes covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Notes shall reasonably request by the time the Registration
Statement is declared effective by the SEC, to cooperate with the Holders
in connection with any filings required to be made with the NASD and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Notes owned by such Holder; provided,
however, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would
not
<PAGE> 14
11
otherwise be required to qualify but for this Section 3(d) or (ii) take any
action which would subject it to general service of process or taxation in
any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for such Holders promptly and, if requested
by such Holder or counsel, confirm such advice in writing promptly (i)
when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii)
of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, during the period a Registration Statement is
effective, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct
in all material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening of
any event or the discovery of any facts during the period a Shelf
Registration Statement is effective (including as contemplated in Section
2(d)(iii) hereof) which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or
which requires the making of any changes in such Registration Statement
or Prospectus in order to make the statements therein not misleading and
(vii) of any determination by the Company that a post-effective amendment
to a Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange
Notes, (ii) furnish to each broker-dealer who desires to participate in
the Exchange Offer, without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
broker-dealer may reasonably request, (iii) include in the Exchange Offer
Registration Statement a statement that any broker-dealer who holds
Registrable Notes acquired for its own account as a result of
market-making activities or other trading activities (a "Participating
Broker-Dealer"), and who receives Exchange Notes for Registrable Notes
pursuant to the Exchange Offer, may be a statutory underwriter and must
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Notes, (iv) subject to the
last paragraph of Section 3, hereby consent to the use of the Prospectus
forming part of the Exchange Offer
<PAGE> 15
12
Registration Statement or any amendment or supplement thereto, by any
broker-dealer in connection with the sale or transfer of the Exchange
Notes covered by the Prospectus or any amendment or supplement thereto,
and (v) include in the transmittal letter or similar documentation to be
executed by an exchange offeree in order to participate in the Exchange
Offer the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account
in exchange for Registrable Notes, it represents that the
Registrable Notes to be exchanged for Exchange Notes were acquired
by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes pursuant to the Exchange Offer;
however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter"
within the meaning of the 1933 Act;"
(B) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be one of the Initial Purchasers,
unless it elects not to act as such representative) only one, if any,
"cold comfort" letter with respect to the Prospectus in the form existing
on the last date for which exchanges are accepted pursuant to the
Exchange Offer and with respect to each subsequent amendment or
supplement, if any, effected during the period specified in clause (C)
below; and
(C) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to maintain
the effectiveness of the Exchange Offer Registration Statement for a
period of 120 days following the closing of the Exchange Offer; and
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as
would otherwise be contemplated by Section 3(b) hereof, or take any other
action as a result of this Section 3(f), for a period exceeding 120 days
after the last date for which exchanges are accepted pursuant to the
Exchange Offer (as such period may be extended by the Company) and
Participating Broker-Dealers shall not be authorized by the Company to,
and shall not, deliver such Prospectus after such period in connection
with resales contemplated by this Section 3.
<PAGE> 16
13
(g) (A) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (B) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes copies of any request by the
SEC or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal
of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends; and cause such Registrable Notes to be in
such denominations (consistent with the provisions of the Indenture) in a
form eligible for deposit with the Depositary and registered in such names
as the selling Holders or the underwriters, if any, may reasonably request
in writing at least one business day prior to the closing of any sale of
Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use their best efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Notes, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify each Holder to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission. At such time as such public disclosure is otherwise made or the
Company determines that such disclosure is not necessary, in each case to
correct any misstatement of a material fact or to include any omitted
material fact, the Company agrees promptly to notify each Holder of such
determination and to furnish each Holder such numbers of copies of the
Prospectus, as amended or supplemented, as such Holder may reasonably
request;
<PAGE> 17
14
(l) obtain CUSIP numbers for all Exchange Notes, or Registrable Notes,
as the case may be, not later than the effective date of a Registration
Statement, and provide the Trustee with printed certificates for the
Exchange Notes in a form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of
the Exchange Notes, or Registrable Notes, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and (iii) execute, and use its best
efforts to cause the Trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the holders of
a majority in principal amount at maturity of the Registrable Notes being
sold) in order to expedite or facilitate the disposition of such
Registrable Notes and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if
any, and the holders of a majority in principal amount at maturity
of the Registrable Notes being sold) addressed to each selling
Holder and the underwriters, if any, covering the matters
customarily covered in opinions requested in sales of securities or
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and will use best efforts to have such
letters addressed to the selling Holders of Registrable Notes, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
<PAGE> 18
15
(iv) enter into a securities sales agreement with the Holders and
an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be in
form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into in the case of
an underwritten offering, cause the same to set forth indemnification
provisions and procedures substantially equivalent to the
indemnification provisions and procedures set forth in Section 5
hereof with respect to the underwriters and all other parties to be
indemnified pursuant to Section 5 hereof; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto)
and (ii) each closing under any underwriting or similar agreement as and
to the extent required thereunder. In the case of any underwritten
offering, the Company shall provide written notice to the Holders of all
Registrable Notes of such underwritten offering at least 30 days prior to
the filing of a prospectus supplement for such underwritten offering.
Such notice shall (x) offer each such Holder the right to participate in
such underwritten offering, (y) specify a date, which shall be no earlier
than 10 days following the date of such notice, by which such Holder must
inform the Company of its intent to participate in such underwritten
offering and (z) include the instructions such Holder must follow in
order to participate in such underwritten offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any U.S. counsel or accountant retained by
such Holders or underwriters, all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested by
any such Persons, and cause the respective officers, directors,
employees, and any other agents of the Company to supply all information
reasonably requested by any such representative, underwriter, special
counsel or accountant in connection with a Registration Statement;
provided that any such records, documents, properties and such
information that is designated in writing by the Company, in good faith,
as confidential at the time of delivery of such records, documents,
properties or information shall be kept confidential by any such
representative, underwriter, special counsel or accountant and shall be
used only in connection with such Registration Statement, unless
disclosure thereof is made in connection with a court proceeding or
required by law, or such information has become available (not in
violation of this agreement) to the public
<PAGE> 19
16
generally or through a third party without an accompanying obligation of
confidentiality, and the Company shall be entitled to request that such
representative, underwriter, special counsel or accountant sign a
confidentiality agreement to the foregoing effect;
(p) (i) in the case of an Exchange Offer, a reasonable time prior
to the filing of any Exchange Offer Registration Statement, any
Prospectus forming a part thereof, any amendment to an Exchange Offer
Registration Statement or amendment or supplement to a Prospectus,
provide copies of such document to the Initial Purchasers, and make such
changes in any such document prior to the filing thereof as the Initial
Purchasers or their counsel may reasonably request; (ii) in the case of a
Shelf Registration, a reasonable time prior to filing any Shelf
Registration Statement, any Prospectus forming a part thereof, any
amendment to such Shelf Registration Statement or amendment or supplement
to such Prospectus, provide copies of such document to the Holders of
Registrable Notes, to the Initial Purchasers, to counsel on behalf of the
Holders and to the underwriter or underwriters of an underwritten
offering of Registrable Notes, if any, and make such changes in any such
document prior to the filing thereof as counsel to the Initial Purchasers
or any underwriter may request; and (iii) cause the representatives of
the Company to be available for discussion of such document as shall be
reasonably requested by the Holders of Registrable Notes, the Initial
Purchasers on behalf of such Holders or any underwriter, and shall not at
any time make any filing of any such document of which such Holders, the
Initial Purchasers on behalf of such Holders, their counsel or any
underwriter shall not have previously been advised and furnished a copy
or to which such Holders, the Initial Purchasers on behalf of such
Holders, their counsel or any underwriter shall reasonably object within
a reasonable time period;
(q) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Notes to be listed on any securities exchange on
which similar debt securities issued by the Company are then listed if
requested by the Majority Holders or by the underwriter or underwriters
of an underwritten offering of Registrable Notes, if any;
(r) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to their security
holders, as soon as reasonably practicable (but not until the end of the
first full fiscal quarter following effectiveness), an earnings statement
covering at least 12 months which shall satisfy the provisions of Section
11(a) of the 1933 Act and Rule 158 thereunder; and
(s) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require
each Holder of Registrable Notes to furnish to the Company such information
regarding such Holder and the proposed distribution by
<PAGE> 20
17
such Holder of such Registrable Notes as the Company may from time to time
reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(ii)-(vii)
hereof, such Holder will forthwith discontinue disposition of Registrable Notes
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(k) hereof,
and, if so directed by the Company, such Holder will deliver to the Company (at
their expense) all copies in its possession, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Notes current at the time of receipt of such notice. Each Holder agrees to keep
confidential the cause of any such notice of suspension or other information
provided to them by the Company with respect thereto or any other event which
would materially adversely affect the Company. If the Company shall give any
such notice to suspend the disposition of Registrable Notes pursuant to a Shelf
Registration Statement as a result of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(vi) hereof,
the Company shall be deemed to have used its best efforts to keep the Shelf
Registration Statement effective during such period of suspension; provided that
(i) such period of suspension shall not exceed the time periods provided in
Section 2(d)(iii) hereof and (ii) the Company shall use its reasonable best
efforts to file and have declared effective (if an amendment) as soon as
practicable an amendment or supplement to the Shelf Registration Statement and
shall extend the period during which the Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days during the
period from and including the date of the giving of such notice to and including
the date when the Holders shall have received copies of the supplemented or
amended Prospectus necessary to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes covered by
any Shelf Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Majority Holders of such Registrable Notes
included in such offering, provided such banker or manager is acceptable to the
Company, acting reasonably.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
5. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Initial Purchaser, each Holder, including Participating
Broker-Dealers,
<PAGE> 21
18
each underwriter who participates in an offering of Registrable Notes, their
respective affiliates, and their respective directors, officers, employees,
agents and each Person, if any, who controls any of such parties within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Notes or
Registrable Notes were registered under the 1933 Act, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in each case, based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided that
(subject to Section 5(d) below) any such settlement is effected with the
written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the reasonable fees and disbursements of one counsel chosen by
any indemnified party), reasonably incurred in investigating, preparing
or defending against any litigation, or any investigation or proceeding
by any court or governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (i) or (ii) of this Section
5(a);
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission (A) made in or
omitted from a Preliminary Prospectus or registration statement and corrected
or included in a subsequent Prospectus or registration statement or any
amendment or supplement thereto made in reliance upon and in conformity with
written information furnished to the Company by the Initial Purchasers, any
Holder, including Participating Broker-Dealers, or any underwriter expressly
for use in the Registration Statement (or any amendment thereto) or the
Prospectus (or any amendment or supplement thereto) or (B) resulting from the
use of the Prospectus during a period when the use of the Prospectus has been
<PAGE> 22
19
suspended in accordance with Section 2(d)(iii), Section 3(e)(vi) and the last
paragraph of Section 3 hereof, provided, in each case, that Holders received
prior notice of such suspension.
(b) In the case of a Shelf Registration, each Holder agrees, severally and
not jointly, to indemnify and hold harmless the Company, each Initial
Purchaser, each underwriter who participates in an offering of Registrable
Notes and the other selling Holders and each of their respective directors and
officers (including each officer of the Company who signed the Registration
Statement) and each Person, if any, who controls the Company, any Initial
Purchaser, any underwriter or any other selling Holder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in Section 5(a) hereof, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use
in the Registration Statement (or any amendment thereto), or the Prospectus (or
any amendment or supplement thereto); provided, however, that no such Holder
shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable Notes pursuant to
such Shelf Registration Statement.
(c) In case any action shall be commenced involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall give notice as promptly as
reasonably practicable to each Person against whom such indemnity may be sought
(the "indemnifying party"), but failure to so notify an indemnifying party
shall not relieve such indemnifying party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. An indemnifying party may participate at
its own expense in the defense of such action; provided, however, that counsel
to the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own counsel
for all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 5 (whether or not the
indemnified parties are actual or potential parties thereof), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
<PAGE> 23
20
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity provisions
set forth in this Section 5 is for any reason unavailable to or insufficient to
hold harmless an indemnified party in respect of any losses, liabilities,
claims, damages or expenses referred to therein, then each indemnifying party
shall contribute to the aggregate amount of such losses, liabilities, claims,
damages and expenses incurred by such indemnified party, as incurred, in such
proportion as is appropriate to reflect the relative fault of such indemnifying
party or parties on the one hand, and such indemnified party or parties on the
other hand, in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party or parties on the one hand, and such indemnified party or parties on the
other hand shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or parties or such indemnified party or parties and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Initial
Purchasers and the Holders of the Registrable Notes agree that it would not be
just and equitable if contribution pursuant to this Section 5 were determined
by pro rata allocation (even if the Initial Purchasers were treated as one
entity, and the Holders were treated as one entity, for such purpose) or by
another method of allocation which does not take account of the equitable
considerations referred to above in Section 5. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 5 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by an governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1993 Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5, each Person, if any, who
controls an Initial Purchaser or Holder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as such Initial Purchaser or Holder, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each Person, if any, who
<PAGE> 24
21
controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Company.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15(d) of
the 1934 Act, the Company covenants that it will file the reports required to
be filed by it under Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder, and that if it ceases to be so
required to file such reports, it will upon the request of any Holder of
Registrable Notes (i) make publicly available such information as is necessary
to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such
information to a prospective purchaser as is necessary to permit sales pursuant
to Rule 144A under the 1933 Act and it will take such further action as any
Holder of Registrable Notes may reasonably request, and (iii) take such further
action that is reasonable in the circumstances, in each case, to the extent
required from time to time to enable such Holder to sell its Registrable Notes
without registration under the 1933 Act within the limitation of the exemptions
provided by (x) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, (y) Rule 144A under the 1933 Act, as such Rule may be amended
from time to time, or (z) any similar rules or regulations hereafter adopted by
the SEC. Upon the written request of any Holder of Registrable Notes, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into nor will
it on or after the date of this Agreement enter into any agreement which is
inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at
least a majority in aggregate principal amount at maturity of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Section 5 hereof
shall be effective as against any Holder of Registrable Notes unless consented
to in writing by such Holder.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder (other than an Initial Purchaser), at the most
current address set forth on the records of the Registrar under the Indenture,
(ii) if to an Initial Purchaser, at the most current address given by such
Initial Purchaser to the Company by means of a notice given in accordance with
the provisions of this Section 6(d), which address
<PAGE> 25
22
initially is the address set forth in the Purchase Agreement; and (iii) if to
the Company, initially at the address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
receipt is acknowledged, if telecopied; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon the successors, assigns and
transferees of each of the parties, including, without limitation and without
the need for an express assignment, subsequent Holders; provided that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Registrable Notes in violation of the terms hereof or of the Purchase
Agreement or the Indenture. If any transferee of any Holder shall acquire
Registrable Notes, in any manner, whether by operation of law or otherwise,
such Registrable Notes shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Notes, such Person shall
be conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement and, if applicable, the Purchase Agreement, and
such Person shall be entitled to receive the benefits hereof.
(f) Third Party Beneficiary. The Holders shall
be third party beneficiaries to the agreements made hereunder between the
Company on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 26
23
(j) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
[signature page follows]
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DTI HOLDINGS, INC.
By /s/ Richard D. Weinstein
---------------------------------
Name: Richard D. Weinstein
Title: Chief Executive Officer
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
TD SECURITIES (USA) INC.
By:MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Marcey Becker
-----------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
__________________________________________________________
WARRANT AGREEMENT
Dated as of February 23, 1998
By and Between
DTI HOLDINGS, INC.
and
THE BANK OF NEW YORK,
Warrant Agent
____________________
Warrants to Purchase Common Stock
(Par Value $0.01 Per Share)
__________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
<TABLE>
<S> <C>
SECTION 1.01. Issuance of Warrants.................................. 2
SECTION 1.02. Form of Warrant Certificates.......................... 2
SECTION 1.03. Execution of Warrant Certificates..................... 3
SECTION 1.04. Authentication and Delivery........................... 3
SECTION 1.05. Temporary Warrant Certificates........................ 4
SECTION 1.06. Separation of Warrants and Notes...................... 4
SECTION 1.07. Registration.......................................... 5
SECTION 1.08. Registration of Transfers or Exchanges................ 5
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant
Certificates..................................... 11
SECTION 1.10. Offices for Exercise, etc............................. 11
</TABLE>
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
<TABLE>
<S> <C>
SECTION 2.01. Duration of Warrants.................................. 12
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery..... 13
SECTION 2.03. Cancellation of Warrant Certificates.................. 16
SECTION 2.04. Notice of an Exercise Event........................... 16
</TABLE>
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
<TABLE>
<S> <C>
SECTION 3.01. Enforcement of Rights................................. 16
SECTION 3.02. Obtaining Stock Exchange Listings..................... 17
</TABLE>
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.01. Payment of Taxes.......................................... 17
SECTION 4.02. Rules 144 and 144A........................................ 17
SECTION 4.03. Form of Initial Public Equity Offering.................... 17
SECTION 4.04. Securities Act and Applicable State Securities Laws....... 18
SECTION 4.05. Resolution of Preemptive Rights, if Any................... 18
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices...................... 18
SECTION 5.02. Fractional Warrant Shares................................. 25
SECTION 5.03. Certain Distributions..................................... 25
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent............................................. 26
SECTION 6.02. Conditions of Warrant Agent's Obligations................. 26
SECTION 6.03. Resignation and Appointment of Successor.................. 30
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment................................................. 32
SECTION 7.02. Notices and Demands to the Company and Warrant Agent...... 33
SECTION 7.03. Addresses for Notices to Parties and for Transmission of
Documents............................................... 33
SECTION 7.04. Notices to Holders........................................ 34
SECTION 7.05. Applicable Law............................................ 34
SECTION 7.06. Persons Having Rights Under Agreement..................... 34
SECTION 7.07. Headings.................................................. 34
SECTION 7.08. Counterparts.............................................. 34
SECTION 7.09. Inspection of Agreement................................... 34
SECTION 7.10. Availability of Equitable Remedies........................ 35
SECTION 7.11. Obtaining of Governmental Approvals....................... 35
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
EXHIBIT A - Form of Warrant Certificate
EXHIBIT B - Form of Legend for Global Warrant
EXHIBIT C - Certificate to Be Delivered upon Exchange or Registration of
Transfer of Warrants
EXHIBIT D - Form of Certificate to Be Delivered in Connection with
Regulation S Transfers
</TABLE>
-iii-
<PAGE> 5
INDEX OF DEFINED TERMS
Defined Term Page
Affiliate.....................................................................21
Agreement..................................................................... 1
Business Day..................................................................12
Capital Stock.................................................................23
Cashless Exercise.............................................................14
Cashless Exercise Ratio.......................................................14
Common Stock.................................................................. 2
Convertible Preferred Stock...................................................24
Current Market Value..........................................................24
Definitive Warrants........................................................... 2
Distribution..................................................................25
Distribution Rights...........................................................25
Election to Exercise......................................................... 13
Exercisability Date.......................................................... 13
Exercise Date................................................................ 14
Exercise Event............................................................... 13
Exercise Price............................................................... 13
Exercise Rate................................................................ 13
Expiration Date.............................................................. 12
Global Shares................................................................ 15
Global Warrants.............................................................. 2
Indenture.................................................................... 1
Independent Financial Expert................................................. 25
Initial Public Equity Offering............................................... 13
Initial Purchasers........................................................... 1
Issue Date................................................................... 21
Legended Regulation S Global Warrant......................................... 4
Merrill Lynch................................................................ 1
Notes........................................................................ 1
Officers' Certificate........................................................ 9
Person....................................................................... 13
Private Placement Legend..................................................... 10
Purchase Agreement........................................................... 1
Related Parties.............................................................. 27
Requisite Warrant Holders.................................................... 32
Resale Restriction Termination Date.......................................... 6
Securities Act............................................................... 4
Separability Date............................................................ 4
Separation................................................................... 5
Subject Class................................................................ 18
-iv-
<PAGE> 6
Page
Surviving Person..............................................................21
Time of Determination.........................................................25
Trustee....................................................................... 1
Units......................................................................... 1
Warrant....................................................................... 1
Warrant Agent................................................................. 1
Warrant Agent Office..........................................................12
Warrant Certificates.......................................................... 1
Warrant Exercise Office.......................................................11
Warrant Register.............................................................. 5
Warrant Registration Rights Agreement......................................... 1
Warrant Shares................................................................ 2
-v-
<PAGE> 7
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of February 23, 1998 by and
between DTI HOLDINGS, INC. (the "Company"), a corporation organized and
incorporated under the Missouri General Business Corporation Law, and THE BANK
OF NEW YORK, warrant agent (with any successor Warrant Agent, the "Warrant
Agent").
WHEREAS, the Company has entered into a purchase agreement (the "Purchase
Agreement") dated February 13, 1998 with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and TD Securities (USA)
Inc. (together with Merrill Lynch, the "Initial Purchasers"), severally, in
which the Company has agreed to sell to the Initial Purchasers 506,000 units
(the "Units"), each consisting of (i) $1,000 principal amount at maturity of
Senior Discount Notes due 2008 (the "Notes") of the Company to be issued under
an indenture dated as of February 23, 1998 (the "Indenture"), between the
Company and The Bank of New York, trustee (in such capacity, the "Trustee"),
and (ii) five warrants (the "Warrants"), each initially entitling the holder
thereof to purchase 1.552 shares of Common Stock (as defined herein) of the
Company, set forth opposite such Initial Purchaser's name on Schedule I to the
Purchase Agreement. The certificates evidencing the Warrants are herein
referred to collectively as the "Warrant Certificates"; and
WHEREAS, the Notes and the Warrants comprising the Units shall not be
separately transferable until the Separability Date (as defined herein); and
WHEREAS, the holders of the Warrants are entitled to the benefits of a
Warrant Registration Rights Agreement dated as of February 23, 1998 between the
Company and the Initial Purchasers (the "Warrant Registration Rights
Agreement"); and
WHEREAS, the Company desires the Warrant Agent as warrant agent to assist
the Company in connection with the issuance, exchange, cancellation,
replacement and exercise of the Warrants, and in this Agreement wishes to set
forth, among other things, the terms and conditions on which the Warrants may
be issued, exchanged, cancelled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants. Warrants comprising part of the
Units shall be originally issued in connection with the issuance of the Units
and such Warrants shall not
<PAGE> 8
2
be separately transferable from the Notes until on or after the Separability
Date as provided in Section 1.06 hereof.
Each Warrant Certificate shall evidence the number of Warrants specified
therein. Each Warrant evidenced by a Warrant Certificate shall, when it
becomes exercisable as provided herein and therein, represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to the holder of such Warrant)
1.552 fully paid, registered and non-assessable Warrant Shares at an exercise
price of $0.01 per share. The number of shares of the Company's common stock,
par value $0.01 per share, and any other class or series of common equity
equivalent shares of the Company hereafter created (the "Common Stock")
issuable upon exercise of a Warrant is subject to adjustment as provided herein
and in the Warrant. The shares of Common Stock issuable upon exercise of a
Warrant are hereinafter referred to as the "Warrant Shares" and, unless the
context otherwise requires, such term shall also include any other securities
or property issuable and deliverable upon exercise of a Warrant as provided in
Article V, subject to adjustment as provided herein and in the Warrant.
SECTION 1.02. Form of Warrant Certificates. The Warrant Certificates
will initially be issued either in global form (the "Global Warrants") or in
registered form as definitive Warrant Certificates (the "Definitive Warrants"),
in either case substantially in the form of Exhibit A attached hereto. Any
Global Warrants to be delivered pursuant to this Agreement shall bear the
legend set forth in Exhibit B attached hereto. The Global Warrants shall
represent such of the outstanding Warrants as shall be specified therein, and
each Global Warrant shall provide that it shall represent the aggregate amount
of outstanding Warrants from time to time endorsed thereon and that the
aggregate amount of outstanding Warrants represented thereby may from time to
time be reduced or increased, as appropriate. Any endorsement of a Global
Warrant to reflect the amount of any increase or decrease in the amount of
outstanding Warrants represented thereby shall be made by the Warrant Agent and
the Depositary (as defined below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall act as the "Depositary"
with respect to the Global Warrants until a successor shall be appointed by the
Company and the Warrant Agent. Upon written request, a holder of Warrants may
receive from the Warrant Agent or the Depositary Definitive Warrants as set
forth in Section 1.08 hereof.
SECTION 1.03. Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by the chairman of its
board of directors, its president, its chief financial officer or any vice
president and attested by its secretary or assistant secretary. Such
signatures may be the manual or facsimile signatures of the present or any
future such officers. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificates. Typographical and other minor errors
or defects in any such reproduction of any such signature shall not affect the
validity or enforceability of any Warrant Certificate that has been duly
countersigned and delivered by the Warrant Agent.
<PAGE> 9
3
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be authenticated and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
authenticated and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company. Any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Agreement any such person was not such an officer.
SECTION 1.04. Authentication and Delivery. Subject to the immediately
following paragraph, Warrant Certificates shall be authenticated by manual
signature and dated the date of authentication by the Warrant Agent and shall
not be valid for any purpose unless so authenticated and dated. The Warrant
Certificates shall be numbered and shall be registered in the Warrant Register
(as defined in Section 1.07 hereof).
Upon the receipt by the Warrant Agent of a written order of the Company,
which order shall be signed by the chairman of its board of directors, its
president, its chief financial officer or any vice president and attested by
its secretary or assistant secretary, and shall specify the amount of Warrants
to be authenticated, whether the Warrants are to be Global Warrants or
Definitive Warrants, the date of such Warrants and such other information as
the Warrant Agent may reasonably request, without any further action by the
Company, the Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Warrant Certificates, duly executed as
provided in Section 1.03 hereof, to authenticate the Warrant Certificates and
upon the holder's request deliver them. Such authentication shall be by a duly
authorized signatory of the Warrant Agent (although it shall not be necessary
for the same signatory to sign all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such authorized
signatory before the Warrant Certificate shall be disposed of by the Company or
the Warrant Agent, such Warrant Certificate nevertheless may be delivered or
disposed of as though the person who authenticated such Warrant Certificate had
not ceased to be such authorized signatory of the Warrant Agent; and any
Warrant Certificate may be authenticated on behalf of the Warrant Agent by such
persons as, at the actual time of authentication of such Warrant Certificates,
shall be the duly authorized signatories of the Warrant Agent, although at the
time of the execution and delivery of this Agreement any such person is not
such an authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates shall be in
substantially the form set forth in Exhibit A hereto.
SECTION 1.05. Temporary Warrant Certificates. Warrants sold in offshore
transactions in reliance on Regulation S will initially be represented by one
or more permanent
<PAGE> 10
4
legended global Warrants in definitive, fully registered form (each a
"Legended Regulation S Global Warrant"). The Company may execute, and the
Warrant Agent shall authenticate and deliver, Legended Regulation S Global
Warrant Certificates, which are printed, lithographed, typewritten or otherwise
produced, substantially of the tenor of the definitive Warrant Certificates in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
The Legended Regulation S Global Warrants will be exchangeable for one or
more unlegended permanent global Warrants on or after one year following the
Issue Date upon certification that the beneficial interests in such global
Warrants are owned by non-U.S. persons at any office or agency maintained by
the Company for that purpose pursuant to Section 1.10 hereof. Subject to the
provisions of Section 4.01 hereof, such exchange shall be without charge to the
holder. Upon surrender for cancellation of any one or more Legended Regulation
S Global Warrant Certificates, the Company shall execute, and the Warrant Agent
shall authenticate and deliver in exchange therefor, one or more unlegended
permanent global Warrant Certificates representing in the aggregate a like
number of Warrants. Until so exchanged, the holder of a Legended Regulation S
Global Warrant Certificate shall in all respects be entitled to the same
benefits under this Agreement as a holder of an unlegended permanent global
Warrant Certificate provided that prior to the later of (i) the 40th day after
the Issue Date and (ii) one year after the Issue Date with respect to the
Warrants, beneficial interests in the Legended Regulation S Global Warrant may
be only held through Euroclear or Cedel Bank. Cedel Bank and Euroclear will
hold interests in the Global Warrant on behalf of their participants through
DTC.
SECTION 1.06. Separation of Warrants and Notes. The Notes and the
Warrants will not be separately transferable until the Separability Date.
"Separability Date" shall mean the earliest to occur of: (i) September 1,
1998, (ii) the date on which a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to a registered
exchange offer for the Notes is declared effective under the Securities Act,
(iii) the occurrence of an Exercise Event (as defined herein), (iv) the
occurrence of an Event of Default (as defined in the Indenture) or (v) such
earlier date as determined by Merrill Lynch in its sole discretion and
specified to the Company and the Warrant Agent in writing. Notwithstanding the
foregoing, in the event a Change of Control (as defined in the Indenture) is
proposed and the Company commences a Change of Control Offer (as defined in the
Indenture) prior to the Separability Date, as determined by the preceding
sentence, the Separability Date shall be such earlier date of commencement.
The separation of the Warrants and the Notes is herein referred to as a
"Separation."
SECTION 1.07. Registration. The Company will keep, at the office or
agency maintained by the Company for such purpose, a register or registers in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of, and registration of transfer and
exchange of, Warrants as provided in this Article. Each person designated by
the Company from time to time as a person authorized to register the transfer
and
<PAGE> 11
5
exchange of the Warrants is hereinafter called, individually and collectively,
the "Registrar." The Company hereby initially appoints the Warrant Agent as
Registrar. Upon written notice to the Warrant Agent and any acting Registrar,
the Company may appoint a successor Registrar for such purposes.
The Company will at all times designate one person (who may be the Company
and who need not be a Registrar) to act as repository of a master list of names
and addresses of the holders of Warrants (the "Warrant Register"). The Warrant
Agent will act as such repository unless and until some other person is, by
written notice from the Company to the Warrant Agent and the Registrar,
designated by the Company to act as such. The Company shall cause each
Registrar to furnish to such repository, on a current basis, such information
as to all registrations of transfer and exchanges effected by such Registrar,
as may be necessary to enable such repository to maintain the Warrant Register
on as current a basis as is practicable.
SECTION 1.08. Registration of Transfers or Exchanges.
(a) Transfer or Exchange of Definitive Warrants. When Definitive Warrants
are presented to the Warrant Agent with a request from the holder:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements under this Warrant Agreement as set forth in this Section
1.08 hereof for such transactions are met; provided, however, that the
Definitive Warrants presented or surrendered by a holder for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction of
transfer or exchange in form satisfactory to the Company and the
Warrant Agent, duly executed by such holder or by his attorney, duly
authorized in writing; and
(y) in the case of Warrants the offer and sale of which have not been
registered under the Securities Act and are presented for transfer or
exchange prior to (X) the date which is two years (or such shorter
period as may be prescribed by Rule 144(k) (or any successor
provision thereto)) after the later of the date of original issuance
of the Warrants and the last date on which the Company or any
affiliate of the Company was the owner of such Warrants, or any
predecessor thereto, and (Y) such later date, if any, as may be
required by any subsequent change in applicable law (the "Resale
Restriction Termination Date"), such Warrants shall be accompanied by
the following additional information and documents, as applicable:
<PAGE> 12
6
(A) if such Warrants are being delivered to the Warrant Agent by a
holder for registration in the name of such holder, without
transfer, a certification from such holder to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such Warrants are being transferred to a qualified
institutional buyer as such term is defined in Rule 144A under
the Securities Act (a "QIB") in accordance with Rule 144A under
the Securities Act, a certification from the transferor to that
effect (in substantially the form of Exhibit C hereto); or
(C) if such Warrants are being transferred in reliance on Regulation
S under the Securities Act, delivery by the transferor of a
certification to that effect (in substantially the form of
Exhibit C hereto), and a Certificate for Regulation S Transfers
(in substantially the form of Exhibit D hereto); or
(D) if such Warrants are being transferred in reliance on Rule 144
under the Securities Act, delivery by the transferor of (i) a
certification from the transferor to that effect (in
substantially the form of Exhibit C hereto), and (ii) an opinion
of counsel reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act; or
(E) if such Warrants are being transferred in reliance on another
exemption from the registration requirements of the Securities
Act, a certification from the transferor to that effect (in
substantially the form of Exhibit C hereto) and an opinion of
counsel reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act;
provided that the Company may, based upon the views of its own
counsel, instruct the Warrant Agent not to register such
transfer in any case where the proposed transferee is not a QIB
or Non-U.S. Person.
(b) Restrictions on Transfer of a Definitive Warrant for a Beneficial
Interest in a Global Warrant. A Definitive Warrant may not be transferred by a
holder for a beneficial interest in a Global Warrant except upon satisfaction
of the requirements set forth below. Upon receipt by the Warrant Agent of a
Definitive Warrant, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Warrant Agent, together with:
(A) certification from such holder (in substantially the form of
Exhibit C hereto) that such Definitive Warrant is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act; and
(B) written instructions directing the Warrant Agent to make, or to
direct the Depositary to make, an endorsement on the Global
Warrant to reflect an
<PAGE> 13
7
increase in the aggregate amount of the Warrants represented by
the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or
direct the Depositary to cause, in accordance with the standing instructions
and procedures existing between the Depositary and the Warrant Agent, the
number of Warrant Shares represented by the Global Warrant to be increased
accordingly. If no Global Warrant is then outstanding, the Company shall
issue, and the Warrant Agent shall upon written instructions from the Company
authenticate, a new Global Warrant in the appropriate amount.
(c) Transfer or Exchange of Global Warrants. The transfer or exchange of
Global Warrants or beneficial interests therein shall be effected through the
Depositary, in accordance with this Section 1.08, the Private Placement Legend
(as defined below), this Agreement (including those restrictions on transfer
set forth herein) and the procedures of the Depositary therefor.
(d) Transfer or Exchange of a Beneficial Interest in a Global Warrant for
a Definitive Warrant.
(i) Any person having a beneficial interest in a Global Warrant may
transfer or exchange such beneficial interest for a Definitive
Warrant upon receipt by the Warrant Agent of written instructions (or
such other form of instructions as is customary for the Depositary)
from the Depositary or its nominee on behalf of any person having a
beneficial interest in a Global Warrant, including a written order
containing registration instructions and, in the case of any such
transfer or exchange prior to the Resale Restriction Termination
Date, the following additional information and documents:
(A) if such beneficial interest is being transferred to the person
designated by the Depositary as being the beneficial owner, a
certification from such person to that effect (in substantially
the form of Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a
certification from the transferor to that effect (in
substantially the form of Exhibit C hereto); or
(C) if such beneficial interest is being transferred in reliance on
Regulation S under the Securities Act, delivery by the
transferor of (i) a certification to that effect (in
substantially in the form of Exhibit C hereto), and (ii) a
Certificate for Regulation S Transfers in substantially the form
of Exhibit D hereto; or
<PAGE> 14
8
(D) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery by the transferor of
(i) a certification to that effect (in substantially the form of
Exhibit C hereto) and (ii) an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(E) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification from the transferor to that
effect (in substantially the form of Exhibit C hereto) and an
opinion of counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities
Act; provided that the Company may instruct the Warrant Agent
not to register such transfer in any case where the proposed
transferee is not a QIB or Non-U.S. Person;
then the Warrant Agent will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Warrant Agent, the aggregate amount of the Global Warrant to be
reduced and, following such reduction, the Company will execute and,
upon receipt of an authentication order in the form of an officers'
certificate (a certificate signed by the chairman or a co-chairman of
the board, the president, the chief financial officer, any executive
vice president or any senior vice president of the Company signing
alone, or by any vice president signing together with the secretary,
any assistant secretary, the treasurer, or any assistant treasurer of
the Company) (an "Officers' Certificate"), the Warrant Agent will
authenticate and deliver to the transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial interest in a
Global Warrant pursuant to this Section 1.08(d) shall be registered
in such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent in writing. The Warrant
Agent shall deliver such Definitive Warrants to the persons in whose
names such Warrants are so registered and adjust the Global Warrant
pursuant to paragraph (h) of this Section 1.08.
(e) Restrictions on Transfer or Exchange of Global Warrants.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.08), a Global Warrant
may not be transferred or exchanged as a whole except by the Depositary to a
nominee of the Depositary; by a nominee of the Depositary to the Depositary or
another nominee of the Depositary; or by the Depositary or any such nominee to
a successor Depositary or a nominee of such successor Depositary.
<PAGE> 15
9
(f) Authentication of Definitive Warrants in Absence of Depositary. If at
any time:
(i) the Depositary for the Global Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Warrant and a successor Depositary for the Global Warrant is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) the Company, at its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrants
for all Global Warrants under this Agreement,
then the Company will execute, and the Warrant Agent will, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Definitive
Warrants, authenticate and deliver Definitive Warrants, in an aggregate number
equal to the aggregate number of warrants represented by the Global Warrant, in
exchange for such Global Warrant.
(g) Private Placement Legend. Upon the transfer or exchange of Warrant
Certificates not bearing the legend set forth in the first paragraph of Exhibit
A attached hereto (the "Private Placement Legend"), the Warrant Agent shall
deliver Warrant Certificates that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Warrant Certificates bearing the
Private Placement Legend, the Warrant Agent shall deliver Warrant Certificates
that bear the Private Placement Legend unless, and the Warrant Agent is hereby
authorized to deliver Warrant Certificates without the Private Placement Legend
if, (i) there is delivered to the Warrant Agent an opinion of counsel
reasonably satisfactory to the Company and the Warrant Agent to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act or (ii)
the Warrants to be transferred or exchanged represented by such Warrant
Certificates are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act.
(h) Cancellation or Adjustment of a Global Warrant. At such time as all
beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant
shall be returned to the Company or, upon written order to the Warrant Agent in
the form of an Officers' Certificate from the Company, retained and cancelled
by the Warrant Agent. At any time prior to such cancellation, if any
beneficial interest in a Global Warrant is exchanged for Definitive Warrants,
redeemed, repurchased or cancelled, the number of Warrants represented by such
Global Warrant shall be reduced and an endorsement shall be made on such Global
Warrant by the Warrant Agent to reflect such reduction.
(i) Obligations with Respect to Transfers or Exchanges of Definitive
Warrants.
<PAGE> 16
10
(i) To permit registrations of transfers or exchanges, the Company shall
execute, at the Warrant Agent's request, and the Warrant Agent shall
authenticate, Definitive Warrants and Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or Global
Warrants, as the case may be, shall be the valid obligations of the
Company, entitled to the same benefits under this Warrant Agreement
as the Definitive Warrants or Global Warrants surrendered upon the
registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the
person in whose name any Warrant is registered as the absolute owner
of such Warrant, and neither the Warrant Agent nor the Company shall
be affected by notice to the contrary.
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant
Certificates. Upon receipt by the Company and the Warrant Agent (or any agent
of the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to them of the loss, theft, destruction, defacement, or mutilation
of any Warrant Certificate and of indemnity satisfactory to them and, in the
case of mutilation or defacement, upon surrender thereof to the Warrant Agent
for cancellation, then, in the absence of notice to the Company or the Warrant
Agent that such Warrant Certificate has been acquired by a bona fide purchaser
or holder in due course, the Company shall execute, and an authorized signatory
of the Warrant Agent shall manually authenticate and deliver, in exchange for
or in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant
Certificate, a new Warrant Certificate representing a like number of Warrants,
bearing a number or other distinguishing symbol not contemporaneously
outstanding. Upon the issuance of any new Warrant Certificate under this
Section in a name other than the prior registered holder of the lost, stolen,
destroyed, defaced or mutilated Warrant Certificate, the Company may require
the payment from the holder of such Warrant Certificate of a sum sufficient to
cover any tax, stamp tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Warrant Agent and the Registrar) in connection therewith. Every substitute
Warrant Certificate executed and delivered pursuant to this Section in lieu of
any lost, stolen or destroyed Warrant Certificate shall constitute an
additional contractual obligation of the Company, whether or not the lost,
stolen or destroyed Warrant Certificate shall be at any time enforceable by
anyone, and shall be entitled to the benefits of (but shall be subject to all
the limitations of rights set forth in) this Agreement equally and
proportionately with any and all other Warrant Certificates duly executed and
delivered hereunder. The provisions of this Section 1.09 are exclusive with
respect to the replacement of lost, stolen, destroyed, defaced or mutilated
Warrant Certificates and shall preclude (to the extent lawful) any and all
other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement of lost,
stolen, destroyed, defaced or mutilated Warrant Certificates.
<PAGE> 17
11
The Warrant Agent is hereby authorized to authenticate in accordance with
the provisions of this Agreement and deliver the new Warrant Certificates
required pursuant to the provisions of this Section.
SECTION 1.10. Offices for Exercise, etc. So long as any of the Warrants
remain outstanding, the Company will designate and maintain in the Borough of
Manhattan, The City of New York: (a) an office or agency where the Warrant
Certificates may be presented for exercise (each a "Warrant Exercise Office"),
(b) an office or agency where the Warrant Certificates may be presented for
registration of transfer and for exchange (including the exchange of temporary
Warrant Certificates for definitive Warrant Certificates pursuant to Section
1.05 hereof), and (c) an office or agency where notices and demands to or upon
the Company in respect of the Warrants or of this Agreement may be served. The
Company may from time to time change or rescind such designation, as it may
deem desirable or expedient; provided, however, that an office or agency shall
at all times be maintained in the Borough of Manhattan, The City of New York,
as provided in the first sentence of this Section. In addition to such office
or offices or agency or agencies, the Company may from time to time designate
and maintain one or more additional offices or agencies within or outside The
City of New York, where Warrant Certificates may be presented for exercise or
for registration of transfer or for exchange, and the Company may from time to
time change or rescind such designation, as it may deem desirable or expedient.
The Company will give to the Warrant Agent written notice of the location of
any such office or agency and of any change of location thereof. The Company
hereby designates the Warrant Agent at its principal corporate trust office
identified in Section 7.03 in the Borough of Manhattan, The City of New York
(the "Warrant Agent Office"), as the initial agency maintained for each such
purpose. In case the Company shall fail to maintain any such office or agency
or shall fail to give such notice of the location or of any change in the
location thereof, presentations and demands may be made and notice may be
served at the Warrant Agent Office and the Company appoints the Warrant Agent
as its agent to receive all such presentations, surrenders, notices and
demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants. Subject to the terms and conditions
established herein, the Warrants shall expire at 5:00 p.m., New York City time,
on March 1, 2008. The applicable date of expiration of a particular Warrant is
referred to herein as the "Expiration Date" of such Warrant. Each Warrant may
be exercised on any Business Day (as defined below) on or after the
Exercisability Date (as defined in Section 2.02) and on or prior to the close
of business on the Expiration Date.
<PAGE> 18
12
Any Warrant not exercised before the close of business on the Expiration
Date shall become void, and all rights of the holder under the Warrant
Certificate evidencing such Warrant and under this Agreement shall cease.
"Business Day" shall mean any day on which (i) banks in The City of New
York, (ii) the principal U.S. securities exchange or market, if any, on which
any Common Stock is listed or admitted to trading and (iii) the principal U.S.
securities exchange or market, if any, on which the Warrants are listed or
admitted to trading, are open for business.
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery. (a)
Subject to the provisions of this Agreement, a holder of a Warrant shall have
the right to purchase from the Company on or after the Exercisability Date and
on or prior to the close of business on the Expiration Date 1.552 fully paid,
registered and non-assessable Warrant Shares (and any other securities or
property purchasable or deliverable upon exercise of such Warrant as provided
in Article V), subject to adjustment in accordance with Article V hereof, at
the purchase price of $0.01 for each share purchased (the "Exercise Price").
The number and amount of Warrant Shares issuable upon exercise of a Warrant
(the "Exercise Rate") shall be subject to adjustment from time to time as set
forth in Article V hereof.
"Exercisability Date" means, with respect to each Warrant, the first day
on or after the Separability Date on which there shall have occurred an
Exercise Event (as defined herein).
"Exercise Event" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (i) the time immediately prior to the
occurrence of a Change of Control (as such term is defined in the Indenture);
(ii)(a) the 180th day (or such earlier date as determined by the Company in its
sole discretion) following the closing of an Initial Public Equity Offering (as
defined herein) or (b) upon the closing of an Initial Public Equity Offering,
but only in respect of Warrants, if any, required to be exercised to permit the
holders thereof to sell Warrant Shares pursuant to their respective
registration rights, (iii) a class of equity securities of the Company is
listed on a national securities exchange or authorized for quotation on the
Nasdaq National Market or is otherwise subject to registration under the
Exchange Act, or (iv) September 1, 1999.
"Initial Public Equity Offering" means a primary public offering (whether
or not underwritten, but excluding any offering pursuant to Form S-8 or F-8
under the Securities Act or any other publicly registered offering pursuant to
the Securities Act pertaining to an issuance of shares of Common Stock or
securities exercisable therefor under any benefit plan, employee compensation
plan, or employee or director stock purchase plan) of Common Stock pursuant to
an effective registration statement under the Securities Act.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof or any other entity, including any predecessor of any such
entity.
<PAGE> 19
13
(b) Warrants may be exercised on or after the date they are exercisable
hereunder by (i) surrendering at any Warrant Exercise Office the Warrant
Certificate evidencing such Warrants with the form of election to purchase
Warrant Shares set forth on the reverse side of the Warrant Certificate (the
"Election to Exercise") duly completed and signed by the registered holder or
holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and in the case of a transfer, such signature shall
be guaranteed by an eligible guarantor institution, and (ii) paying in full the
Exercise Price for each such Warrant exercised. Each Warrant may be exercised
only in whole.
(c) Simultaneously with the exercise of each Warrant, payment in full of
the aggregate Exercise Price may be made, at the option of the holder, (i) in
cash or by certified or official bank check, (ii) by a Cashless Exercise (as
defined below) or (iii) by any combination of (i) and (ii), to the office or
agency where the Warrant Certificate is being surrendered. For purposes of
this Agreement, a "Cashless Exercise" shall mean an exercise of a Warrant in
accordance with the immediately following two sentences. To effect a Cashless
Exercise, the holder may exercise a Warrant or Warrants without payment of the
Exercise Price in cash by surrendering such Warrant or Warrants (represented by
one or more Warrant Certificates) and, in exchange therefor, receiving such
number of shares of Common Stock equal to the product of (1) that number of
shares of Common Stock for which such Warrant or Warrants are exercisable and
which would be issuable in the event of an exercise with payment in cash of the
Exercise Price and (2) the Cashless Exercise Ratio (as defined below). The
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (calculated as set forth in this Agreement)
per share of Common Stock on the date of exercise over the Exercise Price per
share of Common Stock as of the date of exercise and the denominator of which
is the Current Market Value per share of Common Stock on the date of exercise.
Upon surrender of a Warrant Certificate representing more than one Warrant in
connection with a holder's option to elect a Cashless Exercise, such holder
must specify the number of Warrants for which such Warrant Certificate is to be
exercised (without giving effect to such Cashless Exercise). All provisions of
this Agreement shall be applicable with respect to a Cashless Exercise of a
Warrant Certificate for less than the full number of Warrants represented
thereby. No payment or adjustment shall be made on account of any
distributions of dividends on the Common Stock issuable upon exercise of a
Warrant. If the Company has not effected the registration under the Securities
Act of the offer and sale of the Warrant Shares by the Company to the holders
of the Warrants on or prior to the Exercise Date (as defined below) thereof,
the Company may elect to require that the holders of the Warrants effect the
exercise thereof solely pursuant to the Cashless Exercise option and may also
amend the Warrants to eliminate the requirement for payment of the Exercise
Price with respect to such Cashless Exercise option. The Warrant Agent shall
have no obligation under this section to calculate the Cashless Exercise Ratio.
(d) Upon surrender of a Warrant Certificate and payment and collection of
the Exercise Price at any Warrant Exercise Office (other than any Warrant
Exercise Office that also is an office of the Warrant Agent), such Warrant
Certificate and payment shall be promptly
<PAGE> 20
14
delivered to the Warrant Agent. The "Exercise Date" for a Warrant shall be the
date when all of the items referred to in the first sentence of paragraphs (b)
and (c) of this Section 2.02 are received by the Warrant Agent at or prior to
11:00 a.m., New York City time, on a Business Day and the exercise of the
Warrants will be effective as of such Exercise Date. If any items referred to
in the first sentence of paragraphs (b) and (c) are received after 11:00 a.m.,
New York City time, on a Business Day, the exercise of the Warrants to which
such item relates will be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on the
Expiration Date, if all of the items referred to in the first sentence of
paragraphs (b) and (c) are received by the Warrant Agent at or prior to 5:00
p.m., New York City time, on the Expiration Date, the exercise of the Warrants
to which such items relate will be effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the terms hereof,
the receipt of a Warrant Certificate and payment of the Exercise Price (or
election of the Cashless Exercise option), the Warrant Agent shall: (i) except
to the extent exercise of the Warrant has been effected through a Cashless
Exercise, cause an amount equal to the aggregate Exercise Price to be paid to
the Company by crediting such amount in immediately available funds to the
account designated by the Company in writing to the Warrant Agent for that
purpose; (ii) advise the Company immediately by telephone of the amount so
deposited to the Company's account and promptly confirm such telephonic advice
in writing; and (iii) as soon as practicable, advise the Company in writing of
the number of Warrants exercised in accordance with the terms and conditions of
this Agreement and the Warrant Certificates, the instructions of each
exercising holder of the Warrant Certificates with respect to delivery of the
Warrant Shares to which such holder is entitled upon such exercise, and such
other information as the Company shall reasonably request.
(f) Subject to Section 5.02 hereof, as soon as practicable after the
exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered holder of the Warrant Certificate evidencing such exercised Warrant
or Warrants, a certificate or certificates evidencing the Warrant Shares to
which such holder is entitled, in fully registered form, registered in such
name or names as may be directed by such holder pursuant to the Election to
Exercise, as set forth on the reverse of the Warrant Certificate. Such
certificate or certificates evidencing the Warrant Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall
be deemed to have become the holders of record of such Warrant Shares as of the
close of business on the Exercise Date; the Warrant Shares may initially be
issued in global form (the "Global Shares"). Such Global Shares shall
represent such of the outstanding Warrant Shares as shall be specified therein
and each Global Share shall provide that it represents the aggregate amount of
outstanding Warrant Shares from time to time endorsed thereon and that the
aggregate amount of outstanding Warrant Shares represented thereby may from
time to time be reduced or increased, as appropriate. Any endorsement of a
Global Share to reflect any increase or decrease in the amount of outstanding
Warrant Shares represented thereby shall be made by the registrar for the
Warrant Shares and the Depositary (referred to below) in accordance with
instructions
<PAGE> 21
15
given by the holder thereof. The Depository Trust Company shall (if possible)
act as the Depositary with respect to the Global Shares until a successor shall
be appointed by the Company and the registrar for the Warrant Shares. After
exercise of any Warrant or Warrant Shares, the Company shall also issue or
cause to be issued to or upon the written order of the registered holder of
such Warrant Certificate, a new Warrant Certificate, countersigned by the
Warrant Agent pursuant to written instruction, evidencing the number of
Warrants, if any, remaining unexercised unless such Warrants shall have
expired.
SECTION 2.03. Cancellation of Warrant Certificates. In the event the
Company shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall at the Company's written instruction be canceled by it and
retired. The Warrant Agent shall cancel all Warrant Certificates properly
surrendered for exchange, substitution, transfer or exercise. Upon the
Company's written request, the Warrant Agent shall deliver such canceled Warrant
Certificates to the Company.
SECTION 2.04. Notice of an Exercise Event. The Company shall, as soon as
practicable after the occurrence of an Exercise Event, send or cause to be sent
to each holder of Warrants and to each beneficial owner of the Warrants with
respect to which such Exercise Event has occurred to the extent that the
Warrants are held of record by a depositary or other agent (with a copy to the
Warrant Agent), by first-class mail, at the addresses appearing on the Warrant
Register, a notice prepared by the Company advising such holder of the Exercise
Event which has occurred, which notice shall describe the type of Exercise Event
and the date of the occurrence thereof, as applicable, and, in either case, the
date of expiration of the right to exercise the Warrants prominently set forth
in the face of such notice.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights. (a) Notwithstanding any of the
provisions of this Agreement, any holder of any Warrant Certificate, without
the consent of the Warrant Agent, the holder of any Warrant Shares or the
holder of any other Warrant Certificate, may, in and for his own behalf,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, his right to exercise the Warrant or Warrants
evidenced by his Warrant Certificate in the manner provided in such Warrant
Certificate and in this Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall entitle the
holders thereof to any of the rights of shareholders of the Company, including,
without limitation, the right to vote or to receive any dividends or other
payments or to consent or to receive notice as
<PAGE> 22
16
shareholders in respect of the meetings of shareholders or for the election of
directors of the Company or any other matter, or any rights whatsoever as
shareholders of the Company, except as expressly provided in Section 5.03
hereof.
SECTION 3.02. Obtaining Stock Exchange Listings. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States
(including the Nasdaq National Market), if any, on which other shares of Common
Stock are then listed.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrants and of the Warrant
Shares upon the exercise of Warrants; provided, however, that the Company shall
not be required to pay any tax or other governmental charge which may be
payable in respect of any transfer or exchange of any Warrant Certificates or
any certificates for Warrant Shares in a name other than the registered holder
of a Warrant Certificate surrendered upon the exercise of a Warrant. In any
such case, no transfer or exchange shall be made unless or until the person or
persons requesting issuance thereof shall have paid to the Company the amount
of such tax or other governmental charge or shall have established to the
satisfaction of the Company that such tax or other governmental charge has been
paid or an exemption is available therefrom.
SECTION 4.02. Rules 144 and 144A. The Company covenants that it will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules, regulations and policies adopted by the Securities
and Exchange Commission thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act and, if at any time the
Company is not required to file such reports, it will mail to each owner or
beneficial owner of Warrants, such information as is referred to in Rule
144A(d)(4) under the Securities Act.
SECTION 4.03. Form of Initial Public Equity Offering. The Company agrees
that it will not make an Initial Public Equity Offering of any class of its
Capital Stock (as defined below) (other than the class of Capital Stock into
which the Warrants are exercisable) without adopting any amendments to the
terms of the Company's articles of incorporation that may be necessary to
provide that the Warrant Shares are convertible into such class of Capital
Stock subject to the Initial Public Equity Offering (the "Subject Class") on a
share-for-share basis or other equitable basis and that the rights, conditions
and privileges of the Subject Class shall not be adverse to the holders of the
Warrant Shares.
<PAGE> 23
17
SECTION 4.04. Securities Act and Applicable State Securities Laws. The
Company will also agree to comply with all applicable laws, including the
Securities Act and any applicable state securities laws, in connection with the
offer and sale of Common Stock (and other securities and property deliverable)
upon exercise of the Warrants.
SECTION 4.05. Resolution of Preemptive Rights, if Any. The Warrant
Shares shall not be subject to any preemptive or similar rights.
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices. The Exercise Rate is
subject to adjustment from time to time as provided in this Section.
(a) Adjustment for Change in Capital Stock. If, after the Issue Date (as
defined herein), the Company:
(i) pays a dividend or makes a distribution on shares of its Common
Stock payable in shares of its Common Stock or certain other Capital Stock
of the Company (other than any such dividend to the extent covered by
Section 5.03);
(ii) subdivides or splits any of its outstanding shares of Common
Stock into a greater number of shares;
(iii) combines any of its outstanding shares of Common Stock into a
smaller number of shares; or
(iv) issues by reclassification of any of its Common Stock or any
shares of any of its Capital Stock;
then the Exercise Rate in effect immediately prior to such action for each
Warrant then outstanding shall be adjusted so that the holder of a Warrant
thereafter exercised may receive the number of shares of Capital Stock of the
Company which such holder would have owned immediately following such action if
such holder had exercised the Warrant immediately prior to such action or
immediately prior to the record date applicable thereto, if any (regardless of
whether the Warrants then outstanding are then exercisable and without giving
effect to the Cashless Exercise option). If there are no outstanding shares of
Common Stock that are of the same class as the Warrant Shares at the time of
any such action and such action has therefore been taken only in respect of
shares of another class of Common Stock, such adjustment shall relate to the
Warrant Shares as Warrant Shares (and not in the form of shares of Common
Stock) if it would not frustrate the intent and purposes of this Section 5.01.
<PAGE> 24
18
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification. In the event
that such dividend or distribution is not so paid or made or such subdivision,
combination or reclassification is not effected, the Exercise Rate shall again
be adjusted to be the Exercise Rate which would then be in effect if such
record date or effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of such Warrant
may receive shares of two or more classes of Capital Stock of the Company, the
Exercise Rate shall thereafter be subject to adjustment upon the occurrence of
an action taken with respect to any such class of Capital Stock as is
contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
(b) Adjustment for Sale of Common Stock Below Current Market Value. If,
after the Issue Date, the Company grants or sells to any Affiliate of the
Company (other than a wholly-owned subsidiary) any Common Stock or any
securities convertible into or exchangeable or exercisable for any Common Stock
(other than (1) pursuant to the exercise of the Warrants, (2) pursuant to any
security convertible into, or exchangeable or exercisable for, shares of Common
Stock outstanding as of the Issue Date (3) upon the conversion, exchange or
exercise of any convertible, exchangeable or exercisable security as to which
upon the issuance thereof an adjustment pursuant to this Article V has been
made or which did not require any adjustment pursuant to this Article V or (4)
upon the conversion, exchange or exercise of convertible, exchangeable or
exercisable securities of the Company outstanding on the Issue Date (to the
extent in accordance with the terms of such securities as in effect on such
date)) at a price below the then Current Market Value (calculated as set forth
in Section 5.01(l) hereof), the Exercise Rate for each Warrant then outstanding
shall be adjusted in accordance with the formula:
<TABLE>
<S> <C> <C>
E1 = E x (O + N)
---------------
(O + (N x P/M))
where:
E1 = the adjusted Exercise Rate for each Warrant then outstanding;
E = the then current Exercise Rate for each Warrant then outstanding;
O = the number of shares of Common Stock outstanding immediately prior
to the sale of Common Stock or issuance of securities convertible,
exchangeable or exercisable for Common Stock;
</TABLE>
<PAGE> 25
19
<TABLE>
<S> <C> <C>
N = the number of shares of Common Stock so sold or the maximum stated
number of shares of Common Stock issuable upon the conversion,
exchange or exercise of any such convertible, exchangeable or
exercisable securities, as the case may be;
P = the proceeds per share of Common Stock received by the Company,
which (i) in the case of shares of Common Stock is the amount
received by the Company in consideration for the sale and issuance
of such shares; and (ii) in the case of securities convertible
into or exchangeable or exercisable for shares of Common Stock is
the amount received by the Company in consideration for the sale
and issuance of such convertible or exchangeable or exercisable
securities, plus the minimum aggregate amount of additional
consideration, other than the surrender of such convertible or
exchangeable securities, payable to the Company upon exercise,
conversion or exchange thereof; and
M = the Current Market Value as of the Time of Determination (as
defined herein) or at the time of sale, as the case may be
(calculated as set forth in Section 5.01(l) hereof.
</TABLE>
The adjustment shall become effective immediately after the record date
for the determination of shareholders entitled to receive the rights, warrants
or options to which this paragraph (b) applies or upon consummation of the sale
of Common Stock, as the case may be. To the extent that shares of Common Stock
are not delivered after the expiration of such rights or warrants, the Exercise
Rate for each Warrant then outstanding shall be readjusted to the Exercise Rate
which would otherwise be in effect had the adjustment made upon the issuance of
such rights or warrants been made on the basis of delivery of only the number
of shares of Common Stock actually delivered. In the event that such rights or
warrants are not so issued, the Exercise Rate for each Warrant then outstanding
shall again be adjusted to be the Exercise Rate which would then be in effect
if such date fixed for determination of shareholders entitled to receive such
rights or warrants had not been so fixed.
No adjustment shall be made under this paragraph (b) if the application of
the formula stated above in this paragraph (b) would result in a value of E1
that is lower than the value of E.
No adjustment shall be made under this paragraph (b) for any adjustment
which is the subject of paragraphs (a) and (d) of this Section 5.01.
No adjustment in the Exercise Rate shall be made under this paragraph (b)
upon the conversion, exchange or exercise of options to acquire shares of
Common Stock by officers, directors or employees of the Company; provided that
the exercise price of such options, at the time of issuance thereof, is at
least equal to the then Current Market Value of the Common Stock underlying
such options.
<PAGE> 26
20
"Affiliate" has the meaning set forth in the Indenture.
"Issue Date" means the date of the Indenture.
(c) Notice of Adjustment. Whenever the Exercise Rate is adjusted, the
Company shall promptly mail to holders of Warrants then outstanding at the
addresses appearing on the Warrant Register a notice of the adjustment. The
Company shall file with the Warrant Agent and any other Registrar such notice
and a certificate from the Company's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct.
Neither the Warrant Agent nor any such Registrar shall be under any duty or
responsibility with respect to any such certificate except to exhibit the same
during normal business hours to any holder desiring inspection thereof.
(d) Reorganization of Company; Special Distributions. (i) If the
Company, in a single transaction or through a series of related transactions,
consolidates with or merges with or into any other person or sells, assigns,
transfers, leases, conveys or otherwise disposes of all or substantially all of
its properties and assets to another person or group of affiliated persons or
is a party to a merger or binding share exchange which reclassifies or changes
its outstanding Common Stock (a "Fundamental Transaction"), as a condition to
consummating any such transaction the person formed by or surviving any such
consolidation or merger if other than the Company or the person to whom such
transfer has been made (the "Surviving Person") shall enter into a supplemental
warrant agreement. The supplemental warrant agreement shall provide (a) that
the holder of a Warrant then outstanding may exercise it for the kind and
amount of securities, cash or other assets which such holder would have
received immediately after the Fundamental Transaction if such holder had
exercised the Warrant immediately before the effective date of the transaction
(whether or not the Warrants were then exercisable and without giving effect to
the Cashless Exercise option); it being understood that the Warrants will
remain exercisable only in accordance with their terms so that conditions to
exercise will remain applicable, such as payment of Exercise Price, assuming
(to the extent applicable) that such holder (i) was not a constituent person or
an affiliate of a constituent person to such transaction, (ii) made no election
with respect thereto, and (iii) was treated alike with the plurality of
non-electing holders, and (b) that the Surviving Person shall succeed to and be
substituted to every right and obligation of the Company in respect of this
Agreement and the Warrants. The supplemental warrant agreement shall provide
for adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Article V. The Surviving Person shall
mail to holders of Warrants at the addresses appearing on the Warrant Register
a notice briefly describing the supplemental warrant agreement. If the issuer
of securities deliverable upon exercise of Warrants is an affiliate of the
Surviving Person, that issuer shall join in the supplemental warrant agreement.
(ii) Notwithstanding the foregoing, if the Company enters into a
Fundamental Transaction with another Person (other than a subsidiary of the
Company) and consideration is
<PAGE> 27
21
payable to holders of shares of Capital Stock (or other securities or property)
issuable or, deliverable upon exercise of the Warrants that are exercisable in
exchange for such shares in connection with such Fundamental Transaction which
consists solely of cash, then the holders of Warrants shall be entitled to
receive distributions on the date of such event on an equal basis with holders
of such shares (or other securities issuable upon exercise of the Warrants) as
if the Warrants had been exercised immediately prior to such event, less the
aggregate Exercise Price therefor. Upon receipt of such payment, if any, the
rights of a holder of such Warrant shall terminate and cease and such holder's
Warrants shall expire.
(iii) If this paragraph (d) applies, it shall supersede the application of
paragraph (a) of this Section 5.01.
(e) Company Determination Final. Any determination that the Company or
the board of directors of the Company must make pursuant to this Article V
shall be conclusive.
(f) Warrant Agent's Adjustment Disclaimer. The Warrant Agent shall have
no duty to determine when an adjustment under this Article V should be made,
how it should be made or what it should be. The Warrant Agent shall have no
duty to determine whether a supplemental warrant agreement under paragraph (d)
need be entered into or whether any provisions of any supplemental warrant
agreement are correct. The Warrant Agent shall not be accountable for and
makes no representation as to the validity or value of any securities or assets
issued upon exercise of Warrants. The Warrant Agent shall not be responsible
for the Company's failure to comply with this Article V.
(g) Adjustment for Tax Purposes. In the event of a taxable distribution
to holders of shares of Common Stock which results in an adjustment to the
number of shares of Common Stock or other consideration for which such a
Warrant may be exercised, the holders of the Warrants may, in certain
circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend.
(h) Underlying Warrant Shares. The Company shall at all times reserve and
keep available, free from preemptive rights, out of its authorized but unissued
Common Stock or Common Stock held in the treasury of the Company, for the
purpose of effecting the exercise of Warrants, the full number of Warrant
Shares then deliverable upon the exercise of all Warrants then outstanding and
payment of the exercise price, and the shares so deliverable shall be fully
paid and nonassessable and free from all liens and security interests.
(i) Specificity of Adjustment. Regardless of any adjustment in the number
or kind of shares purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
number and kind of Warrant Shares per Warrant as are stated on the Warrant
Certificates initially issuable pursuant to this Agreement.
<PAGE> 28
22
(j) Voluntary Adjustment. The Company from time to time may increase the
Exercise Rate by any number and for any period of time (provided that such
period is not less than 20 Business Days). Whenever the Exercise Rate is so
increased, the Company shall mail to holders at the addresses appearing on the
Warrant Register and file with the Warrant Agent a notice of the increase. The
Company shall give the notice at least 15 days before the date the increased
Exercise Rate takes effect. The notice shall state the increased Exercise Rate
and the period it will be in effect. A voluntary increase in the Exercise Rate
shall not change or adjust the Exercise Rate otherwise in effect as determined
by this Section 5.01.
(k) Multiple Adjustments. After an adjustment to the Exercise Rate for
outstanding Warrants under this Article V, any subsequent event requiring an
adjustment under this Article V shall cause an adjustment to the Exercise Rate
for outstanding Warrants as so adjusted.
(l) Definitions.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participations, rights in or other
equivalents (however designated and whether voting or non-voting) of, such
person's capital stock, and any rights (other than debt securities convertible
into capital stock), warrants or options exchangeable for or convertible into
such capital stock whether outstanding on the Issue Date or issued after the
Issue Date.
"Convertible Preferred Stock" shall mean any securities convertible or
exercisable or exchangeable into Common Stock, whether outstanding on the Issue
Date or thereafter issued.
"Current Market Value" per share of Common Stock of the Company or any
other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an Affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial
Expert (as defined herein) (provided that, in the case of the calculation of
Current Market Value for determining the cash value of fractional shares, any
such determination within six months that is, in the good faith judgment of the
Board, a reasonable determination of value, may be utilized) or (ii) (a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the daily closing sales prices for all of the trading days
before such date for which closing sales prices are available, in the case of
each of (ii)(a) and (ii)(b), as certified to the Warrant Agent by the
president, any vice president or the chief financial officer of the Company.
The closing sales price for each such
<PAGE> 29
23
trading day shall be: (A) in the case of a security listed or admitted to
trading on any U.S. national securities exchange or quotation system, the
closing sales price, regular way, on such day, or if no sale takes place on
such day, the average of the closing bid and asked prices on such day, (B) in
the case of a security not then listed or admitted to trading on any U.S.
national securities exchange or quotation system, the last reported sale price
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reputable quotation source
designated by the Company, (C) in the case of a security not then listed or
admitted to trading on any U.S. national securities exchange or quotation
system and as to which no such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked prices on such
day, as reported by a reputable quotation service, or a newspaper of general
circulation in the Borough of Manhattan, The City and State of New York
customarily published on each Business Day, designated by the Company, or, if
there shall be no bid and asked prices on such day, the average of the high bid
and low asked prices, as so reported, on the most recent day (not more than 30
days prior to the date in question) for which prices have been so reported and
(D) if there are not bid and asked prices reported during the 30 days prior to
the date in question, the Current Market Value shall be determined as if the
securities were not registered under the Exchange Act.
"Independent Financial Expert" means a U.S. investment banking firm of
national standing in the United States (i) which does not, and whose directors,
officers and employees or Affiliates do not have a direct or indirect material
financial interest for its proprietary account in the Company or any of its
Affiliates and (ii) which, in the judgment of the board of directors of the
Company, is otherwise independent with respect to the Company and its
Affiliates and qualified to perform the task for which it is to be engaged.
"Time of Determination" means, (i) in the case of any distribution of
securities or other property to existing shareholders to which paragraph (b)
applies, the time and date of the determination of shareholders entitled to
receive such securities or property or (ii) in the case of any other issuance
and sale to which paragraph (b) applies, the time and date of such issuance or
sale.
(m) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Rate need be made unless the adjustment would require an increase of
at least 1% in the Exercise Rate. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustments. All
calculations under this Article V shall be made to the nearest 1/1000th of a
share, as the case may be.
SECTION 5.02. Fractional Warrant Shares. The Company shall not be
required to issue fractional Warrant Shares upon exercise of the Warrants or
distribute Warrant Certificates that evidence fractional Warrant Shares. In
the event a holder is required by Section 2.02(c) to make a Cashless Exercise,
the number of Warrant Shares issuable shall be rounded up to the nearest whole
number. In addition, in no event shall any holder of Warrants be required to
make any payment of a fractional cent. In lieu of fractional Warrant Shares,
there
<PAGE> 30
24
shall be paid to the registered holders of Warrant Certificates at the time
Warrants evidenced thereby are exercised as herein provided an amount in cash
equal to the same fraction of the Current Market Value per Warrant Share on the
Business Day preceding the date the Warrant Certificates evidencing such
Warrants are surrendered for exercise. Such payments shall be made by check or
by transfer to an account maintained by such registered holder with a bank in
The City of New York. If any holder surrenders for exercise more than one
Warrant Certificate, the number of Warrant Shares deliverable to such holder
may, at the option of the Company, be computed on the basis of the aggregate
amount of all the Warrants exercised by such holder.
SECTION 5.03. Certain Distributions. If at any time after the
Exercisability Date, the Company grants, issues or sells options, convertible
securities, or rights to purchase Capital Stock, warrants or other securities
pro rata to the record holders of Common Stock (the "Distribution Rights") or,
without duplication, makes any dividend or otherwise makes any distribution,
including (subject to applicable law) pursuant to any plan of liquidation
("Distribution") on shares of any Common Stock (whether in cash, property,
evidences of indebtedness or otherwise), then the Company shall grant, issue,
sell or make to each registered holder of Warrants then outstanding the
aggregate Distribution Rights or Distribution, as the case may be, which such
holder would have acquired if such holder had held the maximum number of shares
of Common Stock acquirable upon complete exercise of each holder's Warrants
(regardless of whether the Warrants are then exercisable and without giving
effect to the Cashless Exercise option) immediately before the record date for
the grant, issuance or sale of such Distribution Rights or Distribution, as the
case may be, or, if there is no such record date, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Distribution Rights or Distribution, as the case may be.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent. The Company hereby appoints The Bank of New
York as Warrant Agent of the Company in respect of the Warrants and the Warrant
Certificates upon the terms and subject to the conditions set forth herein and
in the Warrant Certificates; and The Bank of New York hereby accepts such
appointment. The Warrant Agent shall have the powers and authority
specifically granted to and conferred upon it in the Warrant Certificates and
hereby and such further powers and authority to act on behalf of the Company as
the Company may hereafter grant to or confer upon it and it shall accept in
writing. All of the terms and provisions with respect to such powers and
authority contained in the Warrant Certificates are subject to and governed by
the terms and provisions hereof. The Warrant Agent may act through agents and
shall not be responsible for the misconduct or negligence of any such agent
appointed with due care.
<PAGE> 31
25
SECTION 6.02. Conditions of Warrant Agent's Obligations. The Warrant
Agent accepts its obligations herein set forth upon the terms and conditions
hereof and in the Warrant Certificates, including the following, to all of
which the Company agrees and to all of which the rights hereunder of the
holders from time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the
Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without gross negligence
or willful misconduct on its part in connection with the services rendered
by it hereunder. The Company also agrees to indemnify the Warrant Agent
and any predecessor Warrant Agent, their directors, officers, affiliates,
agents and employees for, and to hold them and their directors, officers,
affiliates, agents and employees harmless against, any loss, liability or
expense of any nature whatsoever (including, without limitation,
reasonable fees and expenses of counsel) incurred without gross negligence
or willful misconduct on the part of the Warrant Agent, arising out of or
in connection with its acting as such Warrant Agent hereunder and its
exercise of its rights and performance of its obligations hereunder. The
obligations of the Company under this Section 6.02 shall survive the
exercise and the expiration of the Warrant Certificates and the
resignation and removal of the Warrant Agent.
(b) In acting under this Agreement and in connection with the Warrant
Certificates, the Warrant Agent is acting solely as agent of the Company
and does not assume any obligation or relationship of agency or trust for
or with any of the owners or holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel of its selection and
any advice or written opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice
or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or
thing suffered by it in reliance upon any Warrant Certificate, notice,
direction, consent, certificate, affidavit, opinion of counsel,
instruction, statement or other paper or document reasonably believed by
it to be genuine and to have been presented or signed by the proper
parties.
(e) The Warrant Agent, and its officers, directors, affiliates and
employees ("Related Parties"), may become the owners of, or acquire any
interest in, Warrant Certificates, shares or other obligations of the
Company with the same rights that it or they would have if it were not the
Warrant Agent hereunder and, to the extent permitted by applicable law, it
or they may engage or be interested in any financial or other transaction
with the Company and may act on, or as depositary, trustee or agent for,
any
<PAGE> 32
26
committee or body of holders of shares or other obligations of the Company
as freely as if it were not the Warrant Agent hereunder. Nothing in this
Agreement shall be deemed to prevent the Warrant Agent or such Related
Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for interest
on, and shall not be required to invest, any monies at any time received
by it pursuant to any of the provisions of this Agreement or of the
Warrant Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement (or any term or provision
hereof) or the execution and delivery hereof (except the due execution and
delivery hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication
thereon) shall be taken as the statements of the Company and the Warrant
Agent assumes no responsibility for the correctness of the same. The
Warrant Agent does not make any representation as to the validity or
sufficiency of this Agreement or the Warrant Certificates, except for its
due execution and delivery of this Agreement; provided, however, that the
Warrant Agent shall not be relieved of its duty to authenticate the
Warrant Certificates as authorized by this Agreement. The Warrant Agent
shall not be accountable for the use or application by the Company of the
proceeds of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may
require:
(1) an Officers' Certificate (as defined in the Indenture)
stating on behalf of the Company that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Warrant
Agreement relating to the proposed action have been complied with;
and
(2) if reasonably necessary in the sole judgment of the Warrant
Agent, an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with, provided that such matter is one customarily opined
upon by counsel.
Each Officers' Certificate or, if requested, an opinion of counsel
with respect to compliance with a condition or covenant provided for in
this Warrant Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
<PAGE> 33
27
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties as
are specifically set forth herein and in the Warrant Certificates, and no
implied duties or obligations shall be read into this Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall
not be accountable or under any duty or responsibility for the use by the
Company of any of the Warrant Certificates duly authenticated by the
Warrant Agent and delivered by it to the Company pursuant to this
Agreement. The Warrant Agent shall have no duty or responsibility in case
of any default by the Company in the performance of its covenants or
agreements contained in the Warrant Certificates or in the case of the
receipt of any written demand from a holder of a Warrant Certificate with
respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate
any proceedings at law or otherwise or, except as provided in Section 7.02
hereof, to make any demand upon the Company.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the
Company made or given under any provision of this Agreement shall be
sufficient if signed by the chairman or a co-chairman of the board, the
president, the chief financial officer, any executive vice president or
any senior vice president of the Company signing alone, or by any vice
president signing together with the secretary, any assistant secretary,
the treasurer, or any assistant treasurer of the Company.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge and
deliver, or cause to be performed, executed, acknowledged and delivered,
all such further and other acts, instruments and assurances as may
reasonably be required by the Warrant Agent for the carrying out or
performing by the Warrant Agent of the provisions of this Agreement.
<PAGE> 34
28
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties
hereunder from any one of the chairman or a co-chairman of the board, the
president, the chief financial officer, any executive vice president or
any senior vice president alone, or any vice president together with the
secretary, assistant secretary, the treasurer or any assistant treasurer,
of the Company or any other officer or official of the Company reasonably
believed to be authorized to give such instructions and to apply to such
officers or officials for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be
taken by it in good faith in accordance with instructions with respect to
any matter arising in connection with the Warrant Agent's duties and
obligations arising under this Agreement. Such application by the Warrant
Agent for written instructions from the Company may, at the option of the
Warrant Agent, set forth in writing any action proposed to be taken or
omitted by the Warrant Agent with respect to its duties or obligations
under this Agreement and the date on or after which such action shall be
taken and the Warrant Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on
or after the date specified therein (which date shall be not less than 10
Business Days after the Company receives such application unless the
Company consents to a shorter period); provided that (i) such application
includes a statement to the effect that it is being made pursuant to this
paragraph (n) and that unless objected to prior to such date specified in
the application, the Warrant Agent will not be liable for any such action
or omission to the extent set forth in such paragraph (n) and (ii) prior
to taking or omitting any such action, the Warrant Agent has not received
written instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed on behalf of
the Company by any one of the chairman of the board of directors, the
president, the treasurer, the controller, any vice president or the
secretary or assistant secretary of the Company or any other officer or
official of the Company reasonably believed to be authorized to give such
instructions and delivered to the Warrant Agent; and such certificate
shall be full authorization to the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its own
funds in the performance of its obligations and duties hereunder.
SECTION 6.03. Resignation and Appointment of Successor. (a) The Company
agrees, for the benefit of the holders from time to time of the Warrant
Certificates, that there shall at all times be a Warrant Agent hereunder.
<PAGE> 35
29
(b) The Warrant Agent may at any time resign as Warrant Agent by giving
written notice to the Company of such intention on its part, specifying the
date on which its desired resignation shall become effective; provided,
however, that such date shall be at least 60 days after the date on which such
notice is given unless the Company agrees to accept less notice. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor Warrant Agent, qualified as provided in Section 6.03(d) hereof, by
written instrument in duplicate signed on behalf of the Company, one copy of
which shall be delivered to the resigning Warrant Agent and one copy to the
successor Warrant Agent. As provided in Section 6.03(d) hereof, such
resignation shall become effective upon the earlier of (x) the acceptance of
the appointment by the successor Warrant Agent or (y) 60 days after receipt by
the Company of notice of such resignation. The Company may, at any time and
for any reason, and shall, upon any event set forth in the next succeeding
sentence, remove the Warrant Agent and appoint a successor Warrant Agent by
written instrument in duplicate, specifying such removal and the date on which
it is intended to become effective, signed on behalf of the Company, one copy
of which shall be delivered to the Warrant Agent being removed and one copy to
the successor Warrant Agent. The Warrant Agent shall be removed as aforesaid
if it shall become incapable of acting, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Warrant Agent or of its property shall be
appointed, or any public officer shall take charge or control of it or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation. Any removal of the Warrant Agent and any appointment of a
successor Warrant Agent shall become effective upon acceptance of appointment
by the successor Warrant Agent as provided in Section 6.03(d). As soon as
practicable after appointment of the successor Warrant Agent, the Company shall
cause written notice of the change in the Warrant Agent to be given to each of
the registered holders of the Warrants in the manner provided for in Section
7.04 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the Company shall
fail to appoint a successor Warrant Agent within a period of 60 days after
receipt of such notice of resignation or removal, then the holder of any
Warrant Certificate or the retiring Warrant Agent may apply to a court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Pending appointment of a successor to the Warrant Agent, either by the Company
or by such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the Company or by a
court, shall be a bank or trust company in good standing, incorporated under
the laws of the United States of America or any State thereof and having, at
the time of its appointment, a combined capital surplus of at least $50
million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Agreement, and thereupon such
successor Warrant Agent, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Warrant Agent
hereunder, and such predecessor shall thereupon become obligated to (i)
transfer
<PAGE> 36
30
and deliver, and such successor Warrant Agent shall be entitled to receive, all
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts
then due it pursuant to Section 6.02(a) hereof, pay over, and such successor
Warrant Agent shall be entitled to receive, all monies deposited with or held
by any predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent hereunder may be
merged or converted, or any corporation or bank with which the Warrant Agent
may be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business, shall be the
successor to the Warrant Agent under this Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Warrant Agent under this Warrant Agreement shall be personally
liable for any action or omission of any successor Warrant Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment. This Agreement and the terms of the Warrants
may be amended by the Company and the Warrant Agent, without the consent of the
holder of any Warrant Certificate, for the purpose of curing any ambiguity, or
of curing, correcting or supplementing any defective or inconsistent provision
contained herein or therein, or to effect any assumptions of the Company's
obligations hereunder and thereunder by a successor corporation under certain
circumstances or in any other manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
the Warrant Certificates.
The Company and the Warrant Agent may amend, modify or supplement this
Agreement and the terms of the Warrants, and waivers to departures from the
terms hereof and thereof may be given, with the consent of the Requisite
Warrant Holders (as defined below) for the purpose of adding any provision to
or changing in any manner or eliminating any of the provisions of this
Agreement or modifying in any manner the rights of the holders of the
outstanding Warrants. "Requisite Warrant Holders" means (i) in the case of any
amendment, modification, supplement or waiver affecting only Warrant Holders as
such holders of a majority in number of the outstanding Warrants, voting
separately as a class, or (ii) in the case of any amendment, modification,
supplement or waiver affecting Warrant Holders, a majority in number of Warrant
Shares represented by the Warrants that would be issuable assuming exercise
thereof at the time such amendment, modification, supplement or waiver is voted
upon. Notwithstanding
<PAGE> 37
31
any other provision of this Agreement, the Warrant Agent's consent must be
obtained regarding any supplement or amendment which alters the Warrant Agent's
rights or duties (it being expressly understood that the foregoing shall not be
in derogation of the right of the Company to remove the Warrant Agent in
accordance with Section 6.03 hereof). For purposes of any amendment,
modification or waiver hereunder, Warrants held by the Company or any of its
Affiliates shall be disregarded.
Any modification or amendment made in accordance with this Agreement will
be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or
on behalf of any holder of a Warrant Certificate in connection with any consent
to any modification or amendment will be conclusive and binding on all
subsequent holders of such Warrant Certificate.
SECTION 7.02. Notices and Demands to the Company and Warrant Agent. If
the Warrant Agent shall receive any notice or demand addressed to the Company
by the holder of a Warrant Certificate pursuant to the provisions hereof or of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.
SECTION 7.03. Addresses for Notices to Parties and for Transmission of
Documents. All notices hereunder to the parties hereto shall be deemed to have
been given when sent by certified or registered mail, postage prepaid, or by
facsimile transmission, confirmed by first class mail, postage prepaid,
addressed to any party hereto as follows:
To the Company:
DTI Holdings, Inc.
11111 Dorsett Road
St. Louis, Missouri 63043
Facsimile: (314) 253-6699
Attention: Richard D. Weinstein
with copies to:
Bryan Cave LLP
One Metropolitan Square
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102-2758
Facsimile: (314) 259-2020
Attention: J. Mark Klamer
<PAGE> 38
32
To the Warrant Agent:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust & Agencies Department
or at any other address of which either of the foregoing shall have notified
the other in writing.
SECTION 7.04. Notices to Holders. Notices to holders of Warrants shall
be mailed to such holders at the addresses of such holders as they appear in
the Warrant Register. Any such notice shall be sufficiently given if sent by
first-class mail, postage prepaid to the address of such holder.
SECTION 7.05. Applicable Law. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.06. Persons Having Rights Under Agreement. Nothing in this
Agreement expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Warrant Agent and the
holders of the Warrant Certificates and, with respect to Sections 4.03 and
4.04, the holders of Warrant Shares issued pursuant to Warrants, any right,
remedy or claim under or by reason of this Agreement or of any covenant,
condition, stipulation, promise or agreement hereof; and all covenants (except
for Section 4.03 which shall be for the benefit of all holders of Warrant
Shares issued pursuant to Warrants), conditions, stipulations, promises and
agreements in this Agreement contained shall be for the sole and exclusive
benefit of the Company and the Warrant Agent and their successors and of the
holders of the Warrant Certificates.
SECTION 7.07. Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 7.08. Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts shall together constitute but one and the same
instrument.
SECTION 7.09. Inspection of Agreement. A copy of this Agreement shall be
available during regular business hours at the principal corporate trust office
of the Warrant Agent, for inspection by the holder of any Warrant Certificate.
The Warrant Agent may require such holder to submit his Warrant Certificate for
inspection by it.
<PAGE> 39
33
SECTION 7.10. Availability of Equitable Remedies. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, holders of Warrants shall be entitled, in addition to any other right
or remedy available to them, to an injunction restraining such breach or a
threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to such injunction and to
the ordering of specific performance.
SECTION 7.11. Obtaining of Governmental Approvals. The Company will from
time to time take all action required to be taken by it which may be necessary
to obtain and keep effective any and all permits, consents and approvals of
governmental agencies and authorities and securities acts filings under U.S.
federal and state laws, and the rules and regulations of all stock exchanges on
which the Warrants may become listed which may be or become requisite in
connection with the issuance, sale, transfer, and delivery of the Warrant
Certificates, the exercise of the Warrants or the issuance, sale, transfer and
delivery of the Warrant Shares issued upon exercise of the Warrants.
[Signature Page Follows]
<PAGE> 40
34
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
-----------------------------------
Name: Richard D. Weinstein
Title: Chief Executive Officer
THE BANK OF NEW YORK,
Warrant Agent
By: /s/ Robert A. Massimillo
-----------------------------------
Name:
Title:
<PAGE> 41
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO REGULATION S, (2) AGREES
THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SHORTER PERIOD AS
MAY BE PRESCRIBED BY RULE 144(K) (OR ANY SUCCESSOR PROVISION THEREOF) UNDER THE
SECURITIES ACT) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF
THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE
LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ITS SUBSIDIARY, (B) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THESE SECURITIES WITHIN THE TIME PERIOD REFERRED TO ABOVE,
THE HOLDER MUST CHECK THE APPROPRIATE
A-1
<PAGE> 42
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
A-2
<PAGE> 43
CUSIP #[ ]
No. ___ [ ] Warrants
WARRANT CERTIFICATE
DTI HOLDINGS, INC.
This Warrant Certificate certifies that [ ], or registered
assigns, is the registered holder of [ ] Warrants (the "Warrants") to
purchase shares of Common Stock, par value $0.01 per share, issuable upon
exercise of the Warrants (the "Warrant Shares") of DTI HOLDINGS, INC., a
corporation organized and incorporated under the Missouri General Business
Corporation Law (the "Company," which term includes its successors and
assigns). Each Warrant entitles the holder to purchase from the Company at any
time from 9:00 a.m. New York City time on or after the Exercisability Date
until 5:00 p.m., New York City time, on March 1, 2008 (the "Expiration Date"),
1.552 fully paid, registered and non-assessable Warrant Shares, subject to
adjustment as provided in Article V of the Warrant Agreement, at an exercise
price of $0.01 for each share purchased (the "Exercise Price"); upon surrender
of this Warrant Certificate and payment of the Exercise Price (i) in cash or by
certified or official bank check, (ii) by a Cashless Exercise or (iii) by any
combination of (i) and (ii), at any office or agency maintained for that
purpose by the Company (the "Warrant Exercise Office"), subject to the
conditions set forth herein and in the Warrant Agreement. For purposes of this
Warrant, a "Cashless Exercise" shall mean an exercise of a Warrant in
accordance with the immediately following two sentences. To effect a Cashless
Exercise, the holder may exercise a Warrant or Warrants without payment of the
Exercise Price in cash by surrendering such Warrant or Warrants (represented by
one or more Warrant Certificates) and in exchange therefor, receiving such
number of shares of Common Stock equal to the product of (1) that number of
shares of Common Stock for which such Warrant or Warrants are exercisable and
which would be issuable in the event of an exercise with payment of the
Exercise Price and (2) the Cashless Exercise Ratio. The "Cashless Exercise
Ratio" shall equal a fraction, the numerator of which is the excess of the
Current Market Value (calculated as set forth in this Warrant) per share of
Common Stock on the date of exercise over the Exercise Price per share of
Common Stock as of the date of exercise and the denominator of which is the
Current Market Value per share of Common Stock on the date of exercise. Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the holder
must specify the number of Warrants for which such Warrant Certificate is to be
exercised (without giving effect to the Cashless Exercise). All provisions of
the Warrant Agreement shall be applicable with respect to a Cashless Exercise
of a Warrant Certificate for less than the full number of Warrants represented
thereby. Capitalized terms used herein without being defined herein shall have
the definitions ascribed to such terms in the Warrant Agreement.
A-3
<PAGE> 44
"Current Market Value" per share of Common Stock of the Company or any
other security at any date shall mean (i) if the security is not registered
under the Exchange Act, (a) the value of the security, determined in good faith
by the board of directors of the Company and certified in a board resolution,
based on the most recently completed arm's-length transaction between the
Company and a person other than an Affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the fair market value of the security as
determined by a nationally or regionally recognized Independent Financial
Expert (as defined herein) (provided that, in the case of the calculation of
Current Market Value for determining the cash value of fractional shares, any
such determination within six months that is, in the good faith judgment of the
board, a reasonable determination of value, may be utilized) or (ii) (a) if the
security is registered under the Exchange Act, the average of the daily closing
sales prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average of the closing sales prices for all of the trading days before such
date for which closing sales prices are available, in the case of each of
(ii)(a) and (ii)(b), as certified to the Warrant Agent by the president, any
vice president or the chief financial officer of the Company. The closing
sales price for each such trading day shall be: (A) in the case of a security
listed or admitted to trading on any U.S. national securities exchange or
quotation system, the closing sales price, regular way, on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices
on such day, (B) in the case of a security not then listed or admitted to
trading on any U.S. national securities exchange or quotation system, the last
reported sale price on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in the case of a
security not then listed or admitted to trading on any U.S. national securities
exchange or quotation system and as to which no such reported sale price or bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation service, or a
newspaper of general circulation in the Borough of Manhattan, The City and
State of New York customarily published on each Business Day, designated by the
Company, or, if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than 30 days prior to the date in question) for which prices have
been so reported and (D) if there are not bid and asked prices reported during
the 30 days prior to the date in question, the Current Market Value shall be
determined as if the securities were not registered under the Exchange Act.
"Exercise Event" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (i) the time immediately prior to a Change of
Control (as such term is defined in the Indenture); (ii)(a) the 180th day (or
such earlier date as determined by the Company in its sole discretion)
following the closing of an Initial Public Equity Offering (as defined herein)
or (b) upon the closing of an Initial Public Equity Offering, but only in
respect of Warrants, if any,
A-4
<PAGE> 45
required to be exercised to permit the holders thereof to sell Warrant Shares
pursuant to their respective registration rights, (iii) a class of equity
securities of the Company is listed on a national securities exchange or
authorized for quotation on the Nasdaq National Market or is otherwise subject
to registration under the Exchange Act, or (iv) September 1, 1999.
"Independent Financial Expert" means a U.S. investment banking firm of
national standing in the United States, (i) which does not, and whose
directors, officers and employees or Affiliates do not have a direct or
indirect material financial interest for its proprietary account in the Company
or any of its Affiliates and (ii) which, in the judgment of the board of
directors of the Company, is otherwise independent with respect to the Company
and its Affiliates and qualified to perform the task for which it is to be
engaged.
"Separability Date" shall mean the earliest to occur of: (i) September 1,
1998, (ii) the date on which a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to a registered
exchange offer for the Notes is declared effective under the Securities Act,
(iii) the occurrence of an Exercise Event, (iv) the occurrence of an Event of
Default (as defined in the Indenture) or (v) such earlier date as determined by
Merrill Lynch in its sole discretion and specified to the Company and the
Warrant Agent in writing. Notwithstanding the foregoing, in the event a Change
of Control (as defined in the Indenture) is proposed and the Company commences
a Change of Control Offer (as defined in the Indenture) prior to the
Separability Date, as determined by the preceding sentence, the Separability
Date shall be such earlier date of commencement.
The Company has initially designated the principal corporate trust office
of the Warrant Agent in the Borough of Manhattan, The City of New York, as the
initial Warrant Agent Office. The number of shares of Common Stock issuable
upon exercise of the Warrants ("Exercise Rate") is subject to adjustment upon
the occurrence of certain events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City time,
on March 1, 2008 shall thereafter be void.
If the Company, in a single transaction or through a series of related
transactions, consolidates with or merges with or into, or sells all or
substantially all of its property and assets to, another Person (other than a
subsidiary of the Company) solely for cash, the holders of Warrants which are
then exercisable shall be entitled to receive distributions on the date of such
event on an equal basis with holders of shares of Capital Stock (or other
securities issuable upon exercise of the Warrants) as if the Warrants had been
exercised immediately prior to such event less the aggregate Exercise Price
therefor.
Reference is hereby made to the further provisions on the reverse hereof
which provisions shall for all purposes have the same effect as though fully
set forth at this place.
A-5
<PAGE> 46
This Warrant Certificate shall not be valid unless authenticated by the
Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
WITNESS the facsimile seal of the Company and facsimile signatures of its
duly authorized officers.
Dated:
DTI HOLDINGS, INC.
By: ___________________________________
Name:
Title:
Attest:
By: ________________________________
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
THE BANK OF NEW YORK,
Warrant Agent
By: __________________________________
Authorized Signatory
A-6
<PAGE> 47
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
DTI HOLDINGS, INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at 5:00 p.m., New York City time, on
March 1, 2008 (the "Expiration Date"), each of which represents the right to
purchase at any time on or after the Exercisability Date (as defined in the
Warrant Agreement) and on or prior to the Expiration Date 1.552 Warrant Shares,
subject to adjustment as set forth in the Warrant Agreement. The Warrants are
issued pursuant to a Warrant Agreement dated as of February 23, 1998 (the
"Warrant Agreement"), duly executed and delivered by the Company to The Bank of
New York, Warrant Agent (the "Warrant Agent"), which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the Company
and the holders (the words "holders" or "holder" meaning the registered holders
or registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant Exercise
Office this Warrant Certificate with the form of Election to Exercise set forth
hereon duly completed and executed and (ii) to the extent such exercise is not
being effected through a Cashless Exercise by paying in full the Warrant
Exercise Price for each such Warrant exercised and any other amounts required
to be paid pursuant to the Warrant Agreement.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 11:00 a.m., New York
City time, on a Business Day, the exercise of the Warrant to which such items
relate will be effective on such Business Day. If any items referred to in the
last sentence of the preceding paragraph are received after 11:00 a.m., New
York City time, on a Business Day, the exercise of the Warrants to which such
item relates will be deemed to be effective on the next succeeding Business
Day. Notwithstanding the foregoing, in the case of an exercise of Warrants on
March 1, 2008, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on such Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
As soon as practicable after the exercise of any Warrant or Warrants, the
Company shall issue or cause to be issued to or upon the written order of the
registered holder of this Warrant Certificate, a certificate or certificates
evidencing such Warrant Share or Warrant Shares to which such holder is
entitled, in fully registered form, registered in such name or names as may be
directed by such holder pursuant to the Election to Exercise, as set forth on
the reverse of this Warrant Certificate. Such certificate or certificates
evidencing the Warrant Share or Warrant Shares shall be deemed to have been
issued and any persons who are designated to be named
A-7
<PAGE> 48
therein shall be deemed to have become the holder of record of such Warrant
Share or Warrant Shares as of the close of business on the date upon which the
exercise of this Warrant was deemed to be effective as provided in the
preceding paragraph.
The Company shall not be required to issue fractional Warrant Shares upon
exercise of the Warrants or distribute Warrant Certificates that evidence
fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall
be paid to the registered Holder of this Warrant Certificate at the time such
Warrant Certificate is exercised an amount in cash equal to the same fraction
of the Current Market Value per share of Common Stock on the Business Day
preceding the date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency maintained
by the Company for that purpose by the registered holder thereof in person or
by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any
tax or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection
therewith.
The Company and the Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose
of any exercise hereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in The City
of New York, (ii) the principal U.S. securities exchange or market, if any, on
which the Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which the Warrants are listed or
admitted to trading, are open for business.
The Warrants and the Warrant Shares are entitled to the benefits of a
registration rights agreement relating to the Warrants and the Warrant Shares
(the "Warrant Registration Rights Agreement"), pursuant to which the holders
representing not less than 50% of Warrant Shares and Registrable Securities (as
defined in the Warrant Registration Rights Agreement) have, at any time and
from time to time on or after (i) the time immediately prior to a Change of
Control (as such term is defined in the Indenture); (ii)(a) the 180th day (or
such earlier date as determined by the Company in its sole discretion)
following the consummation of an Initial Public Equity Offering (as defined
herein) or (b) upon the consummation of an Initial Public
A-8
<PAGE> 49
Equity Offering (as defined herein) or (b) upon the consummation of an Initial
Public Equity Offering, but only in respect of Warrants, if any, required to be
exercised to permit the holders thereof to sell Warrant Shares pursuant to
their respective registration rights, (iii) a class of equity securities of the
Company is listed on a national securities exchange or authorized for quotation
on the Nasdaq National Market or is otherwise subject to registration under the
Exchange Act, or (iv) September 1, 1999, the right to require the Company to
effect two demand registrations of the Warrant Shares and Registrable
Securities. The Warrant Registration Rights Agreement also provides the
holders of Registrable Securities with the right, subject to the conditions and
limitations contained therein, to include the Registrable Securities in certain
registration statements filed by the Company for its account or for the account
of any of its securityholders.
A-9
<PAGE> 50
[FORM OF ELECTION TO EXERCISE]
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise [ ] of the
Warrants represented by this Warrant Certificate and purchase the whole number
of Warrant Shares issuable upon the exercise of such Warrants and herewith
tenders payment for such Warrant Shares as follows:
$ ___________ in cash or by certified or official bank check; or by
surrender of Warrants pursuant to a Cashless Exercise (as defined in the Warrant
Agreement) for [ ] shares of Common Stock at the current Cashless
Exercise Ratio.
The undersigned requests that a certificate representing such Warrant
Shares be registered in the name of ____________________ whose address is
____________________ and that such shares be delivered to ____________________
whose address is ____________________. Any cash payments to be paid in lieu of
a fractional share of Common Stock should be delivered to ____________________
whose address is ____________________ and the check representing payment thereof
should be delivered to ____________________ whose address is
____________________.
Dated _________________, ____
Name of holder of
Warrant Certificate:______________________________________________________
(Please Print)
Tax Identification or
Social Security Number:___________________________________________________
Address: _________________________________________________________________
_________________________________________________________________
Signature:________________________________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in every
particular, without alteration or enlargement or any change
whatever and if the certificate representing the Warrant
Shares or any Warrant Certificate representing Warrants not
exercised is to be registered in a name other than that in
which this Warrant Certificate is registered, or if any
cash payment to be paid in lieu of a fractional share is to
be made
A-10
<PAGE> 51
to a person other than the registered holder of this
Warrant Certificate, the signature of the holder
hereof must be guaranteed as provided in the Warrant
Agreement.
Dated ______________, ____
Signature:____________________________________________
Note: The above signature must correspond
with the name as written upon the face
of this Warrant Certificate in every
particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:_________________________________
[FORM OF ASSIGNMENT]
For value received __________________________ hereby sells, assigns and
transfers unto _____________________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint __________________ attorney, to transfer
said Warrant Certificate on the books of the within-named Company, with full
power of substitution in the premises.
Dated ________________, ____
Signature:____________________________________________
Note: The above signature must correspond
with the name as written upon the face
of this Warrant Certificate in every
particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:_________________________________
A-11
<PAGE> 52
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
<TABLE>
<S> <C> <C> <C> <C>
Number of Warrants
Amount of decrease Amount of increase of this Global
in Number of in Number of Warrant following Signature of
Date of Warrants of this Warrants of this such decrease (or authorized officer
Exchange Global Warrant Global Warrant increase) of Warrant Agent
</TABLE>
A-12
<PAGE> 53
EXHIBIT B
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall bear a
legend in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE
FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
B-1
<PAGE> 54
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of DTI HOLDINGS, INC.
This Certificate relates to ____ Warrants held in* ___ book-entry or*
_______ certificated form by ______ (the "Transferor").
The Transferor:*
/___/ has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depositary a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Warrant (or the portion thereof indicated above); or
/___/ has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and the restrictions on
transfers thereof as provided in Section 1.08 of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because*:
/___/ Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.08 (a)(y)(A) or Section 1.08
(d)(i)(A) of the Warrant Agreement).
/___/ Such Warrant is being transferred to a qualified institutional buyer
(as defined in Rule 144A under the Act), in reliance on Rule 144A.
________________________
*Check applicable box.
C-1
<PAGE> 55
/___/ Such Warrant is being transferred in reliance on Regulation S under
the Act.
/___/ Such Warrant is being transferred in accordance with Rule 144 under
the Act.
/___/ Such Warrant is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act.
____________________________________
[INSERT NAME OF TRANSFEROR]
By:_________________________________
Date:_____________________
C-2
<PAGE> 56
EXHIBIT D
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION
WITH REGULATION S TRANSFERS
______________________,
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of Warrants of DTI Holdings, Inc.
(the "Company"), we confirm that such sale has been effected pursuant to and in
accordance with Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we represent that:
(1) the offer of the Warrants was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Warrants; and
D-1
<PAGE> 57
(6) if the circumstances set forth in Rule 904(c) under the
Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation or
other notice stating that the Warrants may be offered and sold during the
restricted period specified in Rule 903(c)(2) or (3), as applicable, in
accordance with the provisions of Regulation S; pursuant to registration
of the Warrants under the Securities Act; or pursuant to an available
exemption from the registration requirements under the Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S under the
Securities Act.
Very truly yours,
[Name of Transferor]
By:_____________________________
[Authorized Signature]
Upon transfer the Warrants would be registered in the name of the new
beneficial owner as follows:
Name:____________________________________
Address:__________________________________
Taxpayer ID Number:_______________________
D-2
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
WARRANT
REGISTRATION RIGHTS AGREEMENT
Dated as of February 23, 1998
Between
DTI HOLDINGS, INC.,
KLT TELECOM INC.,
RICHARD D. WEINSTEIN
and
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
TD SECURITIES (USA) INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions........................................... 1
Section 2. Registration Rights................................... 7
2.1 (a) Demand Registration............................... 7
(b) Effective Registration................................ 8
(c) Restrictions on Sale by Holders....................... 8
(d) Selection of Underwriter.............................. 9
(e) Expenses.............................................. 9
2.2 (a) Piggy-Back Registration........................... 9
(b) Priority in Piggy-Back Registration............... 10
(c) Restrictions on Sale by Holders................... 11
2.3 Limitations, Conditions and Qualifications to
Obligations Under Registration Covenants............ 12
2.4 Restrictions on Sale by the Company and Others........ 14
2.5 Rule 144 and Rule 144A................................ 14
2.6 Underwritten Registrations............................ 14
Section 3. Transfers............................................. 15
3.1 Generally............................................. 15
3.2 Tag-Along Rights...................................... 15
3.3 Drag-Along Rights..................................... 17
Section 4. Registration Procedures............................... 18
Section 5. Indemnification and Contribution...................... 24
Section 6. Miscellaneous......................................... 28
(a) Remedies.............................................. 28
(b) No Inconsistent Agreements............................ 28
(c) No Piggy-Back on Demand Registrations................. 28
(d) Amendments and Waivers................................ 28
(e) Notices............................................... 28
(f) Successors and Assigns................................ 29
(g) Counterparts.......................................... 29
(h) Governing Law......................................... 29
(j) Severability.......................................... 29
(k) Headings.............................................. 30
(l) Entire Agreement...................................... 30
(m) Securities Held by the Company or Its Affiliates...... 30
</TABLE>
<PAGE> 3
WARRANT REGISTRATION RIGHTS AGREEMENT
This WARRANT REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of February 23, 1998, between DTI HOLDINGS, INC., (the
"Company") a Missouri corporation, KLT TELECOM INC., RICHARD D. WEINSTEIN
(together with KLT Telecom Inc. referred to herein as the "Permitted Holders")
MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
("Merrill Lynch") and TD SECURITIES (USA) INC. (together with Merrill Lynch,
the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated as of
February 13, 1998, between the Company and the Initial Purchasers (the
"Purchase Agreement"), with respect to the issue and sale by the Company and
the purchase by the Initial Purchasers, severally, of the respective number of
the Company's Units (the "Units"), each Unit consisting of $1,000 aggregate
principal amount at maturity of the Company's Senior Discount Notes due 2008
(the "Notes") and five warrants (the "Warrants"), each initially entitling the
holder thereof to purchase 1.552 shares of common stock, par value $0.01 per
share (the "Common Stock"), of the Company, set forth opposite such Initial
Purchaser's name on Schedule I to the Purchase Agreement. The execution of
this Agreement is a condition to the obligations of the Initial Purchasers
under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
Section 1. Definitions. As used in this Agreement, the following defined
terms shall have the following meanings:
"Advice" has the meaning ascribed to such term in Section 4 hereof.
"Affiliate" means, with respect to any specified Person, (i) any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (ii) any
other Person that owns, directly or indirectly, 5% or more of such
specified Person's Voting Stock (as defined in the Indenture) or any
executive officer or director of any such specified Person or other Person
or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under
common control with") of any specified Person means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by agreement or
otherwise.
"Agreement" shall have the meaning ascribed to such term in the
preamble hereto.
"Business Day" shall mean a day that is not a Legal Holiday.
<PAGE> 4
2
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or
other equivalents (however designated and whether voting or non-voting) of
such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock whether outstanding on the Issue Date
or issued after the Issue Date.
"Change of Control" shall have the meaning ascribed to such term in
the Indenture.
"Company" shall have the meaning ascribed to such term in the
preamble of this Agreement and shall also include the Company's permitted
successors and assigns.
"Common Stock" shall have the meaning ascribed to such term in the
preamble of this Agreement.
"Convertible Preferred Stock" shall mean any securities convertible
or exercisable or exchangeable into Common Stock of the Company, whether
outstanding on the date hereof or thereafter issued.
"Current Market Value" shall have the meaning ascribed to such term
in the Warrant Agreement.
"Demand Registration" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"Drag-Along Right" shall have the meaning ascribed to such term in
Section 3.3(a) hereof.
"DTC" shall have the meaning ascribed to such term in Section 4(i)
hereof.
"Effectiveness Period" shall have the meaning ascribed to such term
in Section 2.1(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" shall mean the value of any securities as
determined (without any discount for lack of liquidity, the amount of such
securities proposed to be sold or the fact that such securities held by
any Holder of such security may represent a minority
<PAGE> 5
3
interest in a private company) by a nationally or regionally recognized
investment banking firm selected by the Company for the determination of
such value.
"Holder" shall mean each holder (including the Initial Purchasers) of
any Warrants, Warrant Shares or Registrable Securities, and each of their
successors, assigns and direct and indirect transferees who become
registered owners of such Warrants, Warrant Shares or Registrable
Securities.
"Included Securities" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"Indemnified Person" shall have the meaning ascribed to such term in
Section 5(a).
"Indenture" shall mean the Indenture, dated as of the date hereof,
between the Company and The Bank of New York, Trustee, pursuant to which
the Notes are issued.
"Initial Public Equity Offering" shall mean a primary public offering
(whether or not underwritten, but excluding any offering pursuant to Form
S-8 or F-8 under the Securities Act or any other publicly registered
offering pursuant to the Securities Act pertaining to an issuance of
shares of Common Stock or securities exercisable therefor under any
benefit plan, employee compensation plan, or employee or director stock
purchase plan) of Common Stock of the Company pursuant to an effective
registration statement under the Securities Act.
"Initial Purchasers" shall have the meaning ascribed to such term in
the preamble hereof.
"Inspectors" shall have the meaning ascribed to such term in Section
4(m) hereof.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which (i)
banking institutions in The City of New York are required or authorized by
law or other government action to be closed and (ii) the principal U.S.
securities exchange or market, if any, on which any Common Stock is listed
or admitted to trading and the principal U.S. securities exchange or
market, if any, on which the Warrants are listed or admitted to trading
are closed for business.
"Merrill Lynch" shall have the meaning ascribed to such term in the
preamble hereto.
"Notes" shall have the meaning ascribed to such term in the preamble
hereto.
<PAGE> 6
4
"Participating Holder" shall have the meaning ascribed to such term
in Section 3.2(c).
"Permitted Holder" shall have the meaning ascribed to such term in
the Indenture.
"Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof or any other entity, including any
predecessor of any such entity.
"Piggy-Back Registration" shall have the meaning ascribed to such
term in Section 2.2(a) hereof.
"Proposed Purchaser" shall have the meaning ascribed to such term in
Section 3.2(a) hereof.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities
Act), as amended or supplemented by any prospectus supplement, and all
other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference in such Prospectus.
"Purchase Agreement" shall have the meaning ascribed to such term in
the preamble hereof.
"Registrable Securities" shall mean any of (i) the Common Stock
issued and issuable upon exercise of the Warrants and (ii) any other
securities issued or issuable with respect to the Warrants or Warrant
Shares by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the offering of such securities by
the holder thereof shall have been declared effective under the Securities
Act and such securities shall have been disposed of by such holder
pursuant to such registration statement, (b) such securities have been
sold to the public pursuant to, or are eligible for sale to the public
without volume or manner of sale restrictions under, Rule 144(k) (or any
similar provision then in force, but not Rule 144A) promulgated under the
Securities Act, (c) such securities shall have been otherwise transferred
and new certificates for such securities not bearing a legend restricting
further transfer shall have been delivered by the Company or its transfer
agent and subsequent disposition of such
<PAGE> 7
5
securities shall not require registration or qualification under the
Securities Act or any similar state law then in force, or (d) such
securities shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including,
without limitation, all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees and expenses, fees
and expenses of compliance with securities or blue sky laws (including,
without limitation, reasonable fees and disbursements of counsel for the
underwriters and the Holders in connection with blue sky qualifications of
the Registrable Securities), printing expenses, messenger, telephone and
delivery expenses, fees and disbursements of counsel for the Company and
all independent certified public accountants, and other reasonable
out-of-pocket expenses of Holders (it being understood that Registration
Expenses shall not include, as to the fees and expenses of counsel, the
fees and expenses of more than one counsel for the Holders and one counsel
for the underwriters as to blue sky matters).
"Registration Statement" shall mean any appropriate registration
statement of the Company filed with the SEC pursuant to the Securities Act
which covers any of the Subject Equity pursuant to the provisions of this
Agreement and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC providing for
offers and sales of securities made in compliance therewith resulting in
offers and sales by subsequent holders that are not affiliates of an issuer
of such securities being free of the registration and prospectus delivery
requirements of the Securities Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other
than Rule 144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Selling Holder" shall mean a Holder who is selling Subject Equity or
Registrable Securities in accordance with the provisions of Section 2.1 or
2.2, respectively.
<PAGE> 8
6
"Subject Equity" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"Suspension Period" shall have the meaning ascribed to such term in
Section 2.3(a).
"Tag-Along Notice" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
"Tag-Along Right" shall have the meaning ascribed to such term in
Section 3.2(a) hereof.
"Transfer" shall have the meaning ascribed to such term in Section
3.2(a) hereof.
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
"Triggering Date" shall mean the date of the consummation of a bona
fide underwritten public offering of Common Stock, as a result of which at
least 20% of the outstanding shares of Common Stock are listed on a U.S.
national securities exchange or the Nasdaq National Market.
"Units" shall have the meaning ascribed to such term in the preamble
of this Agreement.
"Warrant Agent" shall mean The Bank of New York and any successor
warrant agent for the Warrants pursuant to the Warrant Agreement.
"Warrant Agreement" shall mean the Warrant Agreement dated as of the
date hereof, between the Company and the Warrant Agent, as amended or
supplemented from time to time in accordance with the terms thereof.
"Warrant Shares" shall mean shares of Common Stock issuable upon
exercise of the Warrants at an exercise price of $0.01 per share.
"Warrants" shall have the meaning ascribed to such term in the
preamble hereto.
Section 2. Registration Rights.
2.1 (a) Demand Registration. After the occurrence of an Exercise Event
(as such term is defined in the Warrant Agreement), the holders of a number of
Warrants, Warrant Shares
<PAGE> 9
7
and Registrable Securities (the "Subject Equity") equivalent to at least a
majority of the outstanding Subject Equity, from time to time, may make a
written request to the Company to effect up to two registrations (each, a
"Demand Registration") under the Securities Act of the Subject Equity. Within
20 days after the receipt of such written request for a Demand Registration,
the Company shall (i) notify the Holders of all Subject Equity that a Demand
Registration has been requested, (ii) prepare, file with the SEC and use its
best efforts to cause to become effective under the Securities Act within 150
days of such demand a Registration Statement with respect to such Subject
Equity and (iii) keep such registration statement continuously effective until
the earlier to occur of (A) the date that is 60 days after such effectiveness
(the "Effectiveness Period") and (B) such period of time as all of the Subject
Equity included in such registration statement shall have been sold thereunder.
Any such request will specify the number of shares of Subject Equity proposed
to be sold and will also specify the intended method of disposition thereof.
Within 30 days after receipt by any Holder of Subject Equity of such notice
from the Company, such Holder may request in writing that such Holder's Subject
Equity be included in such Registration Statement and the Company shall include
in such Registration Statement the Subject Equity of any such Holder requested
to be so included (the "Included Securities"). Each such request by such other
Holders shall specify the number of Included Securities proposed to be sold and
the intended method of disposition thereof. Subject to Sections 2.1(b) and
2.1(f) hereof, the Company shall be required to effect a Demand Registration of
Subject Equity pursuant to this Section 2.1(a) up to a maximum of two
occasions.
If such demand occurs during the "lock up" or "black out" period (not to
exceed 180 days) imposed on the Company pursuant to or in connection with any
underwriting or purchase agreement relating to an underwritten Rule 144A or
registered public offering of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, the Company shall not be required
to so notify holders of Subject Equity and file such Demand Registration
Statement prior to the end of such "lock up" or "black out" period, in which
event the Company will use its best efforts to cause such Demand Registration
statement to become effective no later than the later of (i) 150 days after
such demand or (ii) 30 days after the end of such "lock up" or "black out"
period. In the event of any "lock up" or "black out" period or any
underwriting or other purchase agreement, the Company shall so notify the
holders of Registrable Securities.
Notwithstanding the foregoing, in lieu of filing and causing to become
effective a Demand Registration, the Company may satisfy its obligation with
respect to such Demand Registration by making and consummating (or having its
designee make and consummate) an offer to purchase all Subject Equity at a
price at least equal to Current Market Value (as defined in the Warrant
Agreement, but without the inclusion of clause (i)(a) thereof), less any
applicable Exercise Price.
(b) Effective Registration. A Registration Statement shall not be deemed
to have been effected as a Demand Registration unless it shall have been
declared effective by
<PAGE> 10
8
the SEC, no later than the later of (i) 150 days after the request for a Demand
Registration or (ii) 30 days after the end of any "lock up" or "black out"
period described in Section 2.1(a) hereof and the Company has complied in all
material respects with all of its obligations under this Agreement with respect
thereto; provided, however, that if, after such Registration Statement has
become effective, the offering of Subject Equity pursuant to such Registration
Statement is or becomes the subject of any stop order, injunction or other
order or requirement of the SEC or any other governmental, judicial or
administrative order or requirement that prevents, restrains or otherwise
limits the sale of Subject Equity pursuant to such Registration Statement for
any reason not attributable to any Holder participating in such registration,
and such Registration Statement has not become effective within a reasonable
time period thereafter, such Registration Statement shall be deemed not to have
been effected. If (i) a registration requested pursuant to this Section 2.1 is
deemed not to have been effected or (ii) a Demand Registration does not remain
effective under the Securities Act until at least the earlier of (A) an
aggregate of 60 days (subject to Section 2.3 herein) after the effective date
thereof or (B) the consummation of the distribution by the Holders of all of
the Subject Equity covered thereby, then such Demand Registration shall not
count towards determining if the Company has satisfied its obligation to effect
Demand Registrations pursuant to this Section 2.1. For purposes of calculating
the 60-day period referred to in the preceding sentence, any period of time
during which such Registration Statement was not in effect shall be excluded.
The Holders of Subject Equity shall be permitted to withdraw all or any part of
the Registrable Securities from a Demand Registration. Notwithstanding any
such withdrawal by a Holder of Subject Equity, if the Company has complied with
all of its obligations hereunder and has effected a Demand Registration within
150 days after the request for a Demand Registration, such withdrawal shall not
require the Company to effect any additional Demand Registrations.
(c) Restrictions on Sale by Holders. Each Holder of Warrants and
Registrable Securities whose Warrants and Registrable Securities are covered by
a Registration Statement filed pursuant to this Section 2.1 and are to be sold
thereunder agrees, if and to the extent reasonably requested by the managing
underwriter or underwriters in an underwritten public offering, not to effect
any public sale or distribution of Warrants and Registrable Securities or of
securities of the Company of the same class as any securities included in such
Registration Statement, including a sale pursuant to Rule 144 (except as part
of such underwritten offering), during the 30-day period prior to, and during
the 180-day period beginning on, the closing date of each underwritten offering
made pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such managing underwriter or underwriters.
The foregoing provisions of Section 2.1(c) shall not apply to any Holders
of Warrants and Registrable Securities if such Holder is prevented by
applicable statute or regulation from entering into any such agreement;
provided, however, that any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect any public sale or
distribution of any Warrants and Registrable Securities commencing on the date
of sale of such
<PAGE> 11
9
Warrants and Registrable Securities unless it has provided 45 days' prior
written notice of such sale or distribution to the managing underwriter or
underwriters.
(d) Selection of Underwriter. If the Holders so elect, the offering of
such Subject Equity pursuant to such Demand Registration shall be in the form
of an underwritten offering. The Holders making such Demand Registration shall
select one or more nationally recognized firms of investment bankers, who shall
be reasonably acceptable to the Company, to act as the managing underwriter or
underwriters in connection with such offering and shall select any additional
investment bankers and managers to be used in connection with the offering.
(e) Expenses. The Company will pay all Registration Expenses in
connection with the registrations requested pursuant to Section 2.1(a) hereof.
Each Holder of Subject Equity shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Subject Equity pursuant to a Registration Statement requested
pursuant to this Section 2.1.
2.2 (a) Piggy-Back Registration. If at any time the Company proposes to
file a Registration Statement under the Securities Act with respect to an
offering by the Company for its own account or for the account of any of its
securityholders of any class of its common equity securities (other than (i) a
registration statement on Form S-4 or S-8 (or F-4 or F-8) (or any substitute
form that may be adopted by the SEC) or any other publicly registered offering
pursuant to the Securities Act pertaining to the issuance of shares of Capital
Stock or securities exercisable therefor under any benefit plan, employee
compensation plan, or employee or director stock purchase plan, (ii) a
registration statement filed in connection with an offer of securities solely
to the Company's existing securityholders or (iii) a Demand Registration), then
the Company shall give written notice of such proposed filing to the Holders of
Registrable Securities as soon as practicable (but in no event fewer than 15
days before the anticipated filing date or 10 days if the Company is subject to
filing reports under the Exchange Act and able to use Form S-3 (or F-3) under
the Securities Act), and such notice shall offer such Holders the opportunity
to register such number of shares of Registrable Securities as each such Holder
may request in writing within 12 days (or eight days if the Company is subject
to filing reports under the Exchange Act and able to use Form S-3 (or F-3)
under the Securities Act) after receipt of such written notice from the Company
(which request shall specify the Registrable Securities intended to be disposed
of by such Selling Holder and the intended method of distribution thereof) (a
"Piggy-Back Registration"). The Company shall use its best efforts to keep
such Piggy-Back Registration continuously effective under the Securities Act in
the qualifying jurisdictions until at least the earlier of (A) 60 days after
the effective date thereof or (B) the consummation of the distribution by the
Holders of all of the Registrable Securities covered thereby. The Company
shall use its best efforts to cause the managing underwriter or underwriters,
if any, of such proposed offering to permit the Registrable Securities
requested to be included in a Piggy-Back Registration to be included on the
same terms and conditions as any similar securities of the Company or any other
securityholder included
<PAGE> 12
10
therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. Any
Selling Holder shall have the right to withdraw its request for inclusion of its
Registrable Securities in any Registration Statement pursuant to this Section
2.2 by giving written notice to the Company of its request to withdraw. The
Company may withdraw a Piggy-Back Registration at any time prior to the time it
becomes effective or the Company may elect to delay the registration; provided,
however, that the Company shall give prompt written notice thereof to
participating Selling Holders. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities requested
pursuant to this Section 2.2, and each Holder of Registrable Securities shall
pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to a Registration Statement effected pursuant to this Section 2.2.
No registration effected under this Section 2.2, and no failure to effect
a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a registration upon the request of Holders of Registrable
Securities pursuant to Section 2.1 hereof, and no failure to effect a
registration under this Section 2.2 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(b) Priority in Piggy-Back Registration. In a registration pursuant to
Section 2.2 hereof involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders requesting inclusion in such
offering that in such underwriter's or underwriters' reasonable opinion the
total number of securities which the Company, the Selling Holders and any other
persons desiring to participate in such registration intend to include in such
offering is such as to materially and adversely affect the success of such
offering, including the price at which such securities can be sold, then the
Company will be required to include in such registration only the amount of
securities which it is so advised should be included in such registration. In
such event: (x) in cases only involving the registration for sale of
securities for the Company's own account (which may include securities included
pursuant to the exercise of piggy-back rights herein and in other contractual
commitments of the Company), securities shall be registered in such offering in
the following order of priority: (i) first, the securities which the Company
proposes to register, (ii) second, provided that no securities sought to be
included by the Company have been excluded from such registration, the
securities which have been requested to be included in such registration by the
Holders of Registrable Securities pursuant to this Agreement (such securities
for the account of the Holders to be allocated among the Holders pro rata based
on the amount of securities sought to be registered by the Holder) and (iii)
third, provided that no securities sought to be included by the Company or the
Holders have been excluded from such registration, the securities of other
Persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount of
securities sought to be registered by such Persons); and (y) in cases not
involving the registration for sale of securities for the Company's own account
<PAGE> 13
11
only, securities shall be registered in such offering in the following order of
priority: (i) first, securities to be sold for the account of the Company and
the securities of any Person whose exercise of a "demand" registration right
pursuant to a contractual commitment of the Company is the basis for the
registration (provided that if such Person is a Holder of Registrable
Securities, as among Holders of Registrable Securities there shall be no
priority and Registrable Securities sought to be included by Holders of
Registrable Securities shall be included pro rata based on the amount of
securities sought to be registered by such Persons), (ii) second, provided that
no securities of the Company or such Person referred to in the immediately
preceding clause (i) have been excluded from such registration, the securities
requested to be included in such registration by the Holders of Registrable
Securities pursuant to this Agreement (such securities for the account of the
Holders to be allocated among the Holders pro rata based on the total amount of
securities sought to be registered by the Holders) and (iii) third, provided
that no securities of such Person referred to in the immediately preceding
clause (i) or of the Holders have been excluded from such registration,
securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments (pro rata based on the amount of
securities sought to be registered by such Persons).
If, as a result of the provisions of this Section 2.2(b), any Selling
Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Selling Holder has requested to be included,
such Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration.
(c) Restrictions on Sale by Holders. Each Holder of Warrants and
Registrable Securities whose Warrants and Registrable Securities are covered by
a Registration Statement filed pursuant to this Section 2.2 and are to be sold
thereunder agrees, if and to the extent reasonably requested by the managing
underwriter or underwriters in an underwritten public offering, not to effect
any public sale or distribution of Warrants and Registrable Securities or of
securities of the Company of the same class as any securities included in such
Registration Statement, including a sale pursuant to Rule 144 (except as part
of such underwritten offering), during the 30-day period prior to, and during
the 180-day period beginning on, the closing date of each underwritten offering
made pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such managing underwriter or underwriters.
The foregoing provisions of Section 2.2(c) shall not apply to any Holders
of Warrants and Registrable Securities if such Holder is prevented by
applicable statute or regulation from entering into any such agreement;
provided, however, that any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect any public sale or
distribution of any Warrants and Registrable Securities commencing on the date
of sale of such Warrants and Registrable Securities unless it has provided 45
days' prior written notice of such sale or distribution to the managing
underwriter or underwriters.
<PAGE> 14
12
2.3 Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligations of the Company set forth in Sections
2.1, 2.2 and 2.6 hereof are subject to each of the following limitations,
conditions and qualifications:
(a) Subject to the next sentence of this paragraph, the Company shall
be entitled to postpone, for a reasonable period of time, the filing of,
or suspend the effectiveness of, any registration statement or amendment
thereto, or suspend the use of any prospectus and shall not be required to
amend or supplement the registration statement, any related prospectus or
any document incorporated therein by reference (other than an effective
registration statement being used for an underwritten offering); provided
that the duration of such postponement or suspension (a "Suspension
Period") may not exceed an aggregate of 90 days after the event or
circumstance giving rise to such Suspension Period and the duration of
such Suspension Period shall be excluded from the calculation of the
60-day period described in Section 2.1(b) hereof. Such Suspension Period
may be effected only if (i) an event or circumstance occurs and is
continuing as a result of which the registration statement, any related
prospectus or any document incorporated therein by reference as then
amended or supplemented or proposed to be filed would, in the Company's
good faith judgement, contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (ii) (A) the Company determines in its good faith
judgement that the disclosure of such an event at such time would have a
material adverse effect on the business, operations or prospects of the
Company or (B) the disclosure otherwise relates to a material business
transaction which has not yet been publicly disclosed; provided, that the
Effectiveness Period shall be extended by the number of days in any
Suspension Period; provided, further, that the Company shall not be
entitled to such postponement or suspension more than once in any 12-month
period; provided further that the Company may suspend the effectiveness
for a period not in excess of 5 Business Days to allow for the updating of
the financial statements included in a Registration Statement to the
extent required by law, not to exceed 45 days in aggregate in any 12-month
period. If the Company shall so postpone the filing of a Registration
Statement it shall, as promptly as possible, deliver a certificate signed
by the chief executive officer of the Company to the Selling Holders as to
such determination, and the Selling Holders shall (1) have the right, in
the case of a postponement of the filing or effectiveness of a
Registration Statement, upon the affirmative vote of the Holders of not
less than a majority of the Registrable Securities to be included in such
Registration Statement, to withdraw the request for registration by giving
written notice to the Company within 10 days after receipt of such notice
or (2) in the case of a suspension of the right to make sales, receive an
extension of the registration period equal to the number of days of the
suspension. Any Demand Registration as to which the withdrawal election
referred to in the preceding sentence has been effected shall not be
counted for purposes of the Demand Registration the Company is required to
effect pursuant to Section 2.1 hereof.
<PAGE> 15
13
(b) The Company's obligations shall be subject to the obligations of
the Selling Holders, which the Selling Holders acknowledge, to furnish all
information and materials and to take any and all actions as may be
required under applicable federal and state securities laws and
regulations to permit the Company to comply with all applicable
requirements of the SEC, if applicable, and to obtain any acceleration of
the effective date of such Registration Statement.
2.4 Restrictions on Sale by the Company and Others. The Company
covenants and agrees that (i) it shall not, and that it shall not cause or
permit any of its subsidiaries to, effect any public sale or distribution of
any securities of the same class as any of the Warrants or Registrable
Securities or any securities convertible into or exchangeable or exercisable
for such securities (or any option or other right for such securities) during
the 30-day period prior to, and during the 90-day period beginning on, the
commencement of any underwritten offering of Warrants or Registrable Securities
pursuant to a Demand Registration which has been requested pursuant to this
Agreement, or a Piggy-Back Registration which has been scheduled, prior to the
Company or any of its subsidiaries publicly announcing its intention to effect
any such public sale or distribution; (ii) the Company will not, and the
Company will not cause or permit any subsidiary of the Company to, after the
date hereof, enter into any agreement or contract that conflicts with or limits
or prohibits the full and timely exercise by the Holders of Warrants or
Registrable Securities of the rights herein to request a Demand Registration or
to join in any Piggy-Back Registration subject to the other terms and
provisions hereof; and (iii) upon request of the Holders of not less than a
majority of the Warrants or Registrable Securities to be included in such
Registration Statement or any underwriter, it shall use its reasonable best
efforts to secure the written agreement of each of its officers and directors
to not effect any public sale or distribution of any securities of the same
class as the Warrants or Registrable Securities (or any securities convertible
into or exchangeable or exercisable for an such securities), or any option or
right for such securities during the period described in clause (i) of this
Section 2.4.
2.5 Rule 144 and Rule 144A. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the SEC thereunder in a timely
manner and, if at any time the Company is not required to file such reports, it
will, upon the request of any Holder or beneficial owner of Warrants or
Registrable Securities, make available such information necessary to permit
sales pursuant to Rule 144A under the Securities Act. The Company further
covenants that it will take such further action as any Holder of Warrants or
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Warrants or Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act,
as such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder of
Warrants or Registrable Securities, the Company will in a timely
<PAGE> 16
14
manner deliver to such Holder a written statement as to whether it has complied
with such information requirements.
2.6 Underwritten Registrations. If any of the Registrable Securities
covered by any Registration Statement are to be sold in an underwritten public
offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of not less
than a majority of the Registrable Securities to be sold thereunder and will be
reasonably acceptable to the Company.
No Holder of Registrable Securities may participate in any underwritten
registration pursuant to a Registration Statement filed under this Agreement
unless such Holder (a) agrees to (i) sell such Holder's Registrable Securities
on the basis provided in and in compliance with any underwriting arrangements
approved by the Holders of not less than a majority of the Registrable
Securities to be sold thereunder and (ii) comply with Rules 101, 102 and 104 of
Regulation M under the Exchange Act and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
If the Company has complied with all its obligations under this Agreement
with respect to a Demand Registration or a Piggy-Back Registration relating to
an underwritten public offering, all holders of Warrants and Registrable
Securities, upon request of the lead managing underwriter with respect to such
underwritten public offering, will be required to not sell or otherwise dispose
of any Warrant or Registrable Security owned by them for a period not to exceed
180 days from the consummation of such underwritten public offering.
Section 3. Transfers.
3.1 Generally. All Subject Equity at any time and from time to time
outstanding shall be held subject to the conditions and restrictions set forth
in this Section 3. All shares of Capital Stock now or hereafter held by the
Permitted Holders shall be held subject to the conditions and restrictions set
forth in this Section 3. Each Holder of Subject Equity and the Permitted
Holders by executing this Agreement or by accepting a certificate representing
Capital Stock or other indicia of ownership therefor from the Company agree
with the Company and with each other stockholder to such conditions and
restrictions.
3.2 Tag-Along Rights. (a) Prior to the Triggering Date, each of the
Holders of Subject Equity shall have the right (the "Tag-Along Right") to
require the Proposed Purchaser (as defined below) to purchase from each of them
all Subject Equity owned by such Holder in the event of any proposed direct or
indirect sale or other disposition (collectively, a "Transfer") of Common Stock
or Convertible Preferred Stock (whether now or hereafter issued) to any Person
or Persons (such other Person or Persons being hereinafter referred to as the
"Proposed Purchaser") by
<PAGE> 17
15
any Permitted Holders or any of their Affiliates in any transaction or a series
of related transactions resulting in a Change of Control.
(b) Any Subject Equity purchased from the Participating Holders pursuant
to this Section 3.2 shall be paid for in the same type of consideration and at
the same price per share of Common Stock and upon the same terms and conditions
of such proposed Transfer of Common Stock by any Permitted Holder or any of its
Affiliates; except that the price per Warrant to be paid by the Proposed
Purchaser shall be less the aggregate Exercise Price of such Warrant. If the
Subject Equity to be purchased includes securities or property other than
Common Stock, the price to be paid for such securities or property shall be the
same price per share or other denomination paid by the Proposed Purchaser for
like securities purchased from any Permitted Holder or any of its Affiliates
or, if like securities are not purchased from any Permitted Holder or any of
its Affiliates, the Fair Market Value of such securities determined by a
nationally or regionally recognized investment banking firm selected by the
Company.
(c) Each Permitted Holder shall notify, or cause to be notified, each
Holder of Subject Equity in writing (a "Transfer Notice") of each such proposed
Transfer at least 30 days prior to the date thereof. Such notice shall set
forth: (a) the name and address of the Proposed Purchaser and the number of
shares of Common Stock and other securities, if any, proposed to be
transferred, (b) the proposed amount of consideration and terms and conditions
of payment offered by such Proposed Purchaser (if the proposed consideration is
not cash, the Transfer Notice shall describe the terms of the proposed
consideration) and (c) that either the Proposed Purchaser has been informed of
the "Tag-Along Right" and has agreed to purchase Subject Equity in accordance
with the terms hereof or that the Permitted Holder or any of its Affiliates
will make such purchase. The Tag-Along Right may be exercised by any Holder of
Subject Equity by delivery of a written notice to the Company ("Tag-Along
Notice"), within 10 days of such Holder's receipt of the Transfer Notice,
indicating its election to exercise the Tag-Along Right (a "Participating
Holder"). The Tag-Along Notice shall state the amount of Subject Equity that
such Holder proposes to include in such Transfer to the Proposed Purchaser.
Failure by any Holder to provide a Tag-Along Notice within the 10-day notice
period shall be deemed to constitute an election by such Holder not to exercise
its Tag-Along Right. The closing with respect to any sale to a Proposed
Purchaser pursuant to this Section shall be held at the time and place
specified in the Transfer Notice but in any event within 60 days of the date
such Transfer Notice is given; provided that if through the exercise of
reasonable efforts the Company is unable to cause such transaction to close
within 60 days, such period may be extended for such reasonable period of time
as may be necessary to close such transaction. Consummation of the sale of
Common Stock or Convertible Preferred Stock by any Permitted Holder or any of
its Affiliates to a Proposed Purchaser shall be conditioned upon consummation
of the sale by each participating Holder to such Proposed Purchaser (or the
Permitted Holder) of the Subject Equity entitled to be transferred as described
above, if any.
(d) [reserved]
<PAGE> 18
16
(e) If the Proposed Purchaser does not purchase the Subject Equity
entitled to be transferred as described in this Section 3.2 on the same terms
and conditions as purchased from the Permitted Holders or any of their
Affiliates, then the Permitted Holders or their Affiliates shall purchase such
Subject Equity if the Transfer occurs. If any Subject Equity shall be sold by
a Holder pursuant to this Section 3.2 upon the occurrence of a Change of
Control triggered by the sale of Common Stock by a Permitted Holder, then the
other Permitted Holder shall have the right to purchase up to 50% of such
Subject Equity.
(f) If at the end of 60 days following the date on which a Transfer Notice
was given, or as otherwise extended pursuant to the provisions of Section
3.2(a), the sale of Common Stock by the Permitted Holders or their Affiliates
and the sale of the Subject Equity entitled to be transferred as provided above
have not been completed in accordance with the terms of the Proposed
Purchaser's offer, all certificates representing such Subject Equity shall be
returned to the Participating Holders, and all the restrictions on Transfer
contained in this Agreement with respect to Common Stock owned by the Permitted
Holders and their Affiliates shall remain in effect.
3.3 Drag-Along Rights. (a) If at any time prior to an Initial Public
Equity Offering, any Permitted Holders or any of their respective Affiliates
determines to sell all of the Capital Stock of the Company owned by them to a
Person other than a Permitted Holder or its Affiliate in a transaction
resulting in a Change of Control, the transferring Permitted Holder (whether
directly or through an Affiliate) shall have the right (the "Drag-Along Right")
to require the Holders of Subject Equity to sell such Subject Equity to such
transferee; provided that (i) the consideration to be received by the Holders
of Subject Equity shall be the same type of consideration received by the
Permitted Holders and their Affiliates and, in any event, shall be cash or
freely transferable marketable securities, and (ii) after giving effect to such
transaction, the Permitted Holders making the transfers and its Affiliates
shall not own, directly or indirectly, any Capital Stock or rights to purchase
Capital Stock of the Company. Any Warrants or Registrable Securities, or both,
purchased from the Holders thereof pursuant to this Section 3.3 shall be paid
for at the same price per share of Common Stock and upon the same terms and
conditions as such proposed transfer of Common Stock by the Permitted Holders
and their Affiliates. The price per Warrant to be paid by the Proposed
Purchaser shall be less the aggregate Exercise Price of such Warrant. If the
Subject Equity to be purchased includes securities other than Common Stock, the
price to be paid for such securities shall be the same price per share or other
denomination paid by the proposed purchaser for like securities purchased from
the Permitted Holders and their Affiliates or, if like securities are not
purchased from the Permitted Holders and their Affiliates, the Fair Market
Value of such securities determined by a nationally or regionally recognized
investment banking firm selected by the Company.
(b) If any Subject Equity shall be sold by a Holder thereof pursuant to
the Drag-Along Right under this Section 3.3 upon the occurrence of a Change of
Control triggered by the
<PAGE> 19
17
sale of Common Stock by a Permitted Holder, the other Permitted Holder shall
have the right to purchase up to 50% of such Subject Equity.
Section 4. Registration Procedures. In connection with the obligations
of the Company with respect to any Registration Statement pursuant to Sections
2.1, 2.2 and 2.6 hereof, the Company shall, except as otherwise provided:
(a) A reasonable period of time prior to the initial filing of a
Registration Statement or Prospectus and a reasonable period of time prior
to the filing of any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein
by reference), furnish to the Holders and the managing underwriters, if
any, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference)
shall be subject to the review of such Holders, and such underwriters, if
any, and cause the officers and directors of the Company, counsel to the
Company and independent certified public accountants to the Company to
respond to such reasonable inquiries as shall be necessary, in the opinion
of counsel to such underwriters, to conduct a reasonable investigation
within the meaning of the Securities Act; provided that the foregoing
inspection and information gathering shall be coordinated on behalf of the
Holders by Merrill Lynch. The Company shall not file any such
Registration Statement or related Prospectus or any amendments or
supplements thereto which the Holders of a majority of the Registrable
Securities included in such Registration Statement shall reasonably object
on a timely basis.
(b) Prepare and file with the SEC such amendments, including
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective for
the applicable time period required hereunder; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; and comply
with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration
Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and the
managing underwriters, if any, promptly, and (if requested by any such
person) confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed,
and (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the
<PAGE> 20
18
issuance by the SEC, any state securities commission, any other
governmental agency or any court of any stop order suspending the
effectiveness of such Registration Statement or of any order or injunction
suspending or enjoining the use of a Prospectus or the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, and (v) of the happening of any event, the existence of any
information becoming known that makes any statement made in a Registration
Statement or related Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the
effectiveness of the Registration Statement or the use of a Prospectus or
the lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities covered thereby for
sale in any jurisdiction described in Section 4(h) at the earliest
practicable moment.
(e) If requested by the managing underwriters, if any, or if none, by
the Holders of a majority of the Registrable Securities being sold
pursuant to such Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or if none, such Holders reasonably believe
should be included therein, and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment under the
Securities Act as soon as practicable after the Company has received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action pursuant to this Section
4(e) that would in the opinion of counsel for the Company, violate
applicable law.
(f) Upon written request to the Company, furnish to each Holder of
Registrable Securities to be sold pursuant to a Registration Statement and
each managing underwriter, if any, without charge, at least one conformed
copy of the Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed
to be incorporated therein by reference, and all exhibits to the extent
requested (including those previously furnished or incorporated by
reference) as soon as practicable after the filing of such documents with
the SEC.
<PAGE> 21
19
(g) Deliver to each Holder of Registrable Securities to be sold
pursuant to a Registration Statement and each managing underwriter, if
any, without charge, as many copies of each Prospectus (including each
form of prospectus) and each amendment or supplement thereto as such
Persons may reasonably request; and the Company hereby consents to use of
such Prospectus and each amendment or supplement thereto and each document
supplemental thereto by each of the selling Holders of Registrable
Securities and the underwriters or agents, if any, in connection with the
offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the Holders of
Registrable Securities to be sold, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as any such Holder or
underwriter reasonably requests in writing; keep each such registration
or qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective hereunder and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the applicable Registration Statement; provided, however, that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified or (ii) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or to taxation in any
jurisdiction where it is not so subject.
(i) In connection with any sale or transfer of Registrable Securities
that will result in such securities no longer being Registrable
Securities, cooperate with the Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall not bear any restrictive legends whatsoever and
shall be in a form eligible for deposit with The Depository Trust Company
("DTC"); and to enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or such Holders may reasonably request at least two
business days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 4(c)(v)
above, as promptly as practicable prepare a supplement or amendment,
including if appropriate a post-effective amendment to each Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file
any other required document so that, as thereafter delivered, such
Prospectus will not contain an untrue statement of a material fact or omit
to state a material
<PAGE> 22
20
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(k) Prior to the effective date of a Registration Statement, (i)
provide the registrar for the Registrable Securities with certificates for
such securities in a form eligible for deposit with DTC and (ii) provide a
CUSIP number for such securities.
(l) Enter into such agreement (including an underwriting agreement in
such form, scope and substance as is customary in underwritten offerings)
and take all such other reasonable actions in connection therewith
(including those reasonably requested by the managing underwriters, if
any, or the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such
Registrable Securities, and, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the Holders
of such Registrable Securities and the underwriter or underwriters, if
any, with respect to the business of the Company and the subsidiaries of
the Company (including with respect to businesses or assets acquired or to
be acquired by any of them), and the Registration Statement, Prospectus
and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings, and
confirm the same if any when requested; (ii) obtain opinions of counsel to
the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, addressed to each selling Holder of Registrable
Securities and each of the underwriters, if any), covering the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters;
(iii) use their best efforts to obtain customary "cold comfort" letters
and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or
are required to be, included in the Registration Statement), addressed
(where reasonably possible) to each Selling Holder of Registrable
Securities and each of the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings; (iv) if
an underwriting agreement is entered into, the same shall contain
customary indemnification provisions and procedures no less favorable to
the Selling Holder and the underwriters, if any, than those set forth in
Section 5 hereof (or such other provisions and procedures acceptable to
Holders of a majority of Registrable Securities covered by such
Registration Statement and the managing underwriter, if any); and (v)
deliver such documents and certificates as may be reasonably requested by
the Holders of a majority of the Registrable Securities being sold and the
managing underwriters or underwriters to evidence the continued validity
of the
<PAGE> 23
21
representations and warranties made pursuant to clause (i) above and
evidence compliance with any customary conditions contained in the
underwriting agreement or other agreements entered into by the Company.
(m) Make available for inspection by a representative of the selling
Holders of Registrable Securities, any underwriter participating in any
such disposition of Registrable Securities, if any, and any attorney,
consultant or accountant retained by such representative of the selling
Holders of Registrable Securities or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during the reasonable
business hours, all financial and other records, pertinent corporate
documents and properties of the Company and the subsidiaries of the
Company (including with respect to businesses and assets acquired or to be
acquired to the extent that such information is available to the Company),
and cause the officers, directors, agents and employees of the Company and
its subsidiaries of the Company (including with respect to businesses and
assets acquired or to be acquired to the extent that such information is
available to the Company) to supply all information in each case
reasonably requested by any such Inspector in connection with such
Registration Statement; provided, however, that such persons shall first
agree in writing with the Company that any information that is reasonably
and in good faith designated by the Company in writing as confidential at
the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities, (ii) disclosure of such information is required by
law (including any disclosure requirements pursuant to U.S. securities
laws in connection with the filing of the Registration Statement or the
use of any Prospectus), (iii) such information becomes generally available
to the public other than as a result of a disclosure or failure to
safeguard such information by such person or (iv) such information becomes
available to such person from a source other than the Company and its
subsidiaries and such source is not bound by a confidentiality agreement;
provided, further that the foregoing investigation shall be coordinated on
behalf of the selling Holders of Registrable Securities by Merrill Lynch.
(n) Comply with all applicable rules, regulations and policies of the
SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder no later than 60 days after the end of any
12-month period (or 135 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter
in which Registrable Securities are sold to an underwriter or to
underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to an underwriter or to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the relevant Registration
Statement, which statements shall cover said such period, consistent with
the requirements of Rule 158 under the Securities Act.
<PAGE> 24
22
(o) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on each securities exchange,
if any, on which similar securities issued by the Company are then listed.
(p) Cooperate with each seller of Registrable Securities to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends and registered in such names as the Selling Holders
may reasonably request at least two business days prior to the closing of
any sale of Registrable Securities.
(q) Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable Securities and its respective counsel
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc.
The Company may require a Holder of Registrable Securities to be included
in a Registration Statement to furnish to the Company such information
regarding (i) the intended method of distribution of such Registrable
Securities (ii) such Holder and (iii) the Registrable Securities held by such
Holder as is required by law to be disclosed in such Registrable Statement and
the Company may exclude from such Registration Statement the Registrable
Securities of any Holder who fails to furnish such information within a
reasonable time after receiving such request.
If any such Registration Statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company, then such Holder
shall have the right to require (i) the insertion therein of language, in form
and substance reasonably satisfactory to such Holder, to the effect that the
holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such
Holder will assist in meeting any future financial requirements of the Company,
or (ii) in the event that such reference to such Holder by name or otherwise is
not required by the Securities Act, the deletion of the reference to such
Holder in such amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
Each Holder of Registrable Securities agrees by acquisition of such
Subject Equity that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iv) or
4(c)(v) hereof, such Holder will forthwith discontinue disposition of such
Subject Equity covered by the Registration Statement or Prospectus until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and in either case has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such
<PAGE> 25
23
Prospectus. If the Company shall give any such notice, the Effectiveness
Period shall be extended by the number of days during such periods from and
including the date of the giving of such notice to and including the date when
each seller of Subject Equity covered by such Registration Statement shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 4(j) hereof or (y) the Advice, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus..
Holders of the Subject Equity shall be obligated to keep confidential the
existence of a Suspension Period or any confidential information communicated
by the Company to the Holder with respect thereto.
Section 5. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, each Holder, each
underwriter, if any, who participates in an offering of Registrable Securities,
their respective affiliates, and their respective directors, officers,
employees, agents and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Registrable
Securities were registered under the 1933 Act, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in each case, based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided that
(subject to Section 5(d) below) any such settlement is effected with the
written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred (including
the reasonable fees and disbursements of one counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation
<PAGE> 26
24
or proceeding by any court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (i) or (ii) of
this Section 5(a);
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission (A) made in or
omitted from a preliminary Prospectus or Registration Statement and corrected
or included in a subsequent Prospectus or Registration Statement or any
amendment or supplement thereto made in reliance upon and in conformity with
written information furnished to the Company by the Selling Holders of
Registrable Securities, any Holder, or any underwriter expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) or (B) resulting from the use of the
Prospectus during a period when the use of the Prospectus has been suspended or
is otherwise unavailable for sales thereunder in accordance with Sections
2.1(b), 2.1(c), 2.2(c), 2.3, 2.4 or 2.6 hereof, provided, in each case, that
Holders received prior notice of such suspension or other unavailability.
(b) In the case of any registration of Registtable Securities, each Holder
agrees, severally and not jointly, to indemnify and hold harmless the Company,
each Initial Purchaser, each underwriter, if any, who participates in an
offering of Registrable Securities and the other Selling Holders and each of
their respective directors and officers (including each officer of the Company
who signed the Registration Statement) and each Person, if any, who controls
the Company, any Initial Purchaser, any underwriter or any other Selling Holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Registration Statement (or any amendment thereto), or the Prospectus
(or any amendment or supplement thereto); provided, however, that no such
Holder shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Registration Statement.
(c) In case any action shall be commenced involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall give notice as promptly as
reasonably practicable to each Person against whom such indemnity may be sought
(the "indemnifying party"), but failure to so notify an indemnifying party
shall not relieve such indemnifying party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any
<PAGE> 27
25
liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying party or
parties be liable for the fees and expenses of more than one counsel (in
addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 5 (whether or not the indemnified parties are
actual or potential parties thereof), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from
all liability arising out of such litigation, investigation, proceeding or
claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity provisions
set forth in this Section 5 is for any reason unavailable to or insufficient to
hold harmless an indemnified party in respect of any losses, liabilities,
claims, damages or expenses referred to therein, then each indemnifying party
shall contribute to the aggregate amount of such losses, liabilities, claims,
damages and expenses incurred by such indemnified party, as incurred, in such
proportion as is appropriate to reflect the relative fault of such indemnifying
party or parties on the one hand, and such indemnified party or parties on the
other hand, in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party or parties on the one hand, and such indemnified party or parties on the
other hand shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or parties or such indemnified party or parties and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Initial
Purchasers and the Holders of the Registrable Securities agree
<PAGE> 28
26
that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation (even if the Selling Holders
of Registrable Securities were treated as one entity, and the Holders were
treated as one entity, for such purpose) or by another method of allocation
which does not take account of the equitable considerations referred to above
in Section 5. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
5 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by an governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1993 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each Person, if any, who controls an Initial Purchaser or Holder within the
meaning of this Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as such Initial Purchaser or Holder, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each Person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company.
Section 6. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder and Permitted Holders, in
addition to being entitled to exercise all rights provided herein, in the
Purchase Agreement or granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any of the provisions of this
Agreement.
(b) No Inconsistent Agreements. The Company and the Permitted Holders
will not enter into any agreement which is inconsistent with the rights granted
to the Holders of Warrants and Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's other issued and outstanding
securities, if any, under any such agreements.
(c) No Piggy-Back on Demand Registrations. The Company shall not grant to
any of its securityholders (other than the Holders in such capacity) the right
to include any of their securities in any Registration Statement filed pursuant
to a Demand Registration.
(d) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, otherwise than with the prior
<PAGE> 29
27
written consent of the Holders and Permitted Holders of not less than a
majority of the then outstanding Warrants and each class and series of
Registrable Securities; provided, however, that, for the purposes of this
Agreement, Warrants and Registrable Securities that are owned, directly or
indirectly, by the Company, the Permitted Holders or any of their Affiliates
are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of one or more Holders and Permitted Holders and that
does not directly or indirectly affect the rights of other Holders and other
Permitted Holders may be given by a majority of the Holders and Permitted
Holders so affected; provided, however, that the provisions of this sentence
may not be amended, modified or supplemented except in accordance with the
provisions of the immediately preceding sentence. Notwithstanding the
foregoing, no amendment, modification, supplement, waiver or consent with
respect to Section 5 shall be made or given otherwise than the prior written
consent of each Person affected thereby.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder or a Permitted Holder, at the most current address of such
Holder or such Permitted Holder as set forth in the register for the Warrants
or the Registrable Securities, which address initially is, with respect to each
Initial Purchaser, the address set forth with respect to such Initial Purchaser
in the Purchase Agreement; and (ii) if to the Company, initially at the address
set forth below the Company's name on the signature pages hereto and thereafter
at such other address, notice of which is given in accordance with the
provisions of this Section 6(e), with a copy to Bryan Cave LLP, One
Metropolitan Square, Suite 3600, St. Louis, Missouri 63102, Attention: J. Mark
Klamer, Esq., and thereafter at such other address notice of which is given in
accordance with the provisions of this Section 6(e).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. If any transferee of any Holder
shall acquire Registrable Securities, in any manner, whether by operation of
law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement and such
Person shall be entitled to receive the benefits hereof. The Company may not
assign any of its rights or obligations hereunder without the prior written
consent of each Holder of Registrable Securities. Notwithstanding the
foregoing, no successor or assignee of the Company shall have any rights
granted under the Agreement until such person shall
<PAGE> 30
28
acknowledge its rights and obligations hereunder by a signed written statement
of such person's acceptance of such rights and obligations.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties hereto shall
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Warrant Agreement, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein and therein. This Agreement, the
Purchase Agreement and the Warrant Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
(m) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities or Warrants is required hereunder, Registrable Securities or
Warrants held by the Company or by any of its affiliates (as such term is
defined in Rule 405 under the Securities Act) shall not be counted (in either
the numerator or the denominator) in determining whether such consent or
approval was given by the Holders of such required percentage.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DTI HOLDINGS, INC.
11111 Dorsett Road
St. Louis, Missouri 63043
By:/s/ Richard D. Weinstein
---------------------------------------
Name: Richard D. Weinstein
Title: President and Chief Executive Officer
IN ITS CAPACITY AS A PERMITTED HOLDER, FOR
PURPOSES OF SECTION 3 AND 6 HEREOF ONLY
KLT TELECOM INC.
By:/s/ R.G. Wasson
---------------------------------------
Name: R.G. Wasson
Title: President
IN HIS CAPACITY AS A PERMITTED HOLDER, FOR
PURPOSES OF SECTION 3 AND 6 HEREOF ONLY
RICHARD D. WEINSTEIN
By:/s/ Richard D. Weinstein
---------------------------------------
Name: Richard D. Weinstein
<PAGE> 32
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
TD SECURITIES (USA) INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:/s/ Marcey Becker
- -------------------------------
Name: Marcey Becker
Title: Vice President
<PAGE> 1
EXHIBIT 4.5
DIGITAL TELEPORT, INC.
SHAREHOLDERS' AGREEMENT
THIS AGREEMENT is made as of this 12th day of March, 1997, by and among
DIGITAL TELEPORT, INC. (the "Company"), a Missouri corporation, RICHARD D.
WEINSTEIN ("Weinstein"), an individual, and KLT TELECOM INC. ("KLT"), a Missouri
corporation. Weinstein and KLT are hereinafter sometimes referred to
collectively as "Shareholders" or individually as a "Shareholder."
WITNESSETH:
WHEREAS, the Shareholders own the capital shares of Company
preferred stock, $.01 par value (the "Preferred Stock") and common stock, $.01
par value (the "Common Stock") issued and outstanding as of the date hereof
indicated on Exhibit A;
WHEREAS, it is in the best interests of the Shareholders and the Company
that management of the Company be conducted in an orderly manner as hereinafter
provided; and
WHEREAS, the Shareholders desire to provide for such rights of first offer,
tag-along rights and registration rights as described herein;
NOW, THEREFORE, the Shareholders and the Company agree as follows:
1. Management of the Company.
1.1 Composition of the Board. The Board of Directors of the Company
shall initially consist of four (4) directors. Two (2) of these four (4)
directors shall be designated by Weinstein, and the remaining two (2) directors
shall be designated by KLT, and each of Weinstein and KLT agree to vote for the
election of all such designees to the board of directors. There shall be no
change in the number or composition of the Board of Directors without the
express approval of each of the Shareholders.
1.2 Agreement to Vote Shares. At any annual or special stockholders'
meeting called for the purpose of electing members of the Board of Directors of
the Company, and whenever stockholders act by written consent with respect to
the election of members of the Board of Directors of the Company, each of the
Shareholders agrees to vote all of the Shares held or controlled by such
Shareholder having voting rights with respect to the election of directors, and
the Company agrees to take any and all actions necessary, to cause:
(a) the election as directors of the Company of two
<PAGE> 2
individuals nominated by Weinstein; and
(b) the election as directors of the Company of two individuals
nominated by KLT.
Each of the Shareholders shall at all times cause each of his or its duly
nominated and elected directors to exercise their respective voting power to
elect Richard D. Weinstein as the Chairman of the Board of Directors, President,
and Chief Executive Officer of the Company. This obligation to elect Richard D.
Weinstein to such offices shall terminate upon the termination of the Employment
Agreement between the Company and Richard D. Weinstein, a form of which is
attached as Exhibit E to a stock purchase agreement between the Company, KLT and
Weinstein dated December 31, 1996 ("Stock Purchase Agreement").
1.3 Removal and Vacancy of Directors. In the event either Shareholder
wishes to remove a director who has been elected as its own nominee to the Board
of Directors of the Company, the other Shareholder shall vote for or consent to
such removal. In the event a vacancy in the office of a director is caused by
death, retirement or removal of a director, the vacancy shall be filled by
appointing or electing the nominee of the Shareholder whose nominee is so
deceased, retired or removed. In the event either Shareholder wishes to remove
an officer who has been elected as its nominee, the other Shareholder shall
cause the directors it has nominated to vote for such removal. In the event a
vacancy in the office of an officer is caused by death, retirement or removal of
an officer, the vacancy shall be filled by appointing or electing the nominee of
the Shareholder whose nominee is so deceased, retired or removed.
1.4 Required Votes; Location of Meetings. Except as otherwise provided
in this Agreement, the Articles of Incorporation or Bylaws of the Company, or
applicable law, all actions by the Board shall be accomplished by the vote of at
least a simple majority of the Board members present at a duly called meeting or
by written unanimous consent. All meetings of the Board of Directors shall take
place at a location mutually agreeable to the Shareholders.
1.5 Unanimous Vote Required by Shareholders. The Company shall not take
any of the following actions without the affirmative unanimous consent of the
Shareholders:
(a) to dissolve the Company under applicable law;
(b) to approve any acquisition or reorganization of any kind or other
transaction involving the sale, exchange, lease, mortgage, pledge,
transfer or other disposition of all or substantially all the assets of the
Company;
2
<PAGE> 3
(c) to cause the Company to merge with or into any other corporation
or entity;
(d) to amend or modify the Articles of Incorporation or By-Laws of the
Company;
(e) to change the nature of the business of the Company; or
(f) issue any type of debt or any type of equity securities of the
Company.
Notwithstanding the fact that this Agreement is incorporated by reference into
the Bylaws of the Company, this provision shall not require the approval of any
shareholders of the Company other than Weinstein and KLT and subsequent
transferees of the Shares.
1.6 Unanimous Vote Required by Directors. The Company shall not take any
of the following actions without the affirmative unanimous vote of the Board of
Directors:
(a) to approve any acquisition or reorganization of any kind or other
transaction involving the sale, exchange, lease, mortgage, pledge or
transfer of all or substantially all the assets of the Company;
(b) to cause the Company to merge with or into any other corporation
or entity;
(c) make any capital expenditures (or incur any obligation by or on
behalf of the Company to make any capital expenditures) in the
aggregate over the course of any Company fiscal year in excess of
$5,000,000 which capital expenditures are not provided for in the Annual
Business Plan (defined herein) adopted pursuant to Section 1.7 hereof;
(d) to incur or refinance indebtedness not included in the Annual
Business Plan;
(e) to change the nature of the business of the Company;
(f) to issue any type of debt or any type of equity securities of the
Company; or
(g) to transfer any shares or securities convertible into shares of
the Company other than those securities issuable pursuant to the
outstanding warrants set forth on Schedule 2.2 of the Stock Purchase
Agreement.
3
<PAGE> 4
1.7 Annual Business Plan and Budget. The business and affairs of the
Company shall be managed by the President, whose duties and responsibilities
shall be as specified from time to time by the Board of Directors. At least five
business days before each monthly meeting of the Board of Directors as provided
in the By-Laws, the President shall deliver, or cause to be delivered, to the
Board members financial statements for the last full calendar month prior to
such Board meeting, or if the Board meeting is in the first five business days
of a month then for the next previous calendar month. By the beginning of the
first month of each fiscal year, the Company shall submit a business plan for
that year, including a detailed projected income statement, balance sheet, and
cash flow by month, along with a general business and market forecast for the
year ("Annual Business Plan"). The Annual Business Plan shall be formally
approved by the Board of Directors by unanimous vote.
1.8 Reimbursable Expenses. The Company shall bear all reasonable travel
and related expenses incurred by each Director to attend any meetings of the
Board of Directors.
1.9 Recusal of KLT Directors. In the event of any action by the Board of
Directors to arrange or approve any financing of the Company to fund payment to
the Shareholders by the Company pursuant to either the Optional Redemption at
the Shareholder's Election or the Optional Redemption at the Company's Election
set forth in the Certificate of Designation for the Preferred Stock, all Company
directors nominated by KLT shall recuse themselves from such consideration and
shall have no vote as to such matters.
1.10 D&O Insurance. If available on reasonable terms, the Company shall
establish and maintain directors and officers liability insurance in the amount
of $10,000,000.
2. Registration Rights.
2.1 Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Shareholder" shall mean the Shareholders, so long as either holds
any Purchased Shares, and any person owning Purchased Shares who is a
permitted transferee of rights under Section 3 of this Agreement.
The terms "register," "registered," and "registration" shall mean a
registration effected by the preparation and filing of a Registration
Statement
4
<PAGE> 5
in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such Registration Statement by the SEC.
"Purchased Shares" shall have the meaning assigned it in the Stock
Purchase Agreement.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including
without limitation all (i) registration, qualification and filing fees;
(ii) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of any Purchased Shares being registered); (iii)
printing expenses, messenger, telephone and delivery expenses; (iv)
internal expenses of the Company (including, without limitation, all
salaries and expenses of partners and employees of the Company performing
legal or accounting duties); (v) fees and disbursements of counsel for the
Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any comfort
letters or costs associated with the delivery by independent certified
public accountants of comfort letters customarily requested by
underwriters); (vi) reasonable fees and expenses of one counsel for the
requesting Shareholder(s); (vii) fees and expenses of listing any Purchased
Shares on any securities exchange on which the securities are then listed;
and (viii) fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding any underwriting fees,
discounts or commissions attributable to the sale of any Purchased Shares
and any fees and expenses of underwriters' counsel (other than as provided
in clause (ii) above).
"Registration Rights" shall mean the rights of the Shareholders to
cause the Company to register Purchased Shares pursuant to Section 2 of
this Agreement.
"Registration Statement" shall mean any registration statement or
similar document that covers any of the Purchased Shares pursuant to the
provisions of this Agreement, including the prospectus or preliminary
prospectus included therein, all amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits
to such Registration Statement and all material incorporated by reference
in such Registration Statement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
5
<PAGE> 6
2.2 Demand Registration.
(a) If the Company shall receive at any time a written request from
any Shareholder(s) of Purchased Shares ("Initiating Shareholder") that the
Company file a Registration Statement covering the registration of the amount of
Purchased Shares specified in the written request of the Initiating Shareholder,
then the Company shall (i) within five (5) days of the receipt of such
registration request, give written notice of such registration request to all
Shareholders of Purchased Shares, and (ii) effect, as soon as practicable and in
any event no less than thirty (30) nor more than one hundred twenty (120) days
after the receipt of such registration request, the registration of such
Purchased Shares and shall include in such registration all Purchased Shares
with respect to which the Company receives, within the twenty (20) days
immediately following the receipt by the Shareholder(s) of such notice from the
Company, a request for inclusion in the registration from the Shareholder(s)
thereof. Each such request from a Shareholder of Purchased Shares for inclusion
in the registration shall also specify the aggregate amount of Purchased Shares
proposed to be registered.
(b) If the Initiating Shareholder intends to distribute the Purchased
Shares covered by its request by means of an underwritten public offering, it
shall so advise the Company as a part of its request made pursuant to Section
2.2(b) hereof and the Company shall include such information in its written
notice to the Shareholders required under such Section. In the event that the
Initiating Shareholder intends to distribute the Purchased Shares by means of an
underwritten offering, the right of any Shareholder to include its Purchased
Shares in such registration shall be conditioned upon such Shareholder's
participation in such underwriting and the inclusion of such Shareholder's
Purchased Shares in the underwriting to the extent provided herein. All
Shareholders proposing to sell Purchased Shares through such underwriting
(including the Company as provided in Section 2.4(e) of this Agreement and any
other holder of securities permitted to participate in such registration
pursuant to this Section 2.2(b)) shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by the Initiating
Shareholder for such underwriting (provided the same are underwriters of
recognized national standing reasonably acceptable to the Company), upon the
terms and conditions agreed upon between the Company and such underwriter(s).
Notwithstanding any other provision of this Section 2.2, if the underwriter(s)
advise the Initiating Shareholder in writing that marketing or other factors
require that less than 100% of the Purchased Shares requested by the Shareholder
or Shareholders of Purchased Shares be included in the underwriting, then the
Company shall so advise all Shareholders of Purchased Shares that would
otherwise be underwritten pursuant hereto, and the amount of Purchased Shares
that may be included in the underwriting shall be allocated among all
Shareholders thereof, including the Initiating Shareholder, in proportion (as
nearly as practicable) to the amount of Purchased Shares which each Shareholder
requested be included in such registration. If the amount of Purchased Shares to
be underwritten has not
6
<PAGE> 7
been so limited, the Company may include securities for its own account (or for
the account of other holders) in such registration if the underwriter(s) so
agree and to the extent that, in the opinion of such underwriter(s), the
inclusion of such additional amount will not adversely affect the offering of
the Purchased Shares included in such registration.
(c) The Shareholders of Purchased Shares will be entitled to request
pursuant to this Section 2.2 one (1) registration on Form S-1 or any similar
long-form registration and up to two (2) registrations on Form S-2, Form S-3 or
similar short-form registrations, but in no event may the Shareholders of
Purchased Shares be entitled to request more than one (1) such registration in
any 12-month period.
2.3 Incidental Registration. In the event that (but without any
obligation to do so) the Company proposes to register any securities of the
Company in connection with the public offering of such securities solely for
cash on any form of Registration Statement in which the inclusion of Purchased
Shares is appropriate (other than a registration pursuant to a Registration
Statement on Form S-8 or Form S-4 (or any successor forms) or any form that does
not include substantially the same information, other than information relating
to the selling Shareholders or their plan of distribution, as would be required
to be included in a registration statement covering the sale of Purchased
Shares), the Company shall promptly give each Shareholder written notice of such
registration at least thirty (30) days before the anticipated filing date of any
such Registration Statement. Upon the written request of any Shareholder within
fifteen (15) days after the receipt by such Shareholder of such notice from the
Company, the Company shall cause to be registered under the Securities Act all
of the Purchased Shares that such Shareholder has so requested to be registered.
The Company shall not be required to proceed with, or maintain the effectiveness
of, any registration of its securities after giving the notice herein provided,
and the right of any Shareholder to have Purchased Shares included in such
Registration Statement shall be conditioned upon participation in any
underwriting to the extent provided herein. The Company shall not be required to
include any Purchased Shares in such underwriting unless the Shareholders
thereof enter into an underwriting agreement with the underwriter(s) selected by
the Company in customary form, and upon terms and conditions agreed upon between
the Company and such underwriter(s) (except as to monetary obligations of the
Shareholders not contemplated by Section 2.7 of this Agreement).
2.4 Registration Procedure. Whenever required under this Agreement
to effect the registration of any Purchased Shares, the Company shall, as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such Purchased Shares and use its reasonable best efforts to
cause such Registration Statement to become effective, and, upon the
request
7
<PAGE> 8
of the holders of a majority of the Purchased Shares registered
thereunder, keep such Registration Statement effective for up to ninety
(90) days or such shorter period as shall be required to sell all of the
Purchased Shares covered by such Registration Statement;
(b) prepare and file with the SEC such amendments, post-effective
amendments and supplements to such Registration Statement and the
prospectus used in connection with such Registration Statement as may be
necessary to comply with the provisions of the Securities Act with respect
to the disposition of all Purchased Shares covered by such Registration
Statement;
(c) furnish to the Shareholder(s) of Purchased Shares to be
registered, without charge, such number of copies of a prospectus,
including a preliminary prospectus, and any amendments or supplements
thereto as such Shareholder(s) may reasonably request;
(d) use its reasonable best efforts to register and qualify the
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Shareholder(s); provided, however, that the Company shall
not be required to qualify to do business, file a general consent to
service of process or subject itself to taxation in any such states or
jurisdictions where it would not otherwise be required to so qualify to do
business or consent to service of process or subject itself to taxation;
(e) cooperate with the Shareholder(s) of Purchased Shares and the
underwriters, if any, participating in the disposition of such Purchased
Shares and their respective counsel in connection with any filings required
to be made with the National Association of Securities Dealers, Inc.;
(f) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the underwriter(s) of such offering, in accordance
with such terms and conditions as the Company and the underwriter(s) may
agree. Each Shareholder participating in such underwriting shall also enter
into and perform its obligations under such an agreement;
(g) notify each Shareholder of Purchased Shares covered by such
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances
8
<PAGE> 9
then existing;
(h) in the case of an underwritten public offering, furnish, at the
request of any Shareholder requesting registration pursuant to this
Agreement, on the date that such Purchased Shares are delivered to the
underwriters for sale in connection with a registration pursuant to this
Agreement, (A) an opinion of counsel representing the Company for the
purposes of such registration, and (B) a letter addressed to the
underwriters from independent certified public accountants of the Company,
in each case to be dated such date and to be in form and substance as is
customarily given by counsel or independent certified public accountants,
as the case may be, to underwriters in an underwritten public offering;
2.5 Right to Withdraw Registration. Notwithstanding anything herein
to the contrary, the Company may delay, suspend or withdraw any registration or
qualification of Purchased Shares required pursuant this Agreement for a period
not exceeding sixty (60) days if the Company in good faith determines that any
such registration would adversely affect an offering or contemplated offering of
any securities of the Company or any other contemplated material corporate
event.
2.6 Obligation of Shareholders to Furnish Information. It shall be a
condition precedent to the obligations of the Company to take any action
pursuant to this Agreement with respect to any Purchased Shares that each
Shareholder thereof furnish to the Company such information regarding itself,
the Purchased Shares held by it, and the intended method of disposition of such
Purchased Shares as shall be required to effect the registration of such
Shareholder's Purchased Shares.
Each Shareholder agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 2.5(g)
hereof, such Shareholder shall forthwith discontinue disposition of Purchased
Shares pursuant to the then current prospectus until the earliest of the
following events: (i) such Shareholder is advised in writing by the Company that
a new Registration Statement covering the reoffer of Purchased Shares has become
effective under the Securities Act, (ii) such Shareholder receives copies of a
supplemented or amended prospectus contemplated by Section 2 hereof, or (iii)
until such Shareholder is advised in writing by the Company that the use of the
then current prospectus may be resumed. The Company shall use its reasonable
best efforts to limit the duration of any discontinuance of disposition of
Purchased Shares pursuant to this paragraph.
2.7 Registration Expenses. In the case of any registration of
Purchased Shares required pursuant to this Agreement, the Company shall pay all
Registration Expenses regardless of whether the Registration Statement becomes
effective.
9
<PAGE> 10
2.8 Delay of Registration. No Shareholder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.9 Market Stand-Off Agreement. Each Shareholder hereby agrees that
during the 180-day period following the effective date of a registration
statement of the Company filed under the 1933 Act, it shall not, to the extent
requested by the Company and any underwriter, sell or otherwise transfer or
dispose of (other than to transferees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
securities included in such registration, provided, however, that:
(a) Such agreement shall be applicable only to: (i) the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering
and (ii) a demand registration pursuant to Section 2.2 with respect to an
underwritten offering; and
(b) All officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Purchased Shares of each
Shareholder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
2.10 Termination of Registration Rights. All rights and duties
provided for in this Section 2 shall terminate (a) on the eighth anniversary of
the closing of the sale of securities pursuant to a registration statement filed
by the Company under the 1933 Act in connection with the initial firm commitment
underwritten offering of its securities to the general public, or (b) as to each
individual Shareholder, at such time after the Company's initial registered
offering as all Purchased Securities held by and issuable to such Shareholder
may be sold under Rule 144 of the 1933 Act and as long as such Shareholder holds
less than 1% of the then outstanding Purchased Shares.
2.11 Indemnification and Contribution.
(a) Indemnification by the Company. In the event any Purchased
Shares are included in a Registration Statement pursuant to this Agreement, the
Company hereby agrees to indemnify and hold harmless each Shareholder, its
partners, directors, officers and employees and each person, if any, who
"controls"
10
<PAGE> 11
(within the meaning of the Securities Act) such Shareholder (the
"Shareholder Indemnitees") against all losses, claims, damages, or liabilities,
joint or several, or actions in respect thereof ("Losses") to which such
Shareholder Indemnitees may become subject under the Securities Act, or
otherwise, insofar as such Losses arise out of, or are based upon, any untrue
statement or alleged untrue statement of any material fact contained in such
Registration Statement, any related preliminary prospectus, or any related
prospectus or any amendment or supplement thereto, or arise out of, or are based
upon, the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse such Shareholder Indemnitees for any legal or other expenses
reasonably incurred by it or them in connection with investigating or defending
any such Losses; provided, however, that the Company will not be so liable to
the extent that any such Losses arise out of, or are based upon, an untrue
statement or alleged untrue statement of a material fact or an omission or
alleged omission to state a material fact in such Registration Statement, such
preliminary prospectus, or such prospectus, or any such amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by or on behalf of a Shareholder or an underwriter specifically
for use therein; provided further, that the Company shall not be liable, and
this indemnification agreement shall not apply, to the extent that any such
Losses are solely attributable to the failure of such Shareholder (or
underwriter or agent acting on its behalf) to deliver a final prospectus (or
amendment or supplement thereto) that corrects a material misstatement or
omission contained in the preliminary prospectus (or final prospectus).
(b) Indemnification by the Shareholder of Purchased Shares. With
respect to written information furnished to the Company in connection with any
registration pursuant to the terms of this Agreement by or on behalf of a
Shareholder specifically for use in a Registration Statement, any related
preliminary prospectus, or any related prospectus or any supplement or amendment
thereto, such Shareholder shall severally indemnify and hold harmless the
Company, and its partners and employees and each person, if any, who "controls"
(within the meaning of the Securities Act) the Company (the "Company
Indemnitees") against any Losses to which the Company or such other person
entitled to indemnification hereunder may become subject under the Securities
Act, or otherwise, insofar as such Losses arise out of, or are based upon, any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, such preliminary prospectus, or such prospectus, or
any such amendment or supplement thereto, or arise out of, or are based upon,
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
such Shareholder shall reimburse the Company Indemnitees for any legal or other
expenses reasonably incurred by it or them in connection with investigating or
defending any such Losses, in each case to the extent, but only to the extent,
that the same arises out of, or is based upon, an untrue statement or alleged
untrue statement of a material fact or an omission or alleged omission to state
11
<PAGE> 12
a material fact in such Registration Statement, such preliminary prospectus, or
such prospectus or any such amendment or supplement thereto in reliance upon,
and in conformity with, such written information. In no event shall the
liability of any selling Shareholder hereunder be greater in amount than the
dollar amount of the proceeds (net of the payment of all expenses by such
Shareholder) received by such Shareholder upon the sale of the Purchased Shares
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Promptly after receipt
by an indemnified party hereunder of notice of any claim or the commencement of
any action by a claimant not an indemnified party hereunder ("Third-Party
Claim"), the indemnified party shall, if a claim for indemnification in respect
thereof is to be made by such indemnified party against an indemnifying party,
promptly notify such indemnifying party in writing of such Third-Party Claim as
soon as is reasonably practicable after said claim is actually known to the
indemnified party; provided, however, that the right of an indemnified party to
be indemnified hereunder in respect of Third-Party Claims shall not be adversely
affected by such indemnified party's failure to notify the indemnifying party of
such Third-Party Claim unless, and then only to the extent that, an indemnifying
party is actually damaged or suffers any loss or incurs any additional expense
as a result thereof. If any such Third-Party Claim is brought against an
indemnified party, and it promptly notifies the indemnifying party thereof, the
indemnifying party shall be entitled to assume the defense thereof with counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party. After the indemnifying party gives notice to the indemnified
party of its election to assume the defense of such Third-Party Claim, (i) the
indemnifying party shall not, except as provided below, be liable to the
indemnified party for any legal or other expense subsequently incurred by the
indemnified party in connection with the defense thereof, (ii) the indemnifying
party shall not be liable for the costs and expenses of any settlement of such
claim or action unless such settlement was effected with the written consent of
the indemnifying party or the indemnified party waived any rights to
indemnification hereunder in writing, in which case the indemnified party may
effect a settlement without such consent at its own cost and expense, and (iii)
the indemnified party shall be obligated to cooperate with the indemnifying
party in the investigation of such claim or action; provided, however, that the
Shareholder Indemnitees may employ their own counsel to participate in the
defense of a Third-Party Claim if they have been advised by counsel in writing
that, in the reasonable judgment of such counsel, it is advisable for such
Shareholder Indemnitees to be represented by separate counsel due to the
presence of a conflict of interest between such Shareholder Indemnitees and the
indemnifying party, and in such event the fees and expenses of such separate
counsel shall be paid by the Company; provided further, that the Company shall
not be liable for the reasonable fees and expenses of more than one separate
counsel at any time for all such Shareholder Indemnitees. An indemnifying party
shall not, without the prior written consent of the indemnified parties, settle,
compromise or consent to the entry of any judgment with respect to any pending
or threatened Third-Party Claim in respect of
12
<PAGE> 13
which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such Third-Party
Claim) unless such settlement, compromise or consent includes a release of such
indemnified party reasonably acceptable to such indemnified party from all
liability arising out of such Third-Party Claim, or unless the indemnifying
party shall confirm in a written agreement reasonably acceptable to such
indemnified party that, notwithstanding any federal, state or common law, such
settlement, compromise or consent shall not adversely affect the right of any
indemnified party to indemnification or contribution as provided in this
Agreement.
(d) Survival of Indemnification. The obligations under this Section
2.11 shall survive the completion of any offering of Purchased Shares in a
Registration Statement pursuant to this Agreement, and otherwise.
3. Additional Rights of Shareholders/Transfers of Shares
3.1 Right of First Offer
(a) If either Shareholder ("Transferring Shareholder") intends to
transfer all or a portion of its Shares to any person or entity in any
transaction (other than a public offering and other than a transfer by DTI of
all of its Shares in the Company as approved by the Board pursuant to Section
1.6(g)), it shall give written notice (the "Sales Notice") to the other
Shareholder ("Non-Transferring Shareholder") of such intention. The Sales
Notice, in addition to stating the fact of the intention to transfer, shall
state (i) the number of Shares to be transferred, and (ii) an offered amount of
the consideration for such Shares and the other terms of the transfer. The
Non-Transferring Shareholder may, within 30 days of its receipt of a Sales
Notice, exercise an option to purchase all (but not less than all) of the Shares
intended to be transferred by the Transferring Shareholder in the Sales Notice.
The Non-Transferring Shareholder must exercise its option to purchase all of the
Shares intended to be transferred on the terms in the Sales Notice or forfeit
its option. The Non-Transferring Shareholder shall exercise its option by
delivering written notice (the "Acceptance Notice") to the Transferring
Shareholder within the time specified above.
(b) The purchase price for Shares purchased pursuant to this Section
3 shall be as set forth in the Sales Notice. The closing of the sale and
purchase shall take place within 150 days after the delivery to the Transferring
Shareholder of the Acceptance Notice.
(c) If the Non-Transferring Shareholder does not elect to exercise
its option to purchase Shares pursuant to this Section 3, then the Transferring
Shareholder may transfer the Shares according to the terms of the Sales Notice
at any time within 60 days after the expiration of the 30 period specified in
Section 3.1(a). Such transfer is subject to the transferee executing an
13
<PAGE> 14
instrument accepting and adopting all terms and provisions of this Agreement.
3.2 Right to Maintain Ownership of Shares. If the Company shall at any
time (i) issue to Weinstein any securities of the Company or instruments
convertible into any security of the Company ("New Securities"), and (ii) such
issuance shall reduce the KLT Ratio (as defined herein) to less than the 50%,
then KLT shall have the right to purchase, at the equivalent price per share, on
the same terms and conditions, and of the same type as the New Securities, an
additional number of such securities such that the KLT Ratio shall equal 50%.
The KLT Ratio shall be equal to a fraction, the numerator of which is the sum of
(i) the number of shares of common stock owned by KLT and (ii) the number of
shares of common stock into which any convertible equities of the Company owned
by KLT is convertible (collectively "KLT Shares") and the denominator of which
is the sum of (x) the KLT Shares, (y) the number of shares of Common Stock owned
by Weinstein and (z) the number of shares of Common Stock into which any
convertible equities of the Company owned by Weinstein is convertible.
3.3 Location of DTI Corporate Offices. Weinstein agrees to offer to
the Company the opportunity to build and own any new building built to house the
Company's operations, before Weinstein or any affiliate of Weinstein builds or
obtains ownership of such building. If the Company declines such opportunity,
and Weinstein pursues such opportunity to completion, the Company shall have the
right to obtain space in such building at a price equal to 80% of the market
appraised rate for such space.
3.4 Tag Along Sales.
(a) Right to Require Sale. Notwithstanding any other provision
hereof, if either Shareholder (the "Selling Shareholder") agrees to sell any
Shares held by such Selling Shareholder at that time to an unaffiliated third
party (a "Interest Sale"), then upon request of the Nonselling Shareholder, the
Selling Shareholder will afford the Nonselling Shareholder the opportunity to
sell, the same percentage of Shares held by the Nonselling Shareholder at that
time to such third party, at the same price and on the same terms and conditions
as the Selling Shareholder has agreed to sell his Shares.
(b) Interest Sale Notice. Prior to making any Interest Sale, the
Selling Shareholder shall provide the Nonselling Shareholder with written notice
(the "Interest Sale Notice"). If the consideration in the Interest Sale is cash,
the Selling Shareholder shall give the Interest Sale Notice at least ten (10)
business days prior to the proposed date of the Interest Sale ("Interest Sale
Date"). In all other situations, the Interest Sale Date shall not take place
until ten (10) business days following the receipt by the Nonselling Shareholder
of all information about the Interest Sale that the Nonselling Shareholder
reasonably requests within five (5) business days of receiving the Interest Sale
Notice. The Interest Sale Notice will
14
<PAGE> 15
identify the proposed purchaser, the percentage of Common Stock to be sold, the
proposed amount and form of consideration to be paid per share, the terms and
conditions of payment and, if the consideration in the Interest Sale is cash,
the Interest Sale Date.
(c) Interest Sale Closing. On the Interest Sale Date, the Selling
Shareholder and the Nonselling Shareholder shall deliver certificates, notes and
instruments of assignment for the securities to be sold in the Interest Sale,
duly endorsed for transfer (accompanied as appropriate by stock power or powers
and other appropriate instruments of assignment duly executed), to the purchaser
in the manner and at the address indicated in the Interest Sale Notice, against
delivery of the agreed purchase price.
3.5 Accession to Shareholder's Agreement. Any transfer of Shares shall
be subject to the agreement by the transferee of such Shares to be bound by all
terms and conditions of this Agreement.
3.6 Legend. All Shares shall be imprinted with a legend in
substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES ACTS, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
THE REGISTRATION PROVISIONS OF SUCH ACTS OR AN EXEMPTION THEREFROM. THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER CONTAINED IN A CERTAIN STOCK PURCHASE
AGREEMENT AND A CERTAIN SHAREHOLDERS AGREEMENT, BY AND AMONG THE
COMPANY AND THE PURCHASER OF SUCH SHARES, COPIES OF WHICH ARE AVAILABLE
AT THE PRINCIPAL OFFICES OF THE COMPANY."
4. Termination.
4.1 Complete Termination. This Agreement and all restrictions on Share
transfers created hereby shall terminate on the occurrence of any of the
following events:
(a) The bankruptcy or dissolution of the Company.
(b) A single Shareholder becoming the owner of all of the Shares of
the Company, which are then subject to this Agreement, in which case all Company
directors nominated by the Shareholder whose is no longer
15
<PAGE> 16
an owner of Shares shall immediately resign and all rights previously held by
that Shareholder who is no longer an owner of Shares shall terminate.
(c) The execution of a written instrument by the Company and all of
the Shareholders who then own Shares subject to this Agreement which terminates
the same.
4.2 Effect. The termination of this Agreement for any reason
shall not affect any right or remedy existing hereunder prior to the effective
date of its termination except that upon termination of this Agreement KLT shall
cause the resignation of its nominees to the Board of Directors and shall
thereafter have no right arising hereunder to nominate or elect members of the
Board of Directors.
5. General Provisions.
5.1 Governing Law. This Agreement shall be construed pursuant to the
laws of the State of Missouri.
5.2 Definitions. When used herein, the term "Shares" shall mean in all
cases, except where the context clearly requires otherwise, all shares of the
Company's Common Stock and Preferred Stock owned by the Shareholders.
5.3 Remedies for Breach. The Shares are unique chattels and each party
to this Agreement shall have the remedies which are available to him or it for
the violation of any of the terms of this Agreement, including, but not limited
to, the equitable remedies for specific performance and injunctive relief.
5.4 Notices. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given and made upon being delivered either in person or
by nationally recognized courier or by fax delivery to the party for whom it is
intended, provided that a copy thereof is deposited, postage prepaid, certified
or registered mail, return receipt requested, in the United States mail, bearing
the address shown in this Section 5.4 for, or such other address as may be
designated in writing hereafter by, such party:
If to the Company:
Digital Teleport, Inc.
11111 Dorsett Road
St. Louis, MO
Attn: Richard D. Weinstein
16
<PAGE> 17
With a copy to:
Bryan Cave LLP
One Metropolitan Square, Suite 3600
211 N. Broadway
St. Louis, MO 63102
Attn: J. Mark Klamer, Esq.
If to KLT:
KLT Telecom Inc.
1201 Walnut
Kansas City, Missouri 64106
Fax: 816-556-2802
Attn: Ronald G. Wasson
With a copy to:
KLT Inc.
1201 Walnut
Kansas City, Missouri 64106
Fax: 816-556-2802
Attn: General Counsel
and to:
Shughart Thomson & Kilroy
Twelve Wyandotte Plaza
120 West 12th Street
Kansas City, Missouri 64105
Fax: 816-374-0509
Attn: Robert E. Fitzgerald
5.5 Amendment. This Agreement may be amended or altered at any time if
the amendment or alteration is both ratified by the Board of Directors of the
Company and consented to in writing by all other parties hereto.
5.6 Captions. The captions and headings to Sections of this Agreement
have been inserted for identification and reference purposes only and shall not
be used to construe the meaning or the interpretation of this Agreement.
17
<PAGE> 18
5.7 Binding Effect. This Agreement is binding upon and inures to the
benefit of the Company, its successors, assigns, and transferees, and to the
Shareholders and their respective heirs, personal representatives, successors
and permitted assigns and transferees.
5.8 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with respect to the
subject matter hereof.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.10 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
18
<PAGE> 19
IN WITNESS WHEREOF, the Company and the Shareholders have executed this
Agreement on the day and year above written.
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
------------------------------------
Richard D. Weinstein
President
SHAREHOLDERS:
/s/ Richard D. Weinstein
------------------------------------
Richard D. Weinstein
KLT Telecom Inc.
By: /s/ R. G. Wasson
------------------------------------
Ronald G. Wasson
President
19
<PAGE> 20
EXHIBIT A
SHARES OWNED BY THE SHAREHOLDERS
NAME OF SHAREHOLDER NUMBER OF SHARES OWNED
Richard D. Weinstein 300 Shares of Common Stock
KLT Telecom Inc. 151 Shares of Preferred Stock
20
<PAGE> 1
EXHIBIT 4.6
DIGITAL TELEPORT, INC.
AMENDMENT NO. 1 TO SHAREHOLDERS' AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment") dated as of November 7, 1997,
by and among DIGITAL TELEPORT, INC. (the "Company"), a Missouri corporation,
RICHARD D. WEINSTEIN ("Weinstein"), an individual, and KLT TELECOM INC. ("KLT"),
a Missouri corporation. Weinstein and KLT are hereinafter sometimes referred to
collectively as "Shareholders" or individually as a "Shareholder."
WITNESSETH:
WHEREAS, the Company, Weinstein, and KLT entered into that certain
Shareholders' Agreement, dated as of March 12, 1997 (the "Shareholders'
Agreement");
WHEREAS, the Shareholders desire to amend the Shareholders' Agreement
as provided herein;
NOW, THEREFORE, the Shareholders and the Company agree as follows:
1. Section 1.1. Section 1.1 of the Shareholders' Agreement is, effective as
of the date hereof, amended to read in its entirety as follows:
"1.1 Composition of the Board. (a) The Board of Directors of the
Company shall consist of six (6) directors. Three (3) of these six (6) directors
shall be designated by Weinstein, and the remaining three (3) directors shall be
designated by KLT, and each of Weinstein and KLT agree to vote for the election
of all such designees to the board of directors. In addition, at least one of
the directors designated by each of Weinstein and KLT shall be an individual who
is not an affiliate (as defined herein) of the Company, Weinstein or KLT (such
directors, the "Outside Directors"). There shall be no change in the number or
composition of the Board of Directors without the express approval of each of
the Shareholders.
(b) For purposes of this Section 1.1, an "affiliate" of KLT shall mean
any person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with KLT, including
without limitation, any director, officer or employee of KLT.
(c) For purposes of this Section 1.1, an "affiliate" of the Company
shall mean any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
the Company, including without limitation, any officer or employee of the
Company.
<PAGE> 2
(d) For purposes of this Section 1.1, an "affiliate" of Weinstein
means:
(i) any director, officer, shareholder, member, partner, trustee
or owner of any corporation, organization or other entity of which
Weinstein is, directly or indirectly, the beneficial owner of 5% or
more of any class of equity securities; and
(ii) Weinstein's spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law, and brothers and
sisters-in-law."
2. Section 1.2. Section 1.2 of the Shareholders' Agreement is,
effective as of the date hereof, amended to read in its entirety as
follows:
"1.2 Agreement to Vote Shares. At any annual or special
stockholders' meeting called for the purpose of electing members of
the Board of Directors of the Company, and whenever stockholders act
by written consent with respect to the election of members of the
Board of Directors of the Company, each of the Shareholders agrees to
vote all of the Shares held or controlled by such Shareholder having
voting rights with respect to the election of directors, and the
Company agrees to take any and all actions necessary, to cause:
(a) the election as directors of the Company of three
individuals nominated by Weinstein; and
(b) the election as directors of the Company of three
individuals nominated by KLT.
Each of the Shareholders shall at all times cause each of his or its duly
nominated and elected directors (other than any Outside Directors) to exercise
their respective voting power to elect Richard D. Weinstein as the Chairman of
the Board of Directors, President, and Chief Executive Officer of the Company.
This obligation to elect Richard D. Weinstein to such offices shall terminate
upon the termination of the Employment Agreement between the Company and Richard
D. Weinstein, a form of which is attached as Exhibit E to a stock purchase
agreement between the Company, KLT and Weinstein dated December 31, 1996 ("Stock
Purchase Agreement")."
3. Section 1.3. Section 1.3 of the Shareholders' Agreement is, effective as
of the date hereof, amended to read in its entirety as follows:
"1.3 Removal and Vacancy of Directors. In the event either
Shareholder wishes to remove a director who has been elected as its own nominee
to the Board of Directors of the Company, the other Shareholder shall vote for
or consent to such removal. In the event a vacancy in the office of a director
is caused by death, retirement or removal of a director, the vacancy shall be
filled by appointing or electing the nominee of the Shareholder whose nominee is
so deceased, retired or removed, provided that if such vacancy relates to an
Outside Director,
2
<PAGE> 3
the director who replaces such Outside Director shall not be
an affiliate of the Company, Weinstein or KLT. In the event either Shareholder
wishes to remove an officer who has been elected as its nominee, the other
Shareholder shall cause the directors it has nominated to vote for such removal.
In the event a vacancy in the office of an officer is caused by death,
retirement or removal of an officer, the vacancy shall be filled by appointing
or electing the nominee of the Shareholder whose nominee is so deceased, retired
or removed."
4 Section 1.8. Section 1.8 of the Shareholders' Agreement is, effective as
of the date hereof, amended to read in its entirety as follows:
"1.8 Reimbursable Expenses. The Company shall bear all reasonable
travel and related expenses incurred by each Director to attend any meetings of
the Board of Directors. In addition, the Outside Directors shall be entitled to
the following compensation: (i) a $20,000 annual retainer fee payable quarterly
in arrears, and (ii) options to purchase 150 shares of Common Stock of the
Company under the Company's 1997 Long-Term Incentive Award Plan."
5. Definitions. Any capitalized terms used but not defined herein shall
have the meaning ascribed thereto in the Shareholders' Agreement.
6. Effect of this Amendment. Except as otherwise specifically amended
herein, the Shareholders' Agreement, as modified by this Amendment, remains in
full force and effect.
7. Counterparts; Effectiveness. This Ame3ndment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
* * * * *
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the day and year first above written.
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
----------------------------
Richard D. Weinstein
President
SHAREHOLDERS:
/s/ Richard D. Weinstein
----------------------------
Richard D. Weinstein
KLT Telecom Inc.
By: /s/ R.G. Wasson
-------------------------
Ronald G. Wasson
President
4
<PAGE> 1
EXHIBIT 4.7
DIGITAL TELEPORT, INC.
AMENDMENT NO. 2 TO SHAREHOLDERS' AGREEMENT
THIS AMENDMENT NO. 2 (the "Amendment") dated as of December 18, 1997,
by and among DIGITAL TELEPORT, INC. ("DTI"), a Missouri corporation, DTI
HOLDINGS, INC. ("Holdco"), a Missouri corporation, RICHARD D. WEINSTEIN
("Weinstein"), an individual, and KLT TELECOM INC. ("KLT"), a Missouri
corporation. Weinstein and KLT are hereinafter sometimes referred to
collectively as "Shareholders" or individually as a "Shareholder."
WITNESSETH:
WHEREAS, DTI, Weinstein, and KLT entered into that certain
Shareholders' Agreement, dated as of March 12, 1997, as amended (as so amended,
the "Shareholders' Agreement");
WHEREAS, DTI desires to assign to Holdco as of the date hereof (the
"Effective Date") all DTI's right, title and interest in, to and under the
Shareholders' Agreement, and Holdco desires to accept such assignment and assume
the obligations of DTI thereunder which accrue from and after the Effective
Date; and
WHEREAS, the Shareholders desire to amend the Shareholders' Agreement
to assign DTI's obligations to Holdco as provided herein to permit such
assignment and assumption.
NOW, THEREFORE, the Shareholders, DTI and Holdco agree as follows:
1. DTI hereby assigns, sets over and transfers unto Holdco to have and
to hold from and after the Effective Date all of the right, title and interest
of DTI in, to and under the Shareholders' Agreement, and Holdco hereby accepts
the within assignment and assumes and agrees with DTI to perform and comply with
and to be bound by all the terms, covenants, agreements, provisions and
conditions of Shareholders' Agreement on the part of DTI thereunder which accrue
on and after the Effective Date, in the same manner and with the same force and
effect as if Holdco had originally executed the Shareholders' Agreement.
2. The parties hereto agree that wherever the Shareholders' Agreement
shall reference "the Company" or "DTI", that such reference shall be hereafter
deemed to refer to Holdco, as the assignee hereunder of the rights and
obligations thereof.
5. Definitions. Any capitalized terms used but not defined herein shall
have the meaning ascribed thereto in the Shareholders' Agreement.
6. Effect of this Amendment. Except as otherwise specifically amended
herein, the Shareholders' Agreement, as modified by this Amendment, remains in
full force and effect.
7. Counterparts; Effectiveness. This Ame3ndment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and
<PAGE> 2
hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed and delivered as of the day and year first above written.
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
-------------------------------------
Richard D. Weinstein
President
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
-------------------------------------
Richard D. Weinstein
President
SHAREHOLDERS:
/s/ Richard D. Weinstein
-------------------------------------
Richard D. Weinstein
KLT Telecom Inc.
By: /s/ R.G. Wasson
----------------------------------
Ronald G. Wasson
President
2
<PAGE> 1
EXHIBIT 4.8
DIGITAL TELEPORT, INC.
AMENDMENT NO. 3 TO SHAREHOLDERS' AGREEMENT
THIS AMENDMENT NO. 3 TO SHAREHOLDERS' AGREEMENT (this
"Amendment") dated as of February 12, 1998, by and among DTI HOLDINGS, INC. (the
"Company"), a Missouri corporation, RICHARD D. WEINSTEIN ("Weinstein"), an
individual, and KLT TELECOM INC. ("KLT"), a Missouri corporation. Except as
otherwise provided in the Shareholders' Agreement (as hereinafter defined),
Weinstein and KLT are hereinafter sometimes referred to collectively as
"Shareholders" or individually as a "Shareholder."
WITNESSETH:
WHEREAS, Digital Teleport, Inc. ("DTI"), Weinstein, and KLT
entered into that certain Shareholders' Agreement, dated as of March 12, 1997
(the "Original Shareholders' Agreement");
WHEREAS, DTI, Weinstein and KLT entered into that certain
Amendment No. 1 to Shareholders' Agreement dated as of November 7, 1997 in order
to effectuate certain changes to the structure of the Board of Directors of DTI;
and
WHEREAS, pursuant to that certain Amendment No. 2 to the
Shareholders' Agreement dated as of December 18, 1997 ("Amendment No. 2 to
Shareholders' Agreement"; the Original Shareholders' Agreement, as so amended by
Amendments Nos. 1 and 2, the "Shareholders' Agreement"), DTI assigned to the
Company all DTI's right, title and interest in, to and under the Shareholders'
Agreement, as theretofore amended, and the Company accepted such assignment and
assumed the obligations of DTI thereunder which accrued from and after December
18, 1997;
WHEREAS, in connection with a private debt financing for the
Company, the Shareholders and the Company desire to amend the Shareholders'
Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the sufficiency of which are hereby acknowledged,
the Shareholders and the Company agree as follows:
1. Section 1.5. Section 1.5 of the Shareholders' Agreement is,
effective as of the date hereof, amended to read in its entirety as follows:
"1.5 Vote Required by Shareholders. In addition to any requirements of
applicable law with respect to class voting or otherwise, the Company shall not
take any of the following actions without the affirmative vote of at least
two-thirds of the outstanding voting stock of the Company:
(a) to approve a proposal to dissolve the Company;
<PAGE> 2
(b) to authorize the sale, exchange, lease, or other disposition of
all or substantially all the property and assets of the Company;
(c) to approve a proposed plan of merger or consolidation involving
the Company; or
(d) to amend or modify the Articles of Incorporation or By-Laws of
the Company."
2. Section 1.9. Section 1.9 of the Shareholders' Agreement is, effective
as of the date of the filing of an amendment to the Articles of Incorporation to
eliminate the Optional Redemption at the Shareholder's Election and the Optional
Redemption at the Company's Election contained in Sections II.B.5 and II.B.6 of
Article Three of the Company Articles of Incorporation, is deleted in its
entirety.
3. Section 2.2. Section 2.2 of the Shareholders' Agreement is, effective
as of the date hereof, amended to read in its entirety as follows:
"2.2 Demand Registration.
(a) If the Company shall receive at any time following the consummation
of an initial public offering of the Company's Common Stock resulting in net
cash proceeds to the Company, a written request from KLT or any permitted
transferee of KLT holding Purchased Shares ("Initiating Shareholder") that the
Company file a Registration Statement covering the registration of the amount of
Purchased Shares specified in the written request of the Initiating Shareholder,
then the Company shall (i) within five (5) days of the receipt of such
registration request, give written notice of such registration request to all
holders of Purchased Shares, and (ii) effect, as soon as practicable and in any
event no less than thirty (30) nor more than one hundred twenty (120) days after
the receipt of such registration request, the registration of such Purchased
Shares and shall include in such registration all Purchased Shares with respect
to which the Company receives, within the twenty (20) days immediately following
the receipt by the shareholder(s) other than the Initiating Shareholder of such
notice from the Company, a request for inclusion in the registration from such
shareholder(s) thereof. Each such request from a holder of Purchased Shares for
inclusion in the registration shall also specify the aggregate amount of
Purchased Shares proposed to be registered.
(b) If the Initiating Shareholder intends to distribute the Purchased
Shares covered by its request by means of an underwritten public offering, it
shall so advise the Company as a part of its request made pursuant to Section
2.2(b) hereof and the Company shall include such information in its written
notice to the Shareholders required under such Section. In the event that the
Initiating Shareholder intends to distribute the Purchased Shares by means of an
underwritten offering, the right of any holder of Purchased Shares to include
its Purchased Shares in such registration shall be conditioned upon such
holder's participation in such underwriting and the inclusion of such holder's
Purchased Shares in the underwriting to the extent provided herein. All holders
of Purchased Shares proposing to sell Purchased Shares through such underwriting
(including the Company as provided in
2
<PAGE> 3
Section 2.4(e) of this Agreement and any other holder of securities permitted to
participate in such registration pursuant to this Section 2.2(b)) shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Initiating Shareholder for such underwriting
(provided the same are underwriters of recognized national standing reasonably
acceptable to the Company), upon the terms and conditions agreed upon between
the Company and such underwriter(s). Notwithstanding any other provision of this
Section 2.2, if the underwriter(s) advise the Initiating Shareholder in writing
that marketing or other factors require that less than 100% of the Purchased
Shares requested by the holder(s) of Purchased Shares be included in the
underwriting, then the Company shall so advise all such holders of Purchased
Shares that would otherwise be underwritten pursuant hereto, and the amount of
Purchased Shares that may be included in the underwriting shall be allocated
among all holders thereof, including the Initiating Shareholder, in proportion
(as nearly as practicable) to the amount of Purchased Shares which each
Shareholder requested be included in such registration. If the amount of
Purchased Shares to be underwritten has not been so limited, the Company may
include securities for its own account (or for the account of other holders) in
such registration if the underwriter(s) so agree and to the extent that, in the
opinion of such underwriter(s), the inclusion of such additional amount will not
adversely affect the offering of the Purchased Shares included in such
registration.
(c) The holder of Purchased Shares will be entitled, following the
consummation of an initial public offering of the Company's Common Stock
resulting in net cash proceeds to the Company to request pursuant to this
Section 2.2 one (1) registration on Form S-1 or any similar long-form
registration and up to two (2) registrations on Form S-2, Form S-3 or similar
short-form registrations, but in no event may the holders of Purchased Shares be
entitled to request more than one (1) such registration in any 12-month period."
4. Section 2.3. Section 2.3 of the Shareholders' Agreement is, effective
as of the date hereof, amended to read in its entirety as follows:
"2.3 Incidental Registration. In the event that (but without any
obligation to do so) the Company proposes to register any securities of the
Company in connection with the public offering of such securities solely for
cash on any form of Registration Statement in which the inclusion of Purchased
Shares is appropriate (other than a registration pursuant to a Registration
Statement on Form S-8 or Form S-4 (or any successor forms) or any form that does
not include substantially the same information, other than information relating
to the selling holders of Purchased Shares or their plan of distribution, as
would be required to be included in a registration statement covering the sale
of Purchased Shares), the Company shall promptly give each such holder written
notice of such registration at least thirty (30) days before the anticipated
filing date of any such Registration Statement. Upon the written request of any
holder of Purchased Shares within fifteen (15) days after the receipt by such
holder of such notice from the Company, the Company shall cause to be registered
under the Securities Act all of the Purchased Shares that such holder of
Purchased Shares has so requested to be registered. Notwithstanding any other
provision of this Section 2.3 to the contrary, if the underwriter(s) advise the
holders of Purchased Shares in writing that marketing or other factors require
that less than 100% of the Purchased Shares requested to be registered by such
holder or holders of Purchased Shares or shares of any other holder of
securities be included in such underwriting, then the Company shall so advise
all holders of Purchased Shares and such other security
3
<PAGE> 4
holders that would otherwise be underwritten, and the amount of Purchased Shares
or such other securities that may be included in the underwriting shall be
allocated among all Shareholders and other security holders thereof in
proportion (as nearly as practicable) to the amount of Purchased Shares or other
securities requested to be included in such registration. The Company shall not
be required to proceed with, or maintain the effectiveness of, any registration
of its securities after giving the notice herein provided, and the right of any
holder of Purchased Shares to have Purchased Shares included in such
Registration Statement shall be conditioned upon participation in any
underwriting to the extent provided herein. The Company shall not be required to
include any Purchased Shares in such underwriting unless the holders thereof
enter into an underwriting agreement with the underwriter(s) selected by the
Company in customary form, and upon terms and conditions agreed upon between the
Company and such underwriter(s) (except as to monetary obligations of the holers
of Purchased Shares not contemplated by Section 2.7 of this Agreement)."
5. Section 2.12. A new Section 2.12 is hereby added to the Shareholders'
Agreement:
"2.12. Acknowledgment. The parties hereto acknowledge and agree that as
of the date of this Amendment No. 3 to Shareholders' Agreement, Richard D.
Weinstein is not a holder of Purchased Shares or otherwise a "Shareholder"
entitled to the rights and benefits of this Section 2."
6. Section 3.1. Section 3.1 of the Shareholders' Agreement is, effective
as of the date hereof, amended to read in its entirety as follows:
"3.1 Right of First Offer
(a) If either Shareholder ("Transferring Shareholder") intends
to transfer all or a portion of its Shares to any person or entity in any
transaction (other than a public offering and other than a transfer by DTI of
all of its Shares in the Company as approved by the Board pursuant to Section
1.6(g)), it shall give written notice (the "Sales Notice") to the other
Shareholder ("Non-Transferring Shareholder") of such intention. The Sales
Notice, in addition to stating the fact of the intention to transfer, shall
state (i) the number of Shares to be transferred, and (ii) an offered amount of
the consideration for such Shares and the other terms of the transfer. The
Non-Transferring Shareholder may, within 30 days of its receipt of a Sales
Notice, exercise an option to purchase all (but not less than all) of the Shares
intended to be transferred by the Transferring Shareholder in the Sales Notice.
The Non-Transferring Shareholder must exercise its option to purchase all of the
Shares intended to be transferred on the terms in the Sales Notice or forfeit
its option. The Non-Transferring Shareholder shall exercise its option by
delivering written notice (the "Acceptance Notice") to the Transferring
Shareholder within the time specified above.
(b) The purchase price for Shares purchased pursuant to this Section 3
shall be as set forth in the Sales Notice. The closing of the sale and purchase
shall take place within 150 days after the delivery to the Transferring
Shareholder of the Acceptance Notice.
(c) If the Non-Transferring Shareholder does not elect to exercise its
option to purchase Shares pursuant to this Section 3, then the Transferring
Shareholder may transfer the
4
<PAGE> 5
Shares according to the terms of the Sales Notice at any time within 60 days
after the expiration of the 30 period specified in Section 3.1(a). Such transfer
is subject to the transferee executing an instrument accepting and adopting all
terms and provisions of this Agreement.
(d) Notwithstanding anything contained herein, the provisions
contained in this Section 3.1 shall terminate and be of no further force and
effect upon the closing of the sale of shares of Common Stock or debt securities
of the Company in a Qualified Public Offering as such term is defined in the
Articles of Incorporation of the Company."
7. Section 3.2. Section 3.2 of the Shareholders' Agreement is,
effective as of the date hereof, amended to read in its entirety as follows:
"3.2 Right to Maintain Ownership of Shares. If the Company shall at
any time (i) issue to Weinstein any securities of the Company or instruments
convertible into any security of the Company ("New Securities"), and (ii) such
issuance shall reduce the KLT Ratio (as defined herein) to less than the 50%,
then KLT shall have the right to purchase, at the equivalent price per share, on
the same terms and conditions, and of the same type as the New Securities, an
additional number of such securities such that the KLT Ratio shall equal 50%.
The KLT Ratio shall be equal to a fraction, the numerator of which is the sum of
(i) the number of shares of common stock owned by KLT and (ii) the number of
shares of common stock into which any convertible equities of the Company owned
by KLT is convertible (collectively "KLT Shares") and the denominator of which
is the sum of (x) the KLT Shares, (y) the number of shares of Common Stock owned
by Weinstein and (z) the number of shares of Common Stock into which any
convertible equities of the Company owned by Weinstein is convertible.
Notwithstanding anything contained herein, the provisions contained in this
Section 3.2 shall terminate and be of no further force and effect upon the
closing of the sale of shares of Common Stock or debt securities of the Company
in a Qualified Public Offering as such term is defined in the Articles of
Incorporation of the Company."
8. Section 3.4. Section 3.4 of the Shareholders' Agreement is,
effective as of the date hereof, amended to read in its entirety as follows:
"3.4 Tag Along Sales.
(a) Right to Require Sale. Notwithstanding any other provision
hereof, if either Shareholder (the "Selling Shareholder") agrees to sell any
Shares held by such Selling Shareholder at that time to an unaffiliated third
party (a "Interest Sale"), then upon request of the Nonselling Shareholder, the
Selling Shareholder will afford the Nonselling Shareholder the opportunity to
sell, the same percentage of Shares held by the Nonselling Shareholder at that
time to such third party, at the same price and on the same terms and conditions
as the Selling Shareholder has agreed to sell his Shares.
(b) Interest Sale Notice. Prior to making any Interest Sale,
the Selling Shareholder shall provide the Nonselling Shareholder with written
notice (the "Interest Sale Notice"). If the consideration in the Interest Sale
is cash, the Selling Shareholder shall give the Interest Sale Notice at least
ten (10) business days prior to the proposed date of the Interest Sale
5
<PAGE> 6
("Interest Sale Date"). In all other situations, the Interest Sale Date shall
not take place until ten (10) business days following the receipt by the
Nonselling Shareholder of all information about the Interest Sale that the
Nonselling Shareholder reasonably requests within five (5) business days of
receiving the Interest Sale Notice. The Interest Sale Notice will identify the
proposed purchaser, the percentage of Common Stock to be sold, the proposed
amount and form of consideration to be paid per share, the terms and conditions
of payment and, if the consideration in the Interest Sale is cash, the Interest
Sale Date.
(c) Interest Sale Closing. On the Interest Sale Date, the
Selling Shareholder and the Nonselling Shareholder shall deliver certificates,
notes and instruments of assignment for the securities to be sold in the
Interest Sale, duly endorsed for transfer (accompanied as appropriate by stock
power or powers and other appropriate instruments of assignment duly executed),
to the purchaser in the manner and at the address indicated in the Interest Sale
Notice, against delivery of the agreed purchase price.
(d) Termination. Notwithstanding anything contained herein,
the provisions contained in this Section 3.1 shall terminate and be of no
further force and effect upon the closing of the sale of shares of Common Stock
or debt securities of the Company in a Qualified Public Offering as such term is
defined in the Articles of Incorporation of the Company."
9. Definitions. Any capitalized terms used but not defined herein shall
have the meaning ascribed thereto in the Shareholders' Agreement.
10. Effect of this Amendment. Except as otherwise specifically amended
herein, the Shareholders' Agreement, as modified by this Amendment, remains in
full force and effect.
11. Counterparts; Effectiveness. This Ame3ndment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
--------------------------------
Richard D. Weinstein
President
SHAREHOLDERS:
/s/ Richard D. Weinstein
--------------------------------
Richard D. Weinstein
KLT Telecom Inc.
By: /s/ R.G. Wasson
----------------------------
Ronald G. Wasson
President
7
<PAGE> 1
EXHIBIT 4.9
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT is made and entered this 12th day of March,
1997 by and between KLT Telecom Inc., a Missouri corporation ("KLT") and
Richard D. Weinstein ("Weinstein"), an individual with an address at 11111
Dorsett Road, St. Louis, Missouri 63043, who is the sole shareholder of Digital
Teleport, Inc., a Missouri corporation ("DTI").
RECITALS
A. Concurrently herewith, KLT and DTI have entered into that certain Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated December 31, 1996,
pursuant to which KLT will purchase Three Hundred (300) shares of DTI's
preferred stock for a total purchase price of Forty Five Million Dollars
($45,000,000), and which is payable in accordance with the terms of the Stock
Purchase Agreement;
B. To induce KLT to enter into the Stock Purchase Agreement with DTI,
Weinstein has agreed to execute that certain Guaranty Agreement (the "Guaranty
Agreement"), dated the date hereof, pursuant to which Weinstein will guaranty
the performance of all the terms and conditions and obligations of DTI under
the Stock Purchase Agreement, including the truthfulness and accuracy of all
the representations and warranties given by DTI in Article II of the Stock
Purchase Agreement;
C. To further secure the Guaranty Agreement and to further induce KLT to
enter into the Stock Purchase Agreement, Weinstein has agreed to enter into
this Agreement and to pledge and grant a security interest in all the shares of
common stock of DTI now or hereinafter owned by Weinstein as security for the
obligations hereinafter specified.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the parties agree as follows:
1. Security Interest/Pledge. In consideration for KLT's execution of the
Stock Purchase Agreement, and as security for the performance and observance of
all of the terms, covenants and conditions of the Stock Purchase Agreement and
the Guaranty Agreement and any other documents given in connection with the
Stock Purchase Agreement, Weinstein hereby pledges and creates and grants to
KLT a first perfected security interest in the following described instruments:
Three Hundred (300) shares (the "Pledged Shares") of DTI common stock par
value $.01, as evidenced by certificate number 3, dated the date hereof, in the
name of Weinstein, a copy of which is attached hereto as Exhibit A, and the
original of which is duly indorsed in blank and delivered herewith to KLT.
1
<PAGE> 2
(a) Stock Power. Contemporaneously with the execution of this Agreement,
the Pledged Shares shall be delivered to and held by KLT together with a blank
stock power concerning the certificate duly executed by Weinstein, which stock
shall continue to be registered in the name of Weinstein unless and until a
default (as defined herein) occurs.
(b) Attorney-in-Fact. Weinstein hereby designates and appoints KLT as its
attorney-in-fact and proxy, with full power of substitution, which designation
and appointment is irrevocable and coupled with an interest, upon the
occurrence of a default, for the purpose of performing any and all acts, in the
name, place and stead of Weinstein that are authorized by the provisions of
this Agreement.
(c) Voting. During the term of this Agreement, for so long as no default
shall have occurred, as defined herein, Weinstein shall have the sole and
absolute right to vote the stock.
(d) Dividends and Payments. During the term of this Agreement and for so
long as no default shall have occurred, as defined herein, all dividends and
distribution payments, whether paid in cash, stock or other property, and all
other rights with respect to the stock shall be paid and/or delivered to
Weinstein.
(e) Adjustments. If, during the term of this Agreement, any share
dividend, reclassification, readjustment, or other change is declared or made
in the capital structure of DTI, all new, substituted, and additional shares,
or other securities, issued by reason of any such change shall be held by KLT
under the terms of this Agreement in the same manner as the shares originally
pledged hereunder.
(f) Warrants and Rights. If, during the term of this Agreement,
subscription warrants or any other rights or options are issued in connection
with the Pledged Shares, Weinstein shall immediately assign the pledged
warrants, rights, or options to KLT. If exercised by KLT, all new shares or
other securities so acquired by KLT shall be immediately assigned to Weinstein
to be held under the terms of this Agreement in the same manner as the shares
originally pledged hereunder.
2. Representations and Warranties. Weinstein hereby represents and
warrants to KLT that:
(a) Title, Validity and Enforceability. Weinstein is the direct and
beneficial owner of each of the Pledged Shares and has the full power and
authority to grant to KLT the security interest in the Pledged Shares pursuant
to this Agreement. Each of the Pledged Shares has been duly and validly
issued, is fully paid and nonassessable and is owned by
2
<PAGE> 3
Weinstein free and clear of any lien or encumbrance other than the security
interest created by this Agreement. This Agreement constitutes the legal,
binding obligation of Weinstein and creates a security interest which is
enforceable against Weinstein in all securities of DTI now owned and
hereinafter acquired.
(b) No Restrictions on Transfer. There are no restrictions upon the
transfer of the Pledged Shares, other than those which may appear on the face
or back of the certificate therefor, and that Weinstein has the right to
transfer the Pledged Shares free of any encumbrance and without obtaining the
consents of the other shareholders of DTI.
(c) Conflicting Laws and Contracts. Neither the execution and delivery by
Weinstein of this Agreement, the creation and perfection of the security
interest in the Pledged Shares granted hereunder, nor compliance with the terms
and provisions hereof will violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Weinstein, (ii) other
provisions of any indenture, instrument or agreement to which Weinstein or DTI
is a party or is subject, or by which he or it, or his or its property, is
bound, or (iii) DTI's articles of incorporation or bylaws, or conflict with or
constitute a default thereunder, or result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement. No
order, consent, approval, license, authorization, or validation of, or filing
(except the filing of financing statements covering the Pledged Shares),
recording or registration with, or exemption by, any governmental or public
body or authority, or any subdivision thereof, is required to authorized, or is
required in connection with the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, this Agreement.
(d) Disclosure. No representation or warranty by Weinstein contained
herein or in any information, certificate or other document furnished by
Weinstein pursuant hereto contains any untrue statement of material fact or
omits to state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it was made;
3. Covenants of Weinstein. So long as this Agreement is in effect and
until such time as the obligations secured hereunder have been fully paid and
discharged, Weinstein covenants and agrees that:
(a) Weinstein will execute and deliver to KLT, in a form acceptable to
KLT, any instrument, document, stock certificate, stock power, financing
statement, assignment or other writing which KLT may deem necessary or
desirable to carry out the terms of this Agreement, to perfect KLT's security
interest in the Pledged Shares for the obligations to KLT, or to enable KLT to
enforce conveniently its security interest in any of the foregoing;
3
<PAGE> 4
(b) If subscription warrants or other rights or options are issued in
connection with the Pledged Shares, such warrants, rights and options shall be
considered additional collateral and shall be delivered to KLT immediately upon
Weinstein acquiring an interest therein. If, with the consent of KLT, such
warrants, rights and options are exercised by Weinstein, then all shares, or
other securities so acquired by Weinstein shall be delivered to and held by KLT
under the terms of this Agreement in the same manner as the Pledged Shares
originally delivered and pledged hereunder;
(c) If any share dividend, reclassification, adjustment, split-up, or
other change is declared or is made in the capital structure of DTI, then all
stock, property, rights or interests of any description at any time issued or
issuable as an addition to, in substitution of, in exchange for, or with
respect to the Pledged Shares, shall be delivered to and held by KLT under the
terms of this Agreement in the same manner as the Pledged Shares originally
delivered and pledged hereunder;
(d) If any additional securities of the Company are issued to or otherwise
acquired by Weinstein, such securities shall be delivered to and held by KLT
under the terms of this Agreement in the same manner as the Pledged Shares
originally delivered and pledged hereunder;
(e) Weinstein will pay KLT, upon demand, the cost of collection or
enforcement (including reasonable attorneys' fees) of any collateral for
obligations to KLT, if KLT itself undertakes such collection or enforcement,
together with all charges and expenses of every kind or description (including
taxes with respect to Pledged Shares) paid or incurred by KLT under or with
respect to the obligations or any collateral therefor, or execution or levy on
such collateral, and any such charges shall be considered part of Weinstein's
liabilities hereunder;
(f) Weinstein will take any and all actions reasonably necessary to defend
title to the Pledged Shares against all persons and to defend the security
interest of KLT in the Pledged Shares and the priority thereof against any lien
or encumbrance not expressly permitted hereunder.
(g) Weinstein will not create, incur or suffer to exist any lien or
encumbrance on the Pledged Shares except the security interest created by the
Agreement.
(h) Weinstein will not (i) permit or suffer DTI to dissolve, liquidate,
retire any of its capital stock, reduce its capital or merge or consolidate
with any other entity, or (ii) vote any of the Pledged Shares in favor of any
of the foregoing. Weinstein will permit KLT or its nominee at any time after
the occurrence, and during the continuance, of any event of default (as defined
herein), without notice, to exercise all voting and corporate rights
4
<PAGE> 5
relating to the Pledged Shares, including, without limitation, exchange,
subscription or any other rights, privileges or options pertaining to any
shares of the stock pledged as Pledged Shares as if it were the absolute owner
thereof.
(i) Except as hereinafter provided, Weinstein will not sell or otherwise
dispose of all or any part of the Pledged Shares during the term of this
Agreement. Notwithstanding the foregoing, subject to the conditions and
restrictions set forth in the Stock Purchase Agreement and that certain
Shareholders Agreement, dated February 14, 1997, by and between Weinstein and
KLT, Weinstein may sell any or all of the Pledged Shares to the extent but only
to the extent necessary to obtain funds to satisfy obligations Weinstein incurs
as a result of (i) the Guaranty Agreement, or (ii) Sections 8.3 and 8.4 of the
Stock Purchase Agreement. Weinstein may sell all of the Pledged Shares, as
long as any amounts not needed to satisfy such obligations are deposited in an
escrow satisfactory to KLT to secure any such additional obligations.
4. Default. Weinstein shall be in "Default" under this Agreement upon
fulfillment of all of the following: (i) the failure by DTI to keep, observe
or perform any of the provisions of the Stock Purchase Agreement required to be
kept, observed or performed by DTI; (ii) compliance and fulfillment by KLT of
all conditions set forth in Section 8.4 of the Stock Purchase Agreement; (iii)
the determination by an arbitrator of a Dispute (as such term is defined in
Section 8.4 of the Stock Purchase Agreement) on behalf of KLT; and (iv) the
failure of DTI to pay the award within One Hundred and Fifty (150) days
following the arbitrator's award.
5. Remedies Upon Default. Upon an event of "Default" as defined in
Section 4 of this Agreement, KLT shall have the following rights:
(a) KLT may, in its sole and absolute discretion, cause all or any of the
Pledged Shares to be transferred into the name of KLT, or the name or names of
the nominee or nominees of KLT; and
(b) KLT may receive, and Weinstein upon request shall assign, pay and/or
deliver to the order of KLT all dividends, interest or other distributions, in
respect of the stock, all of which shall thereafter be held by KLT as
additional collateral hereunder; and
(c) KLT, as Weinstein's attorney-in-fact and proxy, shall have and may
exercise on behalf of Weinstein all rights of an owner in respect of any of the
stock then held by KLT hereunder or may, in any respect not contrary to the
provisions of this Agreement, permit such rights to be exercised by Weinstein.
5
<PAGE> 6
(d) KLT may sell, subject to the requirements of any applicable Federal or
State securities laws, at a public or private sale after giving Weinstein any
notices or notification as required by law (by giving, if any, such notice at
least five days before the event, which is the subject of said notice) and the
proceeds of sale shall be applied first to the reasonable expenses of retaking,
holding, preparing for sale, selling and the like and second, to the extent
permitted by law, to reasonable attorneys' fees and legal expenses incurred by
KLT.
Further, KLT shall avail itself all rights with respect to the Pledged
Shares which are provided for in the Uniform Commercial Code as adopted in
Missouri or other state with proper jurisdiction over the Pledged Shares or
this Agreement (hereinafter the "Code"), and shall avail itself of any and all
other remedies at law or equity which may be available to KLT with respect to
the Pledged Shares, Weinstein and any co-signer or surety. All rights and
remedies of KLT whether granted hereunder, under the Code or otherwise are
cumulative and not alternative. The exercise, full or partial, or the
commencement of the exercise of any one right or remedy, shall not preclude the
further exercise of it or any other remedy.
6. Attorneys' Fees. All reasonable attorneys' fees and legal expenses
incurred by KLT in exercising any of its rights and remedies under this
Agreement shall become part of its reasonable expenses of retaking, holding,
preparing for sale and the like and shall become a part of the obligations and
liabilities secured hereby.
7. Waivers and Authorizations of Weinstein. Weinstein waives any right to
require KLT to proceed against any person, to proceed against or exhaust any
collateral, or to pursue any other remedy in KLT's power before proceeding
against the Pledged Shares as in this Agreement provided.
8. Governing Law. This Agreement shall be construed pursuant to the laws
of the State of Missouri.
9. Notices. All notices provided for by this Agreement shall be made in
writing (1) either by actual delivery or (2) by mailing of the notice in the
United States mail to the last known address of the party entitled thereto,
registered or certified mail, return receipt requested.
10. Amendment. This Agreement may be amended or altered only by the
execution of a written instrument by KLT and Weinstein.
11. Descriptive Headings. Titles to paragraphs are for information
purposes only.
6
<PAGE> 7
12. Binding Effect. This Agreement is binding upon and inures to the
benefit of KLT, its successors, assigns, and transferees, and to Weinstein and
his respective heirs, personal representatives, successors and permitted
assigns and transferees.
13. Choice of Venue. All actions or proceedings with respect to this
Agreement shall instituted only in any state or federal court sitting in
Jackson County, Missouri, and by execution and delivery of this Agreement, the
parties irrevocably and unconditionally subject to the jurisdiction (both
subject matter and personal) of each such court and irrevocably and
unconditionally waive: (a) any objection that the parties might now or
hereafter have to the venue of any such court; and (b) any claim that any
action or proceeding brought in any such court has been brought in an
inconvenient forum.
14. Facsimile Signatures. The parties hereby agree that, for purposes of
the execution of this Agreement, facsimile signatures shall constitute original
signatures.
15. Assignment. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of Weinstein and KLT and their respective
successors and assigns, except that Weinstein shall not have the right to
assign his rights or delegate his obligations under this Agreement or any
interest therein, without the express written consent of KLT.
16. Termination. This Agreement shall terminate thirty-six (36) months
after the Closing Date (as such term is defined in the Stock Purchase
Agreement), unless a claim has been made by KLT pursuant to Section 8.4 of the
Stock Purchase Agreement, in which event this Guaranty Agreement shall expire
after the termination of the time frames outlined in Section 8.4 of the Stock
Purchase Agreement.
17. No Disposition. Weinstein is not authorized to sell or otherwise
dispose of the Pledged Shares, and notwithstanding any course of dealing
between Weinstein and KLT, no authorization to sell or otherwise dispose of the
Pledged Shares shall be binding upon KLT unless such authorization is in
writing and signed by an authorized officer of KLT.
18. Survival of Representations. All representations and warranties of
Weinstein contained in this Agreement shall survive the execution and delivery
of this Agreement.
19. Incorporation by Reference. The preamble and recitals to this
Agreement are hereby incorporated by reference and made a part hereof.
7
<PAGE> 8
19. Incorporation by Reference. The preamble and recitals to this
Agreement are hereby incorporated by reference and made a part hereof.
20. JURY WAIVER. THE PARTIES WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST THE OTHER ON ANY MATTER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP
OF THE PARTIES CREATED HEREUNDER.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first about written.
KLT TELECOM INC.,
a Missouri corporation
/s/ R. G. Wasson
---------------------------
Name: R.G. Wasson
Title: President
RICHARD D. WEINSTEIN
/s/ Richard D. Weinstein
---------------------------
Name: Richard D. Weinstein
8
<PAGE> 9
EXHIBIT A
Copy of Certificate Evidencing Pledged Shares
<PAGE> 1
EXHIBIT 4.10
DIGITAL TELEPORT, INC.
AMENDMENT NO. 1 TO STOCK PLEDGE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PLEDGE AGREEMENT (the
"Amendment") dated as of December 18, 1997, is by and between RICHARD D.
WEINSTEIN, an individual ("Weinstein"), and KLT TELECOM INC., a Missouri
corporation ("KLT"; together with Weinstein, the "Parties").
WITNESSETH:
WHEREAS, Weinstein made that certain Stock Pledge Agreement,
dated as of March 12, 1997 (the "Stock Pledge Agreement") in favor of KLT,
whereby Weinstein pledged the Pledged Shares (as defined therein) to KLT as
security for certain obligations described therein (the "Secured Obligations");
WHEREAS, Digital Teleport, Inc. ("DTI") is entering into an
Agreement and Plan of Reorganization (the "Merger Agreement"), of even date
herewith, by and among DTI, DTI Holdings, Inc. ("Holdco") and DTI Merger Sub,
Inc. ("Merger Sub"), pursuant to which the Pledged Shares shall be converted
into and become an equal number of shares of common stock, par value $.01 per
share, of Holdco (the "Substituted Shares").
WHEREAS, Weinstein desires to amend the Stock Pledge Agreement
to substitute the Substituted Shares for the Pledged Shares as security for the
Secured Obligations as provided herein.
NOW, THEREFORE, the Shareholders, DTI and Holdco agree as
follows:
1. The parties hereby acknowledge and agree that the
Substituted Shares shall be held by KLT in substitution for the Pledged Shares
pursuant to Section 1(e) of the Stock Pledge Agreement as if the Substituted
Shares had been originally pledged thereunder. Weinstein shall deliver share
certificates representing the Substituted Shares to KLT immediately upon his
receipt of certificates evidencing the same.
2. The parties hereto agree that wherever the Stock Pledge
Agreement shall reference "the Company" or "DTI", that such reference shall be
hereafter deemed to refer to Holdco, unless the context requires otherwise.
3. Definitions. Any capitalized terms used but not defined
herein shall have the meaning ascribed thereto in the Stock Pledge Agreement.
4. Effect of this Amendment. Except as otherwise specifically
amended herein, the Stock Pledge Agreement, as modified by this Amendment,
remains in full force and effect.
<PAGE> 2
5. Counterparts; Effectiveness. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
* * * * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed and delivered as of the day and year first above written.
/s/ Richard D. Weinstein
-------------------------------
Richard D. Weinstein
KLT TELECOM INC.
By: /s/ R.G. Wasson
---------------------------
Ronald G. Wasson
President
3
<PAGE> 1
EXHIBIT 4.11
DIGITAL TELEPORT, INC.
AMENDMENT NO. 2 TO STOCK PLEDGE AGREEMENT
THIS AMENDMENT NO. 2 TO STOCK PLEDGE AGREEMENT (the "Amendment") dated as
of February 12, 1998, is by and between RICHARD D. WEINSTEIN, an individual
("Weinstein"), and KLT TELECOM INC., a Missouri corporation ("KLT"; together
with Weinstein, the "Parties").
WITNESSETH:
WHEREAS, Weinstein made that certain Stock Pledge Agreement, dated as of
March 12, 1997 (the "Stock Pledge Agreement") in favor of KLT, whereby Weinstein
pledged the Pledged Shares (as defined therein) to KLT as security for certain
obligations described therein (the "Secured Obligations");
WHEREAS, Digital Teleport, Inc. ("DTI") entered into an Agreement and Plan
of Reorganization (the "Merger Agreement"), dated as of December 23, 1997, by
and among DTI, DTI Holdings, Inc. ("Holdco") and DTI Merger Sub, Inc. ("Merger
Sub"), pursuant to which the Pledged Shares were converted into and became an
equal number of shares of common stock, par value $.01 per share, of Holdco (the
"Substituted Shares").
WHEREAS, Weinstein amended the Stock Pledge Agreement pursuant to Amendment
No. 1 to Stock Pledge Agreement to substitute the Substituted Shares for the
Pledged Shares as security for the Secured Obligations as provided therein.
WHEREAS, in connection with certain financial transactions, KLT has agreed
to subordinate the Secured Obligations to obligations of Weinstein in favor of
Holdco and DTI pursuant to a Subordination Agreement dated as of February 12,
1998, a copy of which is attached hereto as Exhibit A;
WHEREAS, Weinstein desire to further amend the Stock Pledge Agreement to
extend the time during which KLT could foreclose on the Pledged Shares as
provided herein;
NOW, THEREFORE, the Shareholders, DTI and Holdco agree as follows:
1. Section 16. Section 16 shall be amended to read in its entirety as
follows:
"16. Termination. This Agreement shall terminate thirty-six (36) months
after the Closing Date (as such term is defined in the Stock Purchase
Agreement), unless a claim has been made by KLT pursuant to Section 8.4 of the
Stock Purchase Agreement, in which event this Agreement shall expire after the
termination of the time frames outlined in Section 8.4 of the Stock Purchase
Agreement, as such time frames have been amended by Amendment No.1 to the Stock
Purchase Agreement."
<PAGE> 2
2. Definitions. Any capitalized terms used but not defined herein shall
have the meaning ascribed thereto in the Stock Pledge Agreement.
3. Effect of this Amendment. Except as otherwise specifically amended
herein, the Stock Pledge Agreement, as modified by this Amendment, remains in
full force and effect.
4. Counterparts; Effectiveness. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
* * * * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered as of the day and year first above written.
/s/ Richard D. Weinstein
------------------------------
Richard D. Weinstein
KLT TELECOM INC.
By: /s/ R.G. Wasson
----------------------------
Ronald G. Wasson
President
3
<PAGE> 4
EXHIBIT A
Subordination Agreement
February 12, 1998
DTI Holdings, Inc.
Digital Teleport, Inc.
11111 Dorsett Road
St. Louis, Missouri 63043
Re: Agreement Of Subordination
Ladies and Gentlemen:
Richard D. Weinstein ("Weinstein) has certain obligations to KLT
Telecom Inc., a Missouri corporation ("KLT"), pursuant to that certain Guaranty
Agreement dated as of March 12, 1997, as amended (such obligations being
referred to herein as the "Junior Claims"). The Junior Claims are secured by
security interests (the "Junior Security Interests") in Weinstein's stock in DTI
Holdings, Inc. (the "Collateral") pursuant to a Stock Pledge Agreement dated
March 12, 1997 (the "Stock Pledge Agreement"). Richard D. Weinstein ("Weinstein)
has certain other obligations to KLT ("Frank Litigation Obligations to KLT")
pursuant to Section 8.3 of the Stock Purchase Agreement dated December 31, 1996,
as amended ("Stock Purchase Agreement"). The Frank Litigation Obligations to KLT
are also secured by security interests in the Collateral pursuant to the Stock
Pledge Agreement.
For value received, and to induce Merrill Lynch, Pierce, Fenner & Smith
Incorporated and TD Securities (USA) Inc. to enter into certain financial
transactions with Weinstein, KLT (i) hereby subordinates and postpones the
Junior Claims to any indemnification claims of Digital Teleport, Inc. ("DTI"), a
Missouri corporation, or DTI Holdings, Inc. ("Holdings") against Weinstein
pursuant to Section 8.3 of the Stock Purchase Agreement (such claims being
referred to herein as the "Senior Claims"), and (ii) hereby agrees to reimburse
DTI and Holdings for the Senior Claims to the extent of any proceeds that KLT
receives from Weinstein pursuant to the Frank Litigation Obligations to KLT,
less all costs and expenses (including without limitation reasonable attorneys'
fees and expenses) incurred by KLT in pursuit of such claims. If any such
proceeds consist of securities of Holdings, the amount of such proceeds shall
mean (a) the amount received from the sale of such securities, or (b) if KLT
does not sell such securities, the fair market value thereof. The Frank
Litigation Obligations to KLT are not subordinated to DTI or Holdings hereunder,
and nothing herein shall be deemed to preclude KLT from exercising its rights
under the Stock Pledge Agreement in its sole discretion with respect to such
Frank Litigation Obligations to KLT, subject to KLT's reimbursement obligations
to DTI and Holdings set forth herein.
KLT hereby agrees that the relative priorities of the Junior Security
Interests and the Senior Security Interests shall be as set forth in this
Agreement notwithstanding the time of filing
4
<PAGE> 5
of financing statements, taking possession of the Collateral or the taking of
any other steps necessary to perfect its liens or security interests and
notwithstanding bankruptcy or insolvency proceedings involving Weinstein as
debtor.
KLT hereby agrees that until such time as the dispute resulting in the
Frank Litigation is finally determined, whether by mutual written agreement of
the parties, by final and binding arbitration or by an order or judgment of a
court of competent jurisdiction, which has not been reversed, stayed, modified,
or amended, and as to which the time to appeal or seek certiorari has expired
and no appeal or petition for certiorari has been timely taken, or as to which
any appeal that has been taken or any petition for certiorari that has been
timely filed has been resolved by the highest court to which the order or
judgment was appealed or from which certiorari was sought ("Frank Matter
Resolution"), KLT shall not have any right (i) to foreclose upon or exercise any
other right or remedy with respect to any of the Collateral, whether by judicial
action or otherwise, or (ii) to ask, demand, sue for, take, enforce or accept
from Weinstein any payment on account of, or any security for, any Junior Claim.
KLT hereby represents to you that (i) KLT has not heretofore assigned,
transferred, created a security interest in, or otherwise encumbered such Junior
Claims nor executed or delivered any other instrument or document adversely
affecting the Junior Claims, and (ii) KLT is not insolvent within any meaning of
that term as of the date hereof.
This Agreement is a continuing agreement and, unless you shall have
specifically consented in writing to its revocation, shall remain in full force
and effect in all respects until the Frank Matter Resolution.
No delay or failure on your part in exercising any right or remedy
shall operate as a waiver thereof; and no single or partial exercise of any
right or remedy shall preclude other or further exercises thereof or the
exercise of any right or remedy; and no notice to or demand on Weinstein or KLT
shall be deemed a waiver of any obligation or duty of Weinstein or KLT or of
your right to take further action without notice or demand; nor in any event
shall any modification, alteration or waiver of any of the provisions hereof be
effective unless in writing and signed for or on behalf of you and then only in
the specific instance for which given.
ALL PARTIES TO THIS AGREEMENT WAIVE TRIAL BY JURY IN ANY LITIGATION TO
WHICH YOU ARE A PARTY ARISING OUT OF OR RELATING TO THE JUNIOR CLAIMS OR THIS
AGREEMENT, AND KLT WAIVES ALL RIGHTS TO INTERPOSE THEREIN COUNTERCLAIMS OTHER
THAN COMPULSORY COUNTER-CLAIMS OR OFFSETS OF ANY KIND.
Your rights and privileges hereunder shall inure to the benefit of your
successors and assigns, and this Agreement shall be binding upon KLT's and
Weinstein's respective successors and assigns. KLT and Weinstein waive notice of
assignment hereof.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Missouri. Wherever possible, each
provision of this Agreement shall be
5
<PAGE> 6
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
6
<PAGE> 7
such provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, KLT and Weinstein have executed this Agreement this
______ day of February, 1998.
KLT TELECOM INC.
By:
--------------------------------
Name:
Title:
WEINSTEIN
-----------------------------------
Richard D. Weinstein
ACCEPTED AND AGREED TO BY:
DTI HOLDINGS, INC.
By:
-------------------------------------
ACCEPTED AND AGREED TO BY:
DIGITAL TELEPORT, INC.
By:
-------------------------------------
7
<PAGE> 1
EXHIBIT 4.12
February 12, 1998
DTI Holdings, Inc.
Digital Teleport, Inc.
11111 Dorsett Road
St. Louis, Missouri 63043
Re: Agreement Of Subordination
Ladies and Gentlemen:
Richard D. Weinstein ("Weinstein") has certain obligations to KLT
Telecom Inc., a Missouri corporation ("KLT"), pursuant to that certain Guaranty
Agreement dated as of March 12, 1997, as amended (such obligations being
referred to herein as the "Junior Claims"). The Junior Claims are secured by
security interests (the "Junior Security Interests") in Weinstein's stock in DTI
Holdings, Inc. (the "Collateral") pursuant to a Stock Pledge Agreement dated
March 12, 1997 (the "Stock Pledge Agreement"). Richard D. Weinstein
("Weinstein") has certain other obligations to KLT ("Frank Litigation
Obligations to KLT") pursuant to Section 8.3 of the Stock Purchase Agreement
dated December 31, 1996, as amended ("Stock Purchase Agreement"). The Frank
Litigation Obligations to KLT are also secured by security interests in the
Collateral pursuant to the Stock Pledge Agreement.
For value received, and to induce Merrill Lynch, Pierce, Fenner & Smith
Incorporated and TD Securities (USA) Inc. to enter into certain financial
transactions with Weinstein, KLT (i) hereby subordinates and postpones the
Junior Claims to any indemnification claims of Digital Teleport, Inc. ("DTI"), a
Missouri corporation, or DTI Holdings, Inc. ("Holdings") against Weinstein
pursuant to Section 8.3 of the Stock Purchase Agreement (such claims being
referred to herein as the "Senior Claims"), and (ii) hereby agrees to reimburse
DTI and Holdings for the Senior Claims to the extent of any proceeds that KLT
receives from Weinstein pursuant to the Frank Litigation Obligations to KLT,
less all costs and expenses (including without limitation reasonable attorneys'
fees and expenses) incurred by KLT in pursuit of such claims. If any such
proceeds consist of securities of Holdings, the amount of such proceeds shall
mean (a) the amount received from the sale of such securities, or (b) if KLT
does not sell such securities, the fair market value thereof. The Frank
Litigation Obligations to KLT are not subordinated to DTI or Holdings hereunder,
and nothing herein shall be deemed to preclude KLT from exercising its rights
under the Stock Pledge Agreement in its sole discretion with respect to such
Frank Litigation Obligations to KLT, subject to KLT's reimbursement obligations
to DTI and Holdings set forth herein.
KLT hereby agrees that the relative priorities of the Junior Security
Interests and the Senior Security Interests shall be as set forth in this
Agreement notwithstanding the time of filing of financing statements, taking
possession of the Collateral or the taking of any other steps necessary to
perfect its liens or security interests and notwithstanding bankruptcy or
insolvency proceedings involving Weinstein as debtor.
<PAGE> 2
KLT hereby agrees that until such time as the dispute resulting in the
Frank Litigation is finally determined, whether by mutual written agreement of
the parties, by final and binding arbitration or by an order or judgment of a
court of competent jurisdiction, which has not been reversed, stayed, modified,
or amended, and as to which the time to appeal or seek certiorari has expired
and no appeal or petition for certiorari has been timely taken, or as to which
any appeal that has been taken or any petition for certiorari that has been
timely filed has been resolved by the highest court to which the order or
judgment was appealed or from which certiorari was sought ("Frank Matter
Resolution"), KLT shall not have any right (i) to foreclose upon or exercise any
other right or remedy with respect to any of the Collateral, whether by judicial
action or otherwise, or (ii) to ask, demand, sue for, take, enforce or accept
from Weinstein any payment on account of, or any security for, any Junior Claim.
KLT hereby represents to you that (i) KLT has not heretofore assigned,
transferred, created a security interest in, or otherwise encumbered such Junior
Claims nor executed or delivered any other instrument or document adversely
affecting the Junior Claims, and (ii) KLT is not insolvent within any meaning of
that term as of the date hereof.
This Agreement is a continuing agreement and, unless you shall have
specifically consented in writing to its revocation, shall remain in full force
and effect in all respects until the Frank Matter Resolution.
No delay or failure on your part in exercising any right or remedy
shall operate as a waiver thereof; and no single or partial exercise of any
right or remedy shall preclude other or further exercises thereof or the
exercise of any right or remedy; and no notice to or demand on Weinstein or KLT
shall be deemed a waiver of any obligation or duty of Weinstein or KLT or of
your right to take further action without notice or demand; nor in any event
shall any modification, alteration or waiver of any of the provisions hereof be
effective unless in writing and signed for or on behalf of you and then only in
the specific instance for which given.
ALL PARTIES TO THIS AGREEMENT WAIVE TRIAL BY JURY IN ANY LITIGATION TO
WHICH YOU ARE A PARTY ARISING OUT OF OR RELATING TO THE JUNIOR CLAIMS OR THIS
AGREEMENT, AND KLT WAIVES ALL RIGHTS TO INTERPOSE THEREIN COUNTERCLAIMS OTHER
THAN COMPULSORY COUNTERCLAIMS OR OFFSETS OF ANY KIND.
Your rights and privileges hereunder shall inure to the benefit of your
successors and assigns, and this Agreement shall be binding upon KLT's and
Weinstein's respective successors and assigns. KLT and Weinstein waive notice of
assignment hereof.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Missouri. Wherever 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
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of
-2-
<PAGE> 3
such provision or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, KLT and Weinstein have executed this Agreement this
12th day of February, 1998.
KLT TELECOM INC.
By: /s/ R.G. Wasson
----------------------
Name: Ronald G. Wasson
Title: President
WEINSTEIN
/s/ Richard D. Weinstein
-------------------------
Richard D. Weinstein
ACCEPTED AND AGREED TO BY:
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
----------------------------
ACCEPTED AND AGREED TO BY:
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
---------------------------
-3-
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made to be effective as of this 31st day of
December, 1996, by and between Digital Teleport Inc., a Missouri corporation
(the "Company"), and Richard D. Weinstein ("Employee").
WITNESSETH:
WHEREAS, the Company desires to obtain the benefit of the services of
Employee and Employee is willing to render such services on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, it is hereby agreed as follows:
1. Employment. Employee is hereby employed by the Company and Employee
hereby accepts such employment upon the terms and conditions hereinafter set
forth.
2. Term of Employment. The term of this Employment Agreement shall
commence on January 1, 1997 and shall end on the third anniversary of such date
(the "Employment Period"), unless sooner terminated as provided in Section 5
hereof.
3. Duties. Employee shall serve as President and Chief Executive Officer
of the Company or in such other position as the Company's Board of Directors
(the "Board") may determine from time to time by a unanimous vote of the Board,
except that if Employee is a member of the Board, then Employee must recuse
himself from said vote. The Company shall be based at the Company's
headquarters in St. Louis, Missouri. During the Employment Period, Employee
shall devote such time, attention, skill, energy and efforts as may be
necessary for the faithful performance of the duties inherent in such a
position. The Employee shall be subject to the supervision of, and shall have
such authority as is delegated to him by, the Board.
4. Compensation. During the Employment Period, the Company shall pay
Employee as compensation for his services an "Annual Base Salary" of not less
then One Hundred Fifty Thousand Dollars ($150,000) during the term of the
Company's lease of its that certain Lease Agreement between the Company and
Employee, dated effective December 31, 1996, for the Company's current
facilities, and Two Hundred Thousand Dollars ($200,000) thereafter, in either
case payable in accordance with the Company's usual payment practices. Employee
additionally shall be entitled to any group medical, health or other benefits
provided generally to the Company's employees.
<PAGE> 2
5. Termination of Employment. Prior to the expiration of the Employment
Period, this Employment Agreement and Employee's employment may be terminated
by the Company as follows:
(a) Upon thirty (30) days prior written notice to Employee in the event
Employee becomes disabled. As used in this Agreement, the term "disability"
shall mean the inability of the employee, due to a physical or mental
condition, for a period of 90 days, whether or not consecutive, during any 360
day period to perform the services contemplated under this Agreement. In the
event of a disagreement concerning the existence of any such disability, the
matter shall be resolved by a disinterested licensed physician chosen by the
Company.
(b) For good cause "cause" which for the purposes of this Employment
Agreement shall mean:
(1) the continued failure of Employee to perform material duties
assigned to Employee after a written demand by the Board of Directors
identifying the manner in which it believes Employee has not performed
his duties and Employee's subsequent failure to cure the identified
problem within a reasonable time not to exceed twenty (20) days; or
(2) a material breach of this Employment Agreement by Employee; or
(3) the Employee's commission of fraud or dishonesty against the
Company or willful conduct involving a third party which in the
discretion of a majority of the Board significantly impairs the
reputation, business or business relationships of, or harms, the Company,
its subsidiaries or affiliates, or the Company's officers, directors or
employees.
(4) Dishonesty of the Employee with respect to the Company;
(5) Upon a charge by a governmental entity against the Employee of
any crime involving moral turpitude or which could reflect unfavorably
upon the Company or upon the filing of any civil action involving a
charge of embezzlement, theft, fraud, or other similar act;
(6) Willful or prolonged absence from work by the Employee (other
than by reason of disability due to physical or mental illness); or
2
<PAGE> 3
(c) At the election of the Company or the Employee, with or without cause
upon 90 days written notice by one party to the other.
Upon termination of this Employment Agreement, all rights and obligations
of the parties hereunder shall cease, except: (1) if this Employment Agreement
is terminated by the Company pursuant to Subsection (c) above, Employee shall
thereafter receive his annual base salary for the remainder of the Employment
Period (but no Company paid medical or other benefits), to be offset by any
compensation received by the Employee if and when he obtains subsequent
employment; and (2) termination of employment pursuant to this Section 5 or
otherwise shall not terminate or otherwise affect the rights and obligations of
the parties pursuant to Sections 6 through 9 hereof, which Sections 6 through 9
shall survive the termination of this Agreement.
For the purposes of this Section 5, any termination by the Company of
Employee must be done with the unanimous consent of the Board, except that if
Employee is a member of the Board, then Employee must recuse himself from said
vote.
6. Non-Compete.
a. During the Employment Period and for a period of two (2) years after
the termination or expiration thereof, the Employee will not directly or
indirectly, in the territory comprised by the states of Missouri, Illinois,
Iowa, Minnesota, Michigan, Indiana, Ohio, Tennessee, Kentucky, Arkansas,
Nebraska, Oklahoma, Kansas, and Wisconsin:
i. as an individual proprietor, partner, stockholder, officer, employee,
director, joint venture, investor, lender, or in any other capacity whatsoever
(other than as the holder of not more than one percent (1%) of the total
outstanding stock of, a publicly held company), engage in the business of
developing, producing, marketing or selling fiber optic telecommunication
products or services of the kind or type developed or being developed,
provided, marketed or sold by the Company while the Employee was employed by
the Company; or
ii. recruit, solicit or induce or attempt to induce an employee or
employees of the Company to terminate their employment with, or otherwise cease
their relationship with, the Company; or
iii. solicit, divert or take away, or attempt to divert or take away, the
business or patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of the Company which were
contacted, solicited or served by the Employee while employed by the Company.
3
<PAGE> 4
b. If any restriction set forth in this Section 6 is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
c. The restrictions contained in this Section 6 are necessary for the
protection of the business and goodwill of the Company and are considered by
the Employee to be reasonable for such purpose. The Employee agrees that any
breach of this Section 6 will cause the Company substantial and irrevocable
damage and therefore, in the event of any such breach, in addition to such
other remedies which may be available, the Company shall have the right to seek
specific performance and injunctive relief. The prevailing party in a legal
proceeding brought to remedy a breach under this Section 6 shall be entitled to
receive its reasonable attorney's fees, expert witness fees, and out-of-pocket
costs incurred in connection with such proceeding, in addition to any other
relief it may be granted.
7. Proprietary Information and Developments.
a. Proprietary Information.
i. Employee agrees that all information and know-how, whether or not
in writing, of a private, secret or confidential nature concerning the
Company's business or financial affairs (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company. By
way of illustration, but not limitation, Proprietary Information may
include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, and
customer and supplier lists. Employee will not disclose any Proprietary
Information to others outside the Company or use the same for any
unauthorized purposes without written approval by an officer of the
Company, either during or after his employment, unless and until such
Proprietary Information has become public knowledge without fault by the
Employee.
ii. Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible material
containing Proprietary Information, whether created by the Employee or
others, which shall come into his custody or possession, shall be and are
the exclusive property of the Company to be used by the Employee only in
the performance of his duties for the Company.
4
<PAGE> 5
iii. Employee agrees that his obligation not to disclose or use
information, know-how and records of the types set forth in paragraphs
(a) and (b) above, also extends to such types of information, know-how,
records and tangible property of customers of the Company or suppliers to
the Company or other third parties who may have disclosed or entrusted
the same to the Company or to the Employee in the course of the Company's
business.
b. Developments.
i. Employee will make full and prompt disclosure to the Company of
all inventions, improvements, discoveries, methods, developments,
software, and works of authorship, whether patentable or not, which are
created, made, conceived or reduced to practice by the Employee or under
his direction or jointly with others during his employment by the
Company, whether or not during normal working hours or on the premises of
the Company (all of which are collectively referred to in this Agreement
as "Developments").
ii. Employee agrees to assign and does hereby assign to the Company
(or any person or entity designated by the Company) all his right, title
an interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
Section 7.2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company
and which are made and conceived by the Employee not during normal
working hours, nor on the Company's premises and not using the Company's
tools, devices, equipment or Proprietary Information.
iii. Employee agrees to cooperate fully with the Company, both
during and after his employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights and patents (both
in the United States and foreign countries) relating to Developments.
Employee shall sign all papers, including, without limitation, copyright
applications, patents applications, declarations, oaths, formal
assignments, assignment of proprietary rights, and powers of attorney,
which the Company may deem necessary or desirable in order to protect its
rights and interests in any Developments.
c. Other Agreements. Employee hereby represents that he is not bound by
the terms of any agreement with any previous employer or other party to refrain
from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party. Employee further represents that his performance of all
the terms of this agreement and as an employee of the Company does not and will
not breach any agreement to keep in confidence proprietary information,
5
<PAGE> 6
knowledge or data acquired by him in confidence or in trust prior to this
employment with the Company.
d. Company's Right to Notify Subsequent Employers. The Company may do all
permissible things, and take all permissible action, necessary or advisable, in
the Company's discretion, to protect its rights under this Section 7, including
without limitation notifying any subsequent employer of the Employee of the
existence of (and furnishing to any such employer) the provisions of this
Agreement.
8. Non-Waiver of Rights. The Company's failure to enforce at any time any
of the provisions of this Employment Agreement or to require at any time
performance by the Employee of any of the provisions hereof shall in no way be
construed to be a waiver of such provisions or to affect either the validity of
this Employment Agreement, or any part of it, or the right of Company
thereafter to enforce each and every provision in accordance with the terms of
this Employment Agreement.
9. The Company's Right to Recover Costs and Fees. Employee agrees that
if Employee breaches or threatens to breach this Employment Agreement, Employee
shall be liable for any attorneys' fees and costs incurred by the Company in
enforcing its rights under this Employment Agreement in the event that the
Company prevails in enforcing such rights.
10. Assignments. This Employment Agreement shall be freely assignable by
the Company and shall inure to the benefit of, and be binding upon, the
Company, it successors and assigns and/or any other corporate entity which
shall succeed to the business presently being operated by the Company, but,
being a contract for personal services, neither this Employment Agreement nor
any rights hereunder are assignable by Employee.
11. Governing Law. This Employment Agreement shall be interpreted in
accordance with and governed by the laws of the State of Missouri without
regard to its conflict of law rules.
12. Amendments. No modification, amendment or waiver of any of the
provisions of this Employment Agreement shall be effective unless in writing
and signed by the parties hereto.
13. Notices. Any notices to be given by either party hereunder shall be
in writing and shall be deemed to have been duly given if delivered or mailed,
certified or registered mail, postage prepaid, as follows: to the Company at
Digital Teleport, Inc., c/o KLT, Telecom Inc., 1201 Walnut, Kansas City,
Missouri 64106, attn.: Mark G. English; Ronald G. Wasson; and to Employee at
the Company's headquarters at 11111 Dorsett Road, St.
6
<PAGE> 7
Louis, Missouri; or to such other address as may have been furnished to
the other party in writing.
14. Reflection and Advice of Counsel Encouraged. This Employment
Agreement places restrictions on Employee's right to seek employment with
certain employees or to engage in businesses competitive with the Company's
business in the event that the Employee terminates his or her employment with
the Company. By signing this Employment Agreement, Employee acknowledges that
he or she has had ample time to reflect on these restrictions and has been
encouraged to seek the advice of counsel.
15. Entire Agreement. This Employment Agreement supersedes any and all
prior employment and similar agreements, written and/or oral, between the
Company and Employee, and Employee hereby waives and releases all rights and
claims thereunder or with respect thereto.
16. Liquidated Damages. Insofar as any damages sustained by the Company
in the case of a breach by the Employee of the provisions of this Agreement are
difficult to calculate, the parties hereto agree that if the Employee breaches
or violates any provision of this Agreement, the Company shall be entitled, in
addition to any other right and remedy available to it, to retain as liquidated
damages any sums owed but not paid by the Company to the Employee.
17. Choice of Venue. All actions or proceedings with respect to this
Agreement shall be instituted only in any state or federal court sitting in St.
Louis County, Missouri, and by execution and delivery of this Agreement, the
parties irrevocably and unconditionally subject to the jurisdiction (both
subject matter and personal) of each such court and irrevocably and
unconditionally waive: (a) any objection that the parties might now or
hereafter have to the venue of any of such court; and (b) any claim that any
action or proceeding brought in any such court has been brought in an
inconvenient forum.
18. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
19. Severability. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
7
<PAGE> 8
20. Counterparts. This Agreement may be executed in a number of
counterparts and all of such counterparts executed by the Company or the
Employee, shall constitute one and the same agreement, and it shall not be
necessary for all parties to execute the same counterpart hereof.
21. Facsimile Signatures. The parties hereby agree that, for purposes of
the execution of this Agreement, facsimile signatures shall constitute original
signatures.
22. Incorporation by Reference. The preamble and recitals to this
Agreement are hereby incorporated by reference and made a part hereof.
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
-------------------------------------
Name: Richard D. Weinstein
Title: President
EMPLOYEE
/s/ Richard D. Weinstein
-------------------------------------
Richard D. Weinstein
8
<PAGE> 1
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of
this 23rd day of December, 1997 between DTI HOLDINGS, INC., a Missouri
corporation (the "Company"), and Richard D. Weinstein (the "Director").
RECITALS
1. The Director is a member of the Board of Directors of the
Company and in such capacity is performing valuable services for the Company.
B. Section 6.5 of the By-laws of the Company (the "By-laws"),
provides for the indemnification of the officers, directors, agents and
employees of the Company to the full extent authorized by law.
C. The provisions of Section 351.355 of the General and
Business Corporation Laws of Missouri (the "Indemnification Statute") provides,
among other provisions, that a corporation shall have the power, subject to
certain exceptions, to give any further indemnity to its directors and officers,
including indemnification agreements, provided such indemnity is authorized,
directed and provided for in such corporation's articles of incorporation.
D. The Company presently maintains one or more policies of
Directors and Officers Liability Insurance ("D&O Insurance"), insuring against
certain liabilities which the Company's directors and officers may incur as they
perform services for the Company.
E. The Company deems it appropriate to enter into agreements
with its directors to provide them with greater indemnification against the
liabilities they incur in the performance of services for the Company.
TERMS
NOW, THEREFORE, in consideration of the Director's agreement
to continue service as a director of the Company, the parties hereto agree as
follows:
1. Indemnity of Director. The Company agrees to indemnify the
Director and hold him harmless to the full extent authorized or permitted by the
provisions of the Indemnification Statute, or by any amendment thereof, or by
any other statutory provisions authorizing or permitting such indemnification
which may be adopted after the date hereof.
2. Maintenance of Insurance. The Company may, but shall not be
required to, continue all or any part of the D&O Insurance it has in force and
effect as of the date hereof. If the Company continues to maintain the D&O
Insurance, such insurance shall be primary, to the extent of the coverage
provided thereby, and the Company's agreement to provide the indemnification set
forth herein shall be effective only to the extent that the Director is not
reimbursed pursuant to the coverage
-1-
<PAGE> 2
maintained under the D&O Insurance or any comparable insurance. If the Company
does not maintain such insurance, the Company shall fully indemnify the
Director in accordance with the provisions of Section 1 and Section 3 of this
Agreement.
3. Additional Indemnity. Subject only to the exclusion set
forth in Section 4 hereof, the Company hereby agrees to indemnify the Director
and hold him harmless from and against any and all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Director in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including any action by or in the right of the Company) to
which the Director is, was or at any time becomes a party (other than a party
plaintiff suing on his own behalf or derivatively on behalf of the Company), or
is threatened to be made a party (other than a party plaintiff suing on his own
behalf or derivatively on behalf of the Company) by reason of the fact that the
Director is or was at any time a director, officer, employee or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including, without
limitation, Digital Teleport, Inc.
4. Limitation on Indemnity. Notwithstanding any other
provision of this Agreement to the contrary, the Company shall not indemnify any
Director from or on account of such person's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest or to have
constituted willful misconduct.
5. Continuation of Indemnity. All of the Company's agreements
and obligations contained herein shall continue (a) during the period that the
Director is a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
including, without limitation, Digital Teleport, Inc. and (b) thereafter so long
as the Director shall be subject to any possible, claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that the Director is or was a director of
the Company or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after the
Director receives notice of the commencement of any action, suit or
proceeding, the Director will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the
commencement thereof. The failure to notify the Company will relieve the
Company from any liability hereunder to the extent the Company can show
prejudice as a result of such failure, and will not relieve the Company from
any liability which it may have to the Director otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which the
Director notifies the Company of the commencement thereof:
(a) The Company will be entitled to participate therein
at its own expense; and,
(b) Except as otherwise provided below, to the extent
that it may wish, the Company (jointly with any other indemnifying party
similarly notified) will be entitled to assume the
-2-
<PAGE> 3
defense thereof with counsel satisfactory to Director. After the Company
notifies the Director of its election to assume such defense, the Company will
not be liable to the Director under this Agreement for any legal or other
expenses the Director subsequently incurs in connection with the defense thereof
other than reasonable costs of investigation or as otherwise provided below. The
Director shall have the right to employ his counsel in such action, suit or
proceeding, provided that the fees and expenses of such counsel incurred after
the Company has provided the Director with notice that it is assuming the
defense shall be at the Director's expense, unless (i) the Company has
authorized the Director's employment of counsel, (ii) the Director shall have
reasonably concluded that there may be a conflict of interest between the
Company and the Director in the conduct of the defense of such action, or (iii)
the Company shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of such counsel shall
be at the Company's expense. The Company shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the Company
or as to which the Director shall have made the conclusion provided for in (ii)
above.
(c) The Company shall not be liable to indemnify the
Director for any amounts paid in settlement of any action or claim effected
without the Company's written consent. The Company shall not settle any action
or claim in any manner which would impose any penalty or limitation on the
Director without the Director's written consent. Neither the Company nor the
Director will unreasonably withhold his or its consent to any proposed
settlement.
7. Repayment of Expenses. The Director shall reimburse the
Company for all reasonable expenses the Company pays in defending any civil or
criminal action, suit or proceeding against the Director in the event and to the
extent that it shall be ultimately determined that the Director is not entitled
to be indemnified by the Company for such expenses under the provisions of the
Indemnification Statute, the By-laws, this Agreement or otherwise. Prior to such
determination, the Company shall make such advances as shall be reasonably
necessary to pay such expenses of the Director, provided the Company receives an
undertaking from the Director to repay such advances in the event it is
ultimately determined that the Director is not entitled to be indemnified
therefor.
8. Enforcement.
(a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed hereby in
order to induce the Director to continue as a director of the Company, and
acknowledges that the Director is relying upon this Agreement in continuing in
such capacity.
(b) In the event that the Director is required to bring
any action to enforce any rights or to collect any money due under this
Agreement and is successful in such action, the Company shall reimburse the
Director for all of the Director's reasonable fees and expenses in bringing and
pursuing such action.
9. Separability. Each provision of this Agreement is a
separate and distinct agreement, independent of the others. If any provision
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of any of the
other provisions.
-3-
<PAGE> 4
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Missouri, without reference to its
rules governing conflicts of laws.
(b) This Agreement shall be binding upon the Director
and the Company and shall inure to the benefit of the Director, his heirs,
personal representatives and assigns and to the benefit of the Company, its
successors and assigns.
(c) In the event that the Company shall make any
payment to or on behalf of the Director under the terms of this Agreement,
whether in satisfaction of any judgment, payment in settlement, reimbursement of
expenses, or otherwise, the Company shall succeed to, and have by way of
subrogation, all of the rights theretofore possessed by the Director against any
other person, firm or corporation for or on account of the lawsuit, claim or
matter in respect of which the payment was made, including, without limitation,
full subrogation to any claim or right the Director had or may have had against
any insurance company providing D&O Insurance to the Company, its officers and
directors.
(d) No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
* * * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
---------------------------
Richard D. Weinstein
President and Chief
Executive Officer
/s/ Richard D. Weinstein
---------------------------
Richard D. Weinstein
-5-
<PAGE> 1
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of
this 23rd day of December, 1997 between DTI HOLDINGS, INC., a Missouri
corporation (the "Company"), and Jerome W. Sheehy (the "Director").
RECITALS
1. The Director is a member of the Board of Directors of the
Company and in such capacity is performing valuable services for the Company.
B. Section 6.5 of the By-laws of the Company (the "By-laws"),
provides for the indemnification of the officers, directors, agents and
employees of the Company to the full extent authorized by law.
C. The provisions of Section 351.355 of the General and
Business Corporation Laws of Missouri (the "Indemnification Statute") provides,
among other provisions, that a corporation shall have the power, subject to
certain exceptions, to give any further indemnity to its directors and officers,
including indemnification agreements, provided such indemnity is authorized,
directed and provided for in such corporation's articles of incorporation.
D. The Company presently maintains one or more policies of
Directors and Officers Liability Insurance ("D&O Insurance"), insuring against
certain liabilities which the Company's directors and officers may incur as they
perform services for the Company.
E. The Company deems it appropriate to enter into agreements
with its directors to provide them with greater indemnification against the
liabilities they incur in the performance of services for the Company.
TERMS
NOW, THEREFORE, in consideration of the Director's agreement
to continue service as a director of the Company, the parties hereto agree as
follows:
1. Indemnity of Director. The Company agrees to indemnify the
Director and hold him harmless to the full extent authorized or permitted by the
provisions of the Indemnification Statute, or by any amendment thereof, or by
any other statutory provisions authorizing or permitting such indemnification
which may be adopted after the date hereof.
2. Maintenance of Insurance. The Company may, but shall not be
required to, continue all or any part of the D&O Insurance it has in force and
effect as of the date hereof. If the Company continues to maintain the D&O
Insurance, such insurance shall be primary, to the extent of the coverage
provided thereby, and the Company's agreement to provide the indemnification set
forth herein shall be effective only to the extent that the Director is not
reimbursed pursuant to the coverage
-1-
<PAGE> 2
maintained under the D&O Insurance or any comparable insurance. If the Company
does not maintain such insurance, the Company shall fully indemnify the
Director in accordance with the provisions of Section 1 and Section 3 of this
Agreement.
3. Additional Indemnity. Subject only to the exclusion set
forth in Section 4 hereof, the Company hereby agrees to indemnify the Director
and hold him harmless from and against any and all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Director in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including any action by or in the right of the Company) to
which the Director is, was or at any time becomes a party (other than a party
plaintiff suing on his own behalf or derivatively on behalf of the Company), or
is threatened to be made a party (other than a party plaintiff suing on his own
behalf or derivatively on behalf of the Company) by reason of the fact that the
Director is or was at any time a director, officer, employee or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including, without
limitation, Digital Teleport, Inc.
4. Limitation on Indemnity. Notwithstanding any other
provision of this Agreement to the contrary, the Company shall not indemnify any
Director from or on account of such person's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest or to have
constituted willful misconduct.
5. Continuation of Indemnity. All of the Company's agreements
and obligations contained herein shall continue (a) during the period that the
Director is a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
including, without limitation, Digital Teleport, Inc. and (b) thereafter so
long as the Director shall be subject to any possible including, without
limitation, Digital Teleport Inc. claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal or investigative, by reason
of the fact that the Director is or was a director of the Company or serving in
any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after the
Director receives notice of the commencement of any action, suit or proceeding,
the Director will, if a claim in respect thereof is to be made against the
Company under this Agreement, notify the Company of the commencement thereof.
The failure to notify the Company will relieve the Company from any liability
hereunder to the extent the Company can show prejudice as a result of such
failure, and will not relieve the Company from any liability which it may have
to the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein
at its own expense; and,
(b) Except as otherwise provided below, to the extent
that it may wish, the Company (jointly with any other indemnifying party
similarly notified) will be entitled to assume the
-2-
<PAGE> 3
defense thereof with counsel satisfactory to Director. After the Company
notifies the Director of its election to assume such defense, the Company will
not be liable to the Director under this Agreement for any legal or other
expenses the Director subsequently incurs in connection with the defense
thereof other than reasonable costs of investigation or as otherwise provided
below. The Director shall have the right to employ his counsel in such
action, suit or proceeding, provided that the fees and expenses of such counsel
incurred after the Company has provided the Director with notice that it is
assuming the defense shall be at the Director's expense, unless (i) the Company
has authorized the Director's employment of counsel, (ii) the Director shall
have reasonably concluded that there may be a conflict of interest between the
Company and the Director in the conduct of the defense of such action, or (iii)
the Company shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of such counsel shall
be at the Company's expense. The Company shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the Company
or as to which the Director shall have made the conclusion provided for in (ii)
above.
(c) The Company shall not be liable to indemnify the
Director for any amounts paid in settlement of any action or claim effected
without the Company's written consent. The Company shall not settle any action
or claim in any manner which would impose any penalty or limitation on the
Director without the Director's written consent. Neither the Company nor the
Director will unreasonably withhold his or its consent to any proposed
settlement.
7. Repayment of Expenses. The Director shall reimburse the
Company for all reasonable expenses the Company pays in defending any civil or
criminal action, suit or proceeding against the Director in the event and to the
extent that it shall be ultimately determined that the Director is not entitled
to be indemnified by the Company for such expenses under the provisions of the
Indemnification Statute, the By-laws, this Agreement or otherwise. Prior to such
determination, the Company shall make such advances as shall be reasonably
necessary to pay such expenses of the Director, provided the Company receives an
undertaking from the Director to repay such advances in the event it is
ultimately determined that the Director is not entitled to be indemnified
therefor.
8. Enforcement.
(a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed hereby in
order to induce the Director to continue as a director of the Company, and
acknowledges that the Director is relying upon this Agreement in continuing in
such capacity.
(b) In the event that the Director is required to bring
any action to enforce any rights or to collect any money due under this
Agreement and is successful in such action, the Company shall reimburse the
Director for all of the Director's reasonable fees and expenses in bringing and
pursuing such action.
9. Separability. Each provision of this Agreement is a
separate and distinct agreement, independent of the others. If any provision
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of any of the
other provisions.
-3-
<PAGE> 4
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Missouri, without reference to its
rules governing conflicts of laws.
(b) This Agreement shall be binding upon the Director
and the Company and shall inure to the benefit of the Director, his heirs,
personal representatives and assigns and to the benefit of the Company, its
successors and assigns.
(c) In the event that the Company shall make any
payment to or on behalf of the Director under the terms of this Agreement,
whether in satisfaction of any judgment, payment in settlement, reimbursement of
expenses, or otherwise, the Company shall succeed to, and have by way of
subrogation, all of the rights theretofore possessed by the Director against any
other person, firm or corporation for or on account of the lawsuit, claim or
matter in respect of which the payment was made, including, without limitation,
full subrogation to any claim or right the Director had or may have had against
any insurance company providing D&O Insurance to the Company, its officers and
directors.
(d) No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
* * * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
------------------------------
Richard D. Weinstein
President and Chief
Executive Officer
/s/ Jerome W. Sheehy
------------------------------
Jerome W. Sheehy
-5-
<PAGE> 1
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of
this 23rd day of December, 1997 between DTI HOLDINGS, INC., a Missouri
corporation (the "Company"), and Bernard J. Beaudoin (the "Director").
RECITALS
1. The Director is a member of the Board of Directors of the
Company and in such capacity is performing valuable services for the Company.
B. Section 6.5 of the By-laws of the Company (the "By-laws"),
provides for the indemnification of the officers, directors, agents and
employees of the Company to the full extent authorized by law.
C. The provisions of Section 351.355 of the General and
Business Corporation Laws of Missouri (the "Indemnification Statute") provides,
among other provisions, that a corporation shall have the power, subject to
certain exceptions, to give any further indemnity to its directors and officers,
including indemnification agreements, provided such indemnity is authorized,
directed and provided for in such corporation's articles of incorporation.
D. The Company presently maintains one or more policies of
Directors and Officers Liability Insurance ("D&O Insurance"), insuring against
certain liabilities which the Company's directors and officers may incur as they
perform services for the Company.
E. The Company deems it appropriate to enter into agreements
with its directors to provide them with greater indemnification against the
liabilities they incur in the performance of services for the Company.
TERMS
NOW, THEREFORE, in consideration of the Director's agreement
to continue service as a director of the Company, the parties hereto agree as
follows:
1. Indemnity of Director. The Company agrees to indemnify the
Director and hold him harmless to the full extent authorized or permitted by the
provisions of the Indemnification Statute, or by any amendment thereof, or by
any other statutory provisions authorizing or permitting such indemnification
which may be adopted after the date hereof.
2. Maintenance of Insurance. The Company may, but shall not be
required to, continue all or any part of the D&O Insurance it has in force and
effect as of the date hereof. If the Company continues to maintain the D&O
Insurance, such insurance shall be primary, to the extent of the coverage
provided thereby, and the Company's agreement to provide the indemnification set
forth herein shall be effective only to the extent that the Director is not
reimbursed pursuant to the coverage
-1-
<PAGE> 2
maintained under the D&O Insurance or any comparable insurance. If the Company
does not maintain such insurance, the Company shall fully indemnify the
Director in accordance with the provisions of Section 1 and Section 3 of this
Agreement.
3. Additional Indemnity. Subject only to the exclusion set
forth in Section 4 hereof, the Company hereby agrees to indemnify the Director
and hold him harmless from and against any and all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Director in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including any action by or in the right of the Company) to
which the Director is, was or at any time becomes a party (other than a party
plaintiff suing on his own behalf or derivatively on behalf of the Company), or
is threatened to be made a party (other than a party plaintiff suing on his own
behalf or derivatively on behalf of the Company) by reason of the fact that the
Director is or was at any time a director, officer, employee or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including, without
limitation, Digital Teleport, Inc.
4. Limitation on Indemnity. Notwithstanding any other
provision of this Agreement to the contrary, the Company shall not indemnify any
Director from or on account of such person's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest or to have
constituted willful misconduct.
5. Continuation of Indemnity. All of the Company's agreements
and obligations contained herein shall continue (a) during the period that the
Director is a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
including, without limitation, Digital Teleport, Inc. and (b) thereafter so
long as the Director shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that the Director is or was a director of
the Company or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after the
Director receives notice of the commencement of any action, suit or proceeding,
the Director will, if a claim in respect thereof is to be made against the
Company under this Agreement, notify the Company of the commencement thereof.
The failure to notify the Company will relieve the Company from any liability
hereunder to the extent the Company can show prejudice as a result of such
failure, and will not relieve the Company from any liability which it may have
to the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein
at its own expense; and,
(b) Except as otherwise provided below, to the extent
that it may wish, the Company (jointly with any other indemnifying party
similarly notified) will be entitled to assume the
-2-
<PAGE> 3
defense thereof with counsel satisfactory to Director. After the
Company notifies the Director of its election to assume such defense, the
Company will not be liable to the Director under this Agreement for any
legal or other expenses the Director subsequently incurs in connection with the
defense thereof other than reasonable costs of investigation or as otherwise
provided below. The Director shall have the right to employ his counsel in
such action, suit or proceeding, provided that the fees and expenses of such
counsel incurred after the Company has provided the Director with notice
that it is assuming the defense shall be at the Director's expense, unless (i)
the Company has authorized the Director's employment of counsel, (ii) the
Director shall have reasonably concluded that there may be a conflict of
interest between the Company and the Director in the conduct of the defense of
such action, or (iii) the Company shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of such counsel shall be at the Company's expense. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which the Director shall have made the
conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify the Director
for any amounts paid in settlement of any action or claim effected
without the Company's written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation on
the Director without the Director's written consent. Neither the Company
nor the Director will unreasonably withhold his or its consent to any
proposed settlement.
7. Repayment of Expenses. The Director shall reimburse the
Company for all reasonable expenses the Company pays in defending any civil
or criminal action, suit or proceeding against the Director in the event
and to the extent that it shall be ultimately determined that the Director is
not entitled to be indemnified by the Company for such expenses under the
provisions of the Indemnification Statute, the By-laws, this Agreement or
otherwise. Prior to such determination, the Company shall make such advances as
shall be reasonably necessary to pay such expenses of the Director, provided
the Company receives an undertaking from the Director to repay such advances in
the event it is ultimately determined that the Director is not entitled to be
indemnified therefor.
8. Enforcement.
(a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations
imposed hereby in order to induce the Director to continue as a director of
the Company, and acknowledges that the Director is relying upon this
Agreement in continuing in such capacity.
(b) In the event that the Director is required to bring
any action to enforce any rights or to collect any money due under this
Agreement and is successful in such action, the Company shall
reimburse the Director for all of the Director's reasonable fees and expenses
in bringing and pursuing such action.
9. Separability. Each provision of this Agreement is a separate
and distinct agreement, independent of the others. If any provision
shall be held to be invalid or unenforceable for any reason, such invalidity
or unenforceability shall not affect the validity or enforceability of any of
the other provisions.
-3-
<PAGE> 4
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Missouri, without reference to its
rules governing conflicts of laws.
(b) This Agreement shall be binding upon the Director
and the Company and shall inure to the benefit of the Director, his
heirs, personal representatives and assigns and to the benefit of the
Company, its successors and assigns.
(c) In the event that the Company shall make any
payment to or on behalf of the Director under the terms of this
Agreement, whether in satisfaction of any judgment, payment in settlement,
reimbursement of expenses, or otherwise, the Company shall succeed to,
and have by way of subrogation, all of the rights theretofore possessed by the
Director against any other person, firm or corporation for or on account of
the lawsuit, claim or matter in respect of which the payment was made,
including, without limitation, full subrogation to any claim or right the
Director ha or may have had against any insurance company providing D&O
Insurance to the Company, its officers and directors.
(d) No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
* * * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the day and year first above written.
DTI HOLDINGS, INC.
By:/s/ Richard D. Weinstein
-------------------------
Richard D. Weinstein
President and Chief Executive Officer
/s/ B.J. Beaudoin
-------------------------
Bernard J. Beaudoin
-5-
<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of this 23rd
day of December, 1997 between DTI HOLDINGS, INC., a Missouri corporation (the
"Company"), and Ronald G. Wasson (the "Director").
RECITALS
1. The Director is a member of the Board of Directors of the Company and
in such capacity is performing valuable services for the Company.
B. Section 6.5 of the By-laws of the Company (the "By-laws"), provides
for the indemnification of the officers, directors, agents and employees of the
Company to the full extent authorized by law.
C. The provisions of Section 351.355 of the General and Business
Corporation Laws of Missouri (the "Indemnification Statute") provides, among
other provisions, that a corporation shall have the power, subject to certain
exceptions, to give any further indemnity to its directors and officers,
including indemnification agreements, provided such indemnity is authorized,
directed and provided for in such corporation's articles of incorporation.
D. The Company presently maintains one or more policies of Directors and
Officers Liability Insurance ("D&O Insurance"), insuring against certain
liabilities which the Company's directors and officers may incur as they
perform services for the Company.
E. The Company deems it appropriate to enter into agreements with its
directors to provide them with greater indemnification against the liabilities
they incur in the performance of services for the Company.
TERMS
NOW, THEREFORE, in consideration of the Director's agreement to continue
service as a director of the Company, the parties hereto agree as follows:
1. Indemnity of Director. The Company agrees to indemnify the Director
and hold him harmless to the full extent authorized or permitted by the
provisions of the Indemnification Statute, or by any amendment thereof, or by
any other statutory provisions authorizing or permitting such indemnification
which may be adopted after the date hereof.
2. Maintenance of Insurance. The Company may, but shall not be required
to, continue all or any part of the D&O Insurance it has in force and
effect as of the date hereof. If the Company continues to maintain the D&O
Insurance, such insurance shall be primary, to the extent of the coverage
provided thereby, and the Company's agreement to provide the indemnification
set forth herein shall be effective only to the extent that the Director is not
reimbursed pursuant to the coverage
-1-
<PAGE> 2
maintained under the D&O Insurance or any comparable insurance. If the
Company does not maintain such insurance, the Company shall fully indemnify the
Director in accordance with the provisions of Section 1 and Section 3 of this
Agreement.
3. Additional Indemnity. Subject only to the exclusion set forth in
Section 4 hereof, the Company hereby agrees to indemnify the Director and hold
him harmless from and against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Director in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including any action by or in the right of the Company) to
which the Director is, was or at any time becomes a party (other than a party
plaintiff suing on his own behalf or derivatively on behalf of the Company), or
is threatened to be made a party (other than a party plaintiff suing on his own
behalf or derivatively on behalf of the Company) by reason of the fact that the
Director is or was at any time a director, officer, employee or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including, without
limitation, Digital Teleport, Inc.
4. Limitation on Indemnity. Notwithstanding any other provision of this
Agreement to the contrary, the Company shall not indemnify any Director from or
on account of such person's conduct which is finally adjudged to have been
knowingly fraudulent or deliberately dishonest or to have constituted willful
misconduct.
5. Continuation of Indemnity. All of the Company's agreements and
obligations contained herein shall continue (a) during the period that the
Director is a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
including, without limitation, Digital Teleport, Inc. and (b) thereafter so
long as the Director shall be subject to any possible, claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that the Director is or was a director of
the Company or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after the Director
receives notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the Company
under this Agreement, notify the Company of the commencement thereof. The
failure to notify the Company will relieve the Company from any liability
hereunder to the extent the Company can show prejudice as a result of such
failure, and will not relieve the Company from any liability which it may have
to the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense; and,
(b) Except as otherwise provided below, to the extent that it may
wish, the Company (jointly with any other indemnifying party similarly
notified) will be entitled to assume the
-2-
<PAGE> 3
defense thereof with counsel satisfactory to Director. After the
Company notifies the Director of its election to assume such defense, the
Company will not be liable to the Director under this Agreement for any legal
or other expenses the Director subsequently incurs in connection with the
defense thereof other than reasonable costs of investigation or as otherwise
provided below. The Director shall have the right to employ his counsel in
such action, suit or proceeding, provided that the fees and expenses of such
counsel incurred after the Company has provided the Director with notice that
it is assuming the defense shall be at the Director's expense, unless (i) the
Company has authorized the Director's employment of counsel, (ii) the Director
shall have reasonably concluded that there may be a conflict of interest
between the Company and the Director in the conduct of the defense of such
action, or (iii) the Company shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses of
such counsel shall be at the Company's expense. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which the Director shall have made the
conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify the Director for any
amounts paid in settlement of any action or claim effected without the
Company's written consent. The Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on the Director without
the Director's written consent. Neither the Company nor the Director will
unreasonably withhold his or its consent to any proposed settlement.
7. Repayment of Expenses. The Director shall reimburse the Company for
all reasonable expenses the Company pays in defending any civil or criminal
action, suit or proceeding against the Director in the event and to the extent
that it shall be ultimately determined that the Director is not entitled to be
indemnified by the Company for such expenses under the provisions of the
Indemnification Statute, the By-laws, this Agreement or otherwise. Prior to
such determination, the Company shall make such advances as shall be reasonably
necessary to pay such expenses of the Director, provided the Company receives
an undertaking from the Director to repay such advances in the event it is
ultimately determined that the Director is not entitled to be indemnified
therefor.
8. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed hereby in order to induce
the Director to continue as a director of the Company, and acknowledges that
the Director is relying upon this Agreement in continuing in such capacity.
(b) In the event that the Director is required to bring any action to
enforce any rights or to collect any money due under this Agreement and is
successful in such action, the Company shall reimburse the Director for all of
the Director's reasonable fees and expenses in bringing and pursuing
such action.
9. Separability. Each provision of this Agreement is a separate and
distinct agreement, independent of the others. If any provision shall be held
to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of any of the
other provisions.
-3-
<PAGE> 4
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Missouri, without reference to its rules
governing conflicts of laws.
(b) This Agreement shall be binding upon the Director and the Company
and shall inure to the benefit of the Director, his heirs, personal
representatives and assigns and to the benefit of the Company, its successors
and assigns.
(c) In the event that the Company shall make any payment to or on
behalf of the Director under the terms of this Agreement, whether in
satisfaction of any judgment, payment in settlement, reimbursement of
expenses, or otherwise, the Company shall succeed to, and have by way of
subrogation, all of the rights theretofore possessed by the Director against
any other person, firm or corporation for or on account of the lawsuit, claim
or matter in respect of which the payment was made, including, without
limitation, full subrogation to any claim or right the Director had or may have
had against any insurance company providing D&O Insurance to the Company, its
officers and directors.
(d) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
* * * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
-------------------------------------
Richard D. Weinstein
President and Chief Executive Officer
/s/ R.G. Wasson
-------------------------------------
Ronald G. Wasson
-5-
<PAGE> 1
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of this 23rd
day of December, 1997 between DTI HOLDINGS, INC., a Missouri corporation (the
"Company"), and James V. O'Donnell (the "Director").
RECITALS
1. The Director is a member of the Board of Directors of the Company and
in such capacity is performing valuable services for the Company.
B. Section 6.5 of the By-laws of the Company (the "By-laws"), provides
for the indemnification of the officers, directors, agents and employees of the
Company to the full extent authorized by law.
C. The provisions of Section 351.355 of the General and Business
Corporation Laws of Missouri (the "Indemnification Statute") provides, among
other provisions, that a corporation shall have the power, subject to certain
exceptions, to give any further indemnity to its directors and officers,
including indemnification agreements, provided such indemnity is authorized,
directed and provided for in such corporation's articles of incorporation.
D. The Company presently maintains one or more policies of Directors and
Officers Liability Insurance ("D&O Insurance"), insuring against certain
liabilities which the Company's directors and officers may incur as they
perform services for the Company.
E. The Company deems it appropriate to enter into agreements with its
directors to provide them with greater indemnification against the liabilities
they incur in the performance of services for the Company.
TERMS
NOW, THEREFORE, in consideration of the Director's agreement to continue
service as a director of the Company, the parties hereto agree as follows:
1. Indemnity of Director. The Company agrees to indemnify the Director
and hold him harmless to the full extent authorized or permitted by the
provisions of the Indemnification Statute, or by any amendment thereof, or by
any other statutory provisions authorizing or permitting such indemnification
which may be adopted after the date hereof.
2. Maintenance of Insurance. The Company may, but shall not be required
to, continue all or any part of the D&O Insurance it has in force and effect
as of the date hereof. If the Company continues to maintain the D&O
Insurance, such insurance shall be primary, to the extent of the coverage
provided thereby, and the Company's agreement to provide the indemnification
set forth herein shall be effective only to the extent that the Director is not
reimbursed pursuant to the coverage
-1-
<PAGE> 2
maintained under the D&O Insurance or any comparable insurance.
If the Company does not maintain such insurance, the Company shall fully
indemnify the Director in accordance with the provisions of Section 1 and
Section 3 of this Agreement.
3. Additional Indemnity. Subject only to the exclusion set forth in
Section 4 hereof, the Company hereby agrees to indemnify the Director and hold
him harmless from and against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Director in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including any action by or in the right of the Company) to
which the Director is, was or at any time becomes a party (other than a party
plaintiff suing on his own behalf or derivatively on behalf of the Company), or
is threatened to be made a party (other than a party plaintiff suing on his own
behalf or derivatively on behalf of the Company) by reason of the fact that the
Director is or was at any time a director, officer, employee or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including, without
limitation, Digital Teleport, Inc.
4. Limitation on Indemnity. Notwithstanding any other provision of this
Agreement to the contrary, the Company shall not indemnify any Director from or
on account of such person's conduct which is finally adjudged to have been
knowingly fraudulent or deliberately dishonest or to have constituted willful
misconduct.
5. Continuation of Indemnity. All of the Company's agreements and
obligations contained herein shall continue (a) during the period that the
Director is a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
including, without limitation, Digital Teleport, Inc. and (b) thereafter so
long as the Director shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that the Director is or was a director of
the Company or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after the Director
receives notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the Company
under this Agreement, notify the Company of the commencement thereof. The
failure to notify the Company will relieve the Company from any liability
hereunder to the extent the Company can show prejudice as a result of such
failure, and will not relieve the Company from any liability which it may have
to the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense; and,
(b) Except as otherwise provided below, to the extent that it may
wish, the Company (jointly with any other indemnifying party similarly
notified) will be entitled to assume the
-2-
<PAGE> 3
defense thereof with counsel satisfactory to Director. After the
Company notifies the Director of its election to assume such defense, the
Company will not be liable to the Director under this Agreement for any legal
or other expenses the Director subsequently incurs in connection with the
defense thereof other than reasonable costs of investigation or as otherwise
provided below. The Director shall have the right to employ his counsel in
such action, suit or proceeding, provided that the fees and expenses of such
counsel incurred after the Company has provided the Director with notice that
it is assuming the defense shall be at the Director's expense, unless (i) the
Company has authorized the Director's employment of counsel, (ii) the Director
shall have reasonably concluded that there may be a conflict of interest
between the Company and the Director in the conduct of the defense of such
action, or (iii) the Company shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses of
such counsel shall be at the Company's expense. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which the Director shall have made the
conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify the Director for any
amounts paid in settlement of any action or claim effected without the
Company's written consent. The Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on the Director without
the Director's written consent. Neither the Company nor the Director will
unreasonably withhold his or its consent to any proposed settlement.
7. Repayment of Expenses. The Director shall reimburse the Company for
all reasonable expenses the Company pays in defending any civil or criminal
action, suit or proceeding against the Director in the event and to the extent
that it shall be ultimately determined that the Director is not entitled to be
indemnified by the Company for such expenses under the provisions of the
Indemnification Statute, the By-laws, this Agreement or otherwise. Prior to
such determination, the Company shall make such advances as shall be reasonably
necessary to pay such expenses of the Director, provided the Company receives
an undertaking from the Director to repay such advances in the event it is
ultimately determined that the Director is not entitled to be indemnified
therefor.
8. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed hereby in order to induce
the Director to continue as a director of the Company, and acknowledges that
the Director is relying upon this Agreement in continuing in such capacity.
(b) In the event that the Director is required to bring any action to
enforce any rights or to collect any money due under this Agreement and is
successful in such action, the Company shall reimburse the Director for all of
the Director's reasonable fees and expenses in bringing and pursuing such
action.
9. Separability. Each provision of this Agreement is a separate and
distinct agreement, independent of the others. If any provision shall be held
to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of any of the
other provisions.
-3-
<PAGE> 4
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Missouri, without reference to its rules
governing conflicts of laws.
(b) This Agreement shall be binding upon the Director and the Company
and shall inure to the benefit of the Director, his heirs, personal
representatives and assigns and to the benefit of the Company, its successors
and assigns.
(c) In the event that the Company shall make any payment to or on
behalf of the Director under the terms of this Agreement, whether in
satisfaction of any judgment, payment in settlement, reimbursement of
expenses, or otherwise, the Company shall succeed to, and have by way of
subrogation, all of the rights theretofore possessed by the Director against
any other person, firm or corporation for or on account of the lawsuit, claim
or matter in respect of which the payment was made, including, without
limitation, full subrogation to any claim or right the Director had or may have
had against any insurance company providing D&O Insurance to the Company, its
officers and directors.
(d) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
* * * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
-------------------------------------
Richard D. Weinstein
President and Chief Executive Officer
/s/ James V. O'Donnell
-------------------------------------
James V. O'Donnell
-5-
<PAGE> 1
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of this 23rd
day of December, 1997 between DTI HOLDINGS, INC., a Missouri corporation (the
"Company"), and Kenneth V. Hager (the "Director").
RECITALS
1. The Director is a member of the Board of Directors of the Company and
in such capacity is performing valuable services for the Company.
B. Section 6.5 of the By-laws of the Company (the "By-laws"), provides
for the indemnification of the officers, directors, agents and employees of the
Company to the full extent authorized by law.
C. The provisions of Section 351.355 of the General and Business
Corporation Laws of Missouri (the "Indemnification Statute") provides, among
other provisions, that a corporation shall have the power, subject to certain
exceptions, to give any further indemnity to its directors and officers,
including indemnification agreements, provided such indemnity is authorized,
directed and provided for in such corporation's articles of incorporation.
D. The Company presently maintains one or more policies of Directors and
Officers Liability Insurance ("D&O Insurance"), insuring against certain
liabilities which the Company's directors and officers may incur as they
perform services for the Company.
E. The Company deems it appropriate to enter into agreements with its
directors to provide them with greater indemnification against the liabilities
they incur in the performance of services for the Company.
TERMS
NOW, THEREFORE, in consideration of the Director's agreement to continue
service as a director of the Company, the parties hereto agree as follows:
1. Indemnity of Director. The Company agrees to indemnify the Director
and hold him harmless to the full extent authorized or permitted by the
provisions of the Indemnification Statute, or by any amendment thereof, or by
any other statutory provisions authorizing or permitting such indemnification
which may be adopted after the date hereof.
2. Maintenance of Insurance. The Company may, but shall not be required
to, continue all or any part of the D&O Insurance it has in force and effect as
of the date hereof. If the Company continues to maintain the D&O Insurance,
such insurance shall be primary, to the extent of the coverage provided
thereby, and the Company's agreement to provide the indemnification set forth
herein shall be effective only to the extent that the Director is not
reimbursed pursuant to the coverage
-1-
<PAGE> 2
maintained under the D&O Insurance or any comparable insurance. If the Company
does not maintain such insurance, the Company shall fully indemnify the
Director in accordance with the provisions of Section 1 and Section 3 of this
Agreement.
3. Additional Indemnity. Subject only to the exclusion set forth in
Section 4 hereof, the Company hereby agrees to indemnify the Director and hold
him harmless from and against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Director in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including any action by or in the right of the Company) to
which the Director is, was or at any time becomes a party (other than a party
plaintiff suing on his own behalf or derivatively on behalf of the Company), or
is threatened to be made a party (other than a party plaintiff suing on his own
behalf or derivatively on behalf of the Company) by reason of the fact that the
Director is or was at any time a director, officer, employee or agent of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise including, without
limitation, Digital Teleport, Inc.
4. Limitation on Indemnity. Notwithstanding any other provision of this
Agreement to the contrary, the Company shall not indemnify any Director from or
on account of such person's conduct which is finally adjudged to have been
knowingly fraudulent or deliberately dishonest or to have constituted willful
misconduct.
5. Continuation of Indemnity. All of the Company's agreements and
obligations contained herein shall continue (a) during the period that the
Director is a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
including, without limitation, Digital Teleport, Inc., and (b) thereafter so
long as the Director shall be subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that the Director is or was a director of
the Company or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after the Director
receives notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the Company
under this Agreement, notify the Company of the commencement thereof. The
failure to notify the Company will relieve the Company from any liability
hereunder to the extent the Company can show prejudice as a result of such
failure, and will not relieve the Company from any liability which it may have
to the Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which the Director notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense; and,
(b) Except as otherwise provided below, to the extent that it may wish,
the Company (jointly with any other indemnifying party similarly notified) will
be entitled to assume the
-2-
<PAGE> 3
defense thereof with counsel satisfactory to Director. After the Company
notifies the Director of its election to assume such defense, the Company will
not be liable to the Director under this Agreement for any legal or other
expenses the Director subsequently incurs in connection with the defense
thereof other than reasonable costs of investigation or as otherwise provided
below. The Director shall have the right to employ his counsel in such action,
suit or proceeding, provided that the fees and expenses of such counsel
incurred after the Company has provided the Director with notice that it is
assuming the defense shall be at the Director's expense, unless (i) the Company
has authorized the Director's employment of counsel, (ii) the Director shall
have reasonably concluded that there may be a conflict of interest between the
Company and the Director in the conduct of the defense of such action, or (iii)
the Company shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of such counsel shall
be at the Company's expense. The Company shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Company or as to which the Director shall have made the conclusion provided for
in (ii) above.
(c) The Company shall not be liable to indemnify the Director for any
amounts paid in settlement of any action or claim effected without the
Company's written consent. The Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on the Director without
the Director's written consent. Neither the Company nor the Director will
unreasonably withhold his or its consent to any proposed settlement.
7. Repayment of Expenses. The Director shall reimburse the Company for
all reasonable expenses the Company pays in defending any civil or criminal
action, suit or proceeding against the Director in the event and to the extent
that it shall be ultimately determined that the Director is not entitled to be
indemnified by the Company for such expenses under the provisions of the
Indemnification Statute, the By-laws, this Agreement or otherwise. Prior to
such determination, the Company shall make such advances as shall be reasonably
necessary to pay such expenses of the Director, provided the Company receives
an undertaking from the Director to repay such advances in the event it is
ultimately determined that the Director is not entitled to be indemnified
therefor.
8. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed hereby in order to induce
the Director to continue as a director of the Company, and acknowledges that
the Director is relying upon this Agreement in continuing in such capacity.
(b) In the event that the Director is required to bring any action to
enforce any rights or to collect any money due under this Agreement and is
successful in such action, the Company shall reimburse the Director for all of
the Director's reasonable fees and expenses in bringing and pursuing such
action.
9. Separability. Each provision of this Agreement is a separate and
distinct agreement, independent of the others. If any provision shall be held
to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of any of the
other provisions.
-3-
<PAGE> 4
10. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Missouri, without reference to its rules governing
conflicts of laws.
(b) This Agreement shall be binding upon the Director and the Company
and shall inure to the benefit of the Director, his heirs, personal
representatives and assigns and to the benefit of the Company, its successors
and assigns.
(c) In the event that the Company shall make any payment to or on
behalf of the Director under the terms of this Agreement, whether in
satisfaction of any judgment, payment in settlement, reimbursement of
expenses, or otherwise, the Company shall succeed to, and have by way of
subrogation, all of the rights theretofore possessed by the Director against
any other person, firm or corporation for or on account of the lawsuit, claim
or matter in respect of which the payment was made, including, without
limitation, full subrogation to any claim or right the Director had or may have
had against any insurance company providing D&O Insurance to the Company, its
officers and directors.
(d) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
* * * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the day and year first above written.
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
-----------------------------------
Richard D. Weinstein
President and Chief Executive Officer
/s/ Kenneth V. Hager
------------------------------------
Kenneth V. Hager
-5-
<PAGE> 1
EXHIBIT 10.8
DIGITAL TELEPORT, INC.
1997 LONG-TERM INCENTIVE AWARD PLAN
SECTION 1. PURPOSES
The purposes of the 1997 Long-Term Incentive Award Plan are to advance the
interests of Digital Teleport, Inc. and its shareholders by providing a means to
attract, retain, and motivate Employees and Directors of the Company and its
Subsidiaries and Affiliates upon whose judgment, initiative, and efforts the
continued success, growth, and development of the Company is dependent. By
encouraging Employees of the Company and its Subsidiaries and Affiliates to
acquire a proprietary interest in the Company's growth and performance, the
Company intends to more closely align the interests of the Company's Employees,
management, and shareholders and motivate Employees to enhance the value of the
Company for the benefit of all shareholders.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings set forth
below unless a different meaning is clearly indicated by the context:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan, provided that the Company
directly or indirectly owns at least 50% of the combined voting power
of all classes of stock of such entity or at least 50% of the ownership
interests in such entity.
(b) "Award" means any Option, Stock Appreciation Right, Restricted Share,
Restricted Share Unit, Performance Share, Performance Unit, Dividend
Equivalent, or Other Share-Based Award granted pursuant to the
provisions of the Plan.
<PAGE> 2
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award granted hereunder.
(d) "Beneficiary" means the person, persons, trust, or trusts which have
been designated by such Participant in his or her most recent written
Beneficiary designation filed with the Company to receive the benefits
specified under this Plan upon the death of the Participant, or, if
there is no designated Beneficiary or surviving designated Beneficiary,
then the person, persons, trust, or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Committee" means the Compensation Committee of the Board, or such
other Committee as may be designated by the Board to administer the
Plan; provided, however, that the Committee shall consist of two or
more Directors of the Company, each of whom is an "outsider Director"
within the meaning of Section 162(m)(4)(C) of the Code. Until the later
of (1) the date of completion of the Initial Public Offering, or (2)
such time as the Board has appointed members to the Compensation
Committee, all of which are outside Directors as defined above, Richard
D. Weinstein and Ronald G. Wasson shall serve as the Committee
authorized to administer this Plan.
(h) "Company" means Digital Teleport, Inc., a corporation organized under
the laws of the state of Missouri, or any successor corporation.
(i) "Director" means a non-Employee member of the Board.
2
<PAGE> 3
(j) "Director's Option" means a Nonqualified Stock Option granted to a
Director under Section 7.
(k) "Dividend Equivalent" means a right, granted under Section 5(g), to
receive cash, Shares, or other property equal in value to dividends
paid with respect to a specified number of Shares. Dividend Equivalents
may be awarded on a free-standing basis or in connection with another
Award, and may be paid currently or on a deferred basis.
(1) "Employee" means an employee of the Company or its Subsidiaries and
Affiliates who is responsible for or contributes to the management,
growth and/or profitability of the business of the Company, its
Subsidiaries or Affiliates, as determined by the Committee.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act
shall be deemed to include successor provisions thereto and regulations
thereunder.
(n) "Fair Market Value" means, with respect to Shares or other property,
the fair market value of such Shares or other property determined by
such methods or procedures as shall be established from time to time by
the Committee. If the Shares are listed on any established stock
exchange or on a national market system, unless otherwise determined by
the Committee in good faith, the Fair Market Value of Shares shall mean
the mean between the high and low selling prices per Share on the
immediately preceding date (or, if the Shares were not traded on that
day, the next preceding day that the Shares were traded) on the
principal exchange on which the Shares are traded, as such prices are
officially quoted on such exchange.
3
<PAGE> 4
(o) "Incentive Stock Option" means any Option intended to be and designated
as an Incentive Stock Option within the meaning of Section 422 of the
Code.
(p) "Initial Public Offering" means a public offering of Shares of the
Company.
(q) "Nonqualified Stock Option" means any Option granted under Section 5 or
Section 7 that is not intended to be an Incentive Stock Option.
(r) "Option" means a right, granted under Section 5(b) or Section 7 to
purchase Shares.
(s) "Other Share-Based Award" means a right, granted under Section 5(h),
that relates to or is valued by reference to Shares.
(t) "Participant" means an Employee or Director who has been granted an
Award or Director's Option under the Plan.
(u) "Performance Share" means any grant pursuant to Section 5(f) of a Unit
valued by reference to a designated number of Shares.
(v) "Performance Unit" means any grant pursuant to Section 5(f) of (1) a
bonus consisting of cash or other property the amount or value of
which, and/or the entitlement to which, is conditioned upon the
attainment any performance goals specified by the Committee, or (2) a
Unit valued by reference to a designated amount of property other than
Shares.
(w) "Plan" means this 1997 Long-Term Incentive Award Plan.
(x) "Restricted Shares" means an Award of Shares under Section 5(d) that
may be subject to certain restrictions and to a risk of forfeiture.
(y) "Restricted Share Unit" means a right, granted under Section 5(e), to
receive Shares or cash at the end of specified deferral period.
4
<PAGE> 5
(z) "Shares" means common stock, $0.01 par value per Share, of the Company.
(aa) "Stock Appreciation Right" means the right, granted under Section 5(c),
to be paid an amount measured by the difference between the exercise
price of the right and the Fair Market Value of Shares on the date of
exercise of the right, with payment to be made in cash, Shares, or
property as specified in the Award or determined by the Committee.
(bb) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns Shares possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
SECTION 3. ADMINISTRATION
(a) Authority of the Committee. Except as provided in subsection (d) of
this Section 3, the Plan shall be administered by the Committee, and
the Committee shall have full and final authority to take the following
actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Employees to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted to each
Employee;
(iv) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and
conditions of any Award granted under the Plan (including, but
not limited to, any exercise price, grant price, or
5
<PAGE> 6
purchase price, and any bases for adjusting such exercise,
grant or purchase price, any restriction or condition, any
schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement
of an Award, and waiver or accelerations thereof, and waivers
of performance conditions relating to an Award, based in each
case on such considerations as the Committee shall determine),
and all other matters to be determined in connection with an
Award;
(v) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price
of an Award may be paid, in cash, Shares, other Awards, or
other property, or an Award may be canceled, forfeited,
exchanged, or surrendered;
(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards, or other property
payable with respect to an Award will be deferred either
automatically, at the election of the Committee, or at the
election of the Participant;
(vii) to prescribe the form of each Award Agreement, which need not
be identical for each Employee;
(viii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
6
<PAGE> 7
(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the
Plan and any Award, rules and regulations, Award Agreement, or
other instrument hereunder;
(x) to accelerate the exercisability or vesting of all or any
portion of any Award or to extend the period during which an
Award is exercisable; and
(xi) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may
deem necessary or advisable for the administration of the
Plan.
(b) Manner of Exercise of Committee Authority. The Committee shall have
sole discretion in exercising its authority under the Plan. Any action
of the Committee with respect to the Plan shall be final, conclusive,
and binding on all persons, including the Company, Subsidiaries,
Affiliates, Employees, any person claiming any rights under the Plan
from or through any Employee, and shareholders. The express grant of
any specific power to the Committee, and the taking of any action by
the Committee, shall not be construed as limiting any power or
authority of the Committee. Subject to such terms as the Committee
shall determine, the Committee may delegate to Officers or managers of
the Company or any Subsidiary or Affiliate the authority to perform
administrative and other functions as the Committee may determine.
(c) Limitation of Liability. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information
furnished to him or her by any Officer or other Employee of the Company
or any Subsidiary or Affiliate, the Company's independent certified
public accountants, or other professional retained by the Company
7
<PAGE> 8
to assist in the administration of the Plan. No member of the
Committee, nor any Officer or Employee of the Company acting on behalf
of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with
respect to the Plan, and all members of Committee and any Officer or
Employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company
with respect to any such action, determination, or interpretation.
(d) Limitation of Committee's Discretion. Anything in this Plan to the
contrary notwithstanding, in the case of any Award which is intended to
qualify as "performance-based compensation" within the meaning of
Section 162(m)(4)(C) of the Code, the Committee shall have no
discretion to increase the amount of compensation payable under the
Award to the extent such an increase would cause the Award to lose its
qualification as such performance-based compensation.
SECTION 4. SHARES SUBJECT TO THE PLAN
(a) Number of Shares. Subject to adjustment as provided in Section 4(c)
hereof, the total number of Shares reserved for issuance in connection
with Awards and Director's Options under the Plan shall be three
thousand (3,000). No Award or Director's Options may be granted if the
number of Shares to which such Award or Director's Options relates,
when added to the number of Shares previously issued under the Plan,
exceeds the number of Shares reserved under the preceding sentence. If
any Awards or Director's Options are forfeited, canceled, terminated,
exchanged or surrendered or such Award or Director's Options is settled
in cash or otherwise terminates without a distribution of Shares to the
8
<PAGE> 9
Participant, any Shares counted against the number of Shares reserved
and available under the Plan with respect to such Award or Director's
Options shall, to the extent of any such forfeiture, settlement,
termination, cancellation, exchange or surrender, again be available
for Awards or Director's Options under the Plan. Upon the exercise of
any Award granted in tandem with any other Awards, such related Awards
shall be canceled to the extent of the number of Shares as to which the
Award is exercised. Subject to adjustment as provided in Section 4(c)
hereof, the maximum number of Shares with respect to which Options or
Stock Appreciations Rights may be granted during a calendar year to any
Employee under this Plan shall be one thousand five hundred (1,500)
Shares or with respect to Restricted Shares and Performance Shares the
equivalent of one thousand five hundred (1,500) Shares during a
calendar year.
(b) Source of Shares. Any Shares distributed pursuant to an Award or
Director's Options may consist, in while or in part, of authorized and
unissued Shares, treasury Shares or Shares acquired by purchase in the
open market or in private transactions.
(c) Adjustment in Shares. In the event that the Committee shall determine
that any dividend in Shares, recapitalization, Share split, reverse
split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or Share exchange, or other similar corporate transaction
or event, affects the Shares such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of Employees
under the Plan, then the Committee shall make such equitable changes or
adjustments as it deems appropriate and, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of Shares which
may thereafter be issued under the Plan, (ii) the number and kind of
9
<PAGE> 10
Shares, other securities or other consideration issued or issuable in
respect of outstanding Awards, and (iii) the exercise price, grant
price, or purchase price relating to any Award; provided, however, in
each case that, with respect to Incentive Stock Options, such
adjustment shall be made in accordance with Section 424(h) of the Code,
unless the Committee determines otherwise. In addition, the Committee
is authorized to make adjustments in the terms and conditions of, and
the criteria and performance objectives included in, Awards in
recognition of unusual or non-recurring events (including, without
limitation, events described in the preceding sentence) affecting the
Company or any Subsidiary of Affiliate or the financial statements of
the Company or any Subsidiary or Affiliate, or in response to changes
in applicable laws, regulations, or accounting principles; provided,
however, that, if an Award Agreement specifically so provides, the
Committee shall not have discretion to increase the amount of
compensation payable under the Award to the extent such an increase
would cause the Award to lose its qualification as performance-based
compensation for purposes of Section 162(m)(4)(c) of the Code and the
regulations thereunder.
SECTION 5. SPECIFIC TERMS OF AWARDS
(a) General. Awards may be granted on the terms and conditions set forth in
this Section 5. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter, such
additional terms and conditions not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms regarding
forfeiture of Awards or continued exercisability of Awards in the event
of termination of employment by the Participant.
10
<PAGE> 11
(b) Options. The Committee is authorized to grant Options, which may be
Nonqualified Stock Options or Incentive Stock Options, to Employees on
the following terms and conditions:
(i) Exercise Price. The exercise price per Share purchasable under
an Option shall be determined by the Committee, and the
Committee may, without limitation, set an exercise price that
is based upon achievement of performance criteria if deemed
appropriate by the Committee.
(ii) Time and Method of Exercise. The Committee shall determine at
the date of grant or thereafter the time or times at which an
Option may be exercised in whole or in part (including,
without limitation, upon achievement of performance criteria
if deemed appropriate by the Committee), the methods by which
such exercise price may be paid or deemed to be paid
(including, without limitation, broker-assisted exercise
arrangements), the form of such payment (including, without
limitation, cash, Shares, notes or other property), and the
methods by which Shares will be delivered or deemed to be
delivered to Employees.
(iii) Incentive Stock Options. The terms of any Incentive Stock
Options granted under the Plan shall comply in all respects
with the provisions of Section 422 of the Code, or any
successor provision, and any regulations promulgated
thereunder. In accordance with rules and procedures
established by the Committee, to the extent that the aggregate
Fair Market Value (determined as of the time of the grant) of
the Shares with respect to which options that would otherwise
be Incentive Stock Options held by any Participant are
exercisable for the first time by such
11
<PAGE> 12
Participant during any calendar year under the Plan (and under
any other benefit Plans of the Company or of any Parent or
Subsidiary corporation of the Company as defined in Section
424 of the Code) exceeds one hundred thousand dollars
($100,000) (or, if different, the maximum limitation in effect
at the time of grant under Section 422 of the Code, or any
successor provision, and any regulations promulgated
thereunder) such Options shall be Nonqualified Options. The
Option price per Share purchasable under an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of
the Share on the date of grant of the Option. Each Incentive
Stock Option shall expire not later than ten (10) years from
its date of grant. No Incentive Stock Option shall be granted
to any Employee if at the time the Option is granted, such
Participant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company,
its parent, or its Subsidiaries unless:
(A) the Option price per Share is at least 110% of the
Fair Market Value of the Share on date of grant; and
(B) such Option by its terms is not exercisable after the
expiration of five (5) years from the date such
Option is granted.
(iv) Reload Options. If and to the extent the Committee expressly
provides, at the time of grant or later, that the Participant
shall have the right to receive Reload Options with respect to
Nonqualified Stock Options, the Participant shall receive
Reload Options in accordance with and subject to the following
terms and conditions:
12
<PAGE> 13
(A) Grant of the Reload Option; Number of Shares; Price.
Subject to Paragraph (B) of this Subsection and,
except as provided in Paragraph (H) hereof, to the
availability of Shares to be Optioned to the
Participant under the Plan (including the limitations
set forth in Section 4), if a Participant has an
Option (the "Original Option") with reload rights and
pays for the exercise of the original Option by
surrendering Shares or restricted stock (whether by
means of delivering Shares or restricted stock
previously held by the Optionee or by delivering
Shares of restricted stock simultaneously acquired on
exercise of the original Option), the Participant
shall receive a new Option ("Reload Option") for the
number of Shares of restricted shares so surrendered
at an Option price per Share equal to the Fair Market
Value of a Share on the date of the exercise of the
original Option.
(B) Conditions to Grant of Reload Option. A Reload Option
will not be granted: (1) if the Fair Market Value of
a Share on the date of exercise of the original
Option is less than the exercise price of the
original Option; or (2) if the Participant is no
longer an employee of the Company or an Affiliate.
(C) Term of Reload Option. The Reload Option shall expire
on the same date as the original Option, or at such
later date as the Committee may provide.
(D) Type of Option. The Reload Option shall be a
Nonqualified Stock Option.
(E) Additional Reload Options. Except as expressly
provided that the Committee (at the time of the grant
of the original Option or Reload
13
<PAGE> 14
Option or later), Reload Options shall not include
any right to subsequent Reload Options.
(F) Date of Grant and Vesting. The date of grant of the
Reload Option shall be the date of the exercise of
the original Option. The Reload Options shall be
exercisable in full beginning from date of grant,
except as otherwise provided by the Committee.
(G) Stock Withholding; Grants of Reload Options. If and
to the extent permitted by the Committee, if the
other requirements of this Subsection are satisfied,
and if Shares are withheld or Shares surrendered for
tax withholding pursuant to Section 9(c), a Reload
Option will be granted for the number of Shares
surrendered as payment for the exercise of the
original Option plus the number of Shares surrendered
or withheld to satisfy tax withholding.
(H) Share Limits. Reload Options shall not be counted
against or as a reduction from the number of Shares
available for grant under Section 4 because such
grants are a substitute for Shares transferred to or
withheld by the Company.
(c) Stock Appreciation Rights. The Committee is authorized to grant Stock
Appreciation Rights to Employees on the following terms and conditions:
(i) Right to Payment. A Stock Appreciation Right shall confer on
the Employee to whom it is granted a right to receive with
respect to each Share subject thereto, upon exercise thereof,
the excess of (1) the Fair Market Value of one Share on the
14
<PAGE> 15
date of exercise (or if the Committee shall so determine in
the case of any such right, the Fair Market Value of one Share
at any time during a specified period before or after the date
of exercise) over (2) the exercise price of the Stock
Appreciation Right as determined by the Committee as of the
date of grant of the Stock Appreciation Right (which, in the
case of an Stock Appreciation Right granted in tandem with an
Option, shall be equal to the exercise price of the underlying
Option).
(ii) Other Terms. The Committee shall determine, at the time of
grant or thereafter, the time or times at which a Stock
Appreciation Right may be exercised in whole or in part, the
method of exercise, method of settlement, form of
consideration payable in settlement, method by which Shares
will be delivered or deemed to be delivered to Participants,
whether or not a Stock Appreciation Right shall be in tandem
with any other Award, and any other terms and conditions of
any Stock Appreciation Right. Unless the Committee determines
otherwise, a Stock Appreciation Right (1) granted in tandem
with an Nonqualified Stock Options may be granted at the time
of grant of the related Nonqualified Stock Options or at any
time thereafter, and (2) granted in tandem with an Incentive
Stock Option may only be granted at the time of grant of the
related Incentive Stock Option.
(d) Restricted Shares. The Committee is authorized to grant Restricted
Shares to Employees on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be subject
to such restrictions on transferability and other
restrictions, if any, as the Committee may impose
15
<PAGE> 16
at the date of grant or thereafter, which restrictions may
lapse separately or in combination at such times, under such
circumstances (including, without limitation, upon achievement
of performance criteria if deemed appropriate by the
Committee), in such installments or otherwise, as the
Committee may determine. Except to the extent restricted under
the Award Agreement relating to the Restricted Shares, an
Employee granted Restricted Shares shall have all of the
rights of a shareholders including, without limitation, the
right to vote Restricted Shares and the right to receive
dividends thereon. The Committee must certify in writing prior
to the lapse of restrictions conditioned on achievement of
performance criteria that such performance criteria were in
fact satisfied.
(ii) Forfeiture. A Restricted Share Award may condition the grant
of Restricted Shares and/or the lapse of any restriction or
restrictions on any combination of the achievement of one or
more performance goals and/or the completion of a specified
period of service as the Committee shall determine at the time
the Restricted Share Award is made. To the extent determined
by the Committee, the Committee shall adopt performance goals,
certify completion of such goals, and comply with other Code
requirements necessary to comply with performance-based
compensation requirements of Code Section 162(m). Performance
goals for Restricted Share Awards may be based, in whole or in
part, on one or more of the following performance-based
criteria or such other criteria as the Committee may
determine: (i) attainment during the restriction period of a
specific price per Share; (ii) attainment during the
restriction period of a specific rate of growth or increase in
the amount of growth in the price per Share; (iii) attainment
during the
16
<PAGE> 17
restriction period of a specific level of the Company's
earnings or earnings per Share; (iv) attainment during the
restriction period of a specified rate of growth or increase
in the amount of growth of the Company's earnings or earnings
per Share; (v) attainment during the restriction period of a
specified level of the Company's cash flow or cash flow per
Share; (vi) attainment during the restriction period of a
specific rate of growth or increase in the amount of growth of
the Company's cash flow or cash flow per Share; (vii)
attainment during the restriction period of a specified level
of the Company's return on equity; (viii) attainment during
the restriction period of a specified rate of growth or
increase in the amount of growth of the Company's return on
equity; (ix) attainment during the restrictions period of a
specified level of the Company's return on assets; or (x)
attainment during the restriction period of a specific rate of
growth or increase in the Company's return on assets. Except
as otherwise determined by the Committee, at the date of grant
or thereafter, upon termination of employment during the
applicable restriction period, Restricted Shares and any
accrued but unpaid dividends that are at that time subject to
restrictions shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted
Shares will be waived in whole or in part in the event of
terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the
forfeiture of Restricted Shares.
17
<PAGE> 18
(iii) Certificates for Shares. Restricted Shares granted under the
Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Shares are
registered in the name of the Employee, such certificates
shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted
Shares, and the Company shall retain physical possession of
the certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall be either
paid at the dividend payment date or deferred for payment to
such date as determined by the Committee, in cash or in
Unrestricted Shares having a Fair Market Value equal to the
amount of such dividends. Shares distributed in connection
with a Share split or dividend in Shares and other property
distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted
Shares with respect to which such Shares or other property has
been distributed.
(e) Restricted Share Units. The Committee is authorized to grant Restricted
Share Units to Employees, subject to the following terms and
conditions:
(i) Award and Restrictions. Delivery of Shares or cash, as the
case may be, will occur upon expiration of the deferral period
specified for Restricted Share Units by the Committee (or, if
permitted by the Committee, as elected by the Employee). In
addition, Restricted Share Units shall be subject to such
restrictions as the Committee may impose, if any (including,
without limitation, the achievement of performance criteria if
deemed appropriate by the Committee), at the date of grant or
thereafter, which restrictions may lapse at the expiration of
18
<PAGE> 19
the deferral period or at earlier or later specified times,
separately or in combination, in installments or otherwise, as
the Committee may determine. The Committee must certify in
writing prior to the lapse of restrictions conditioned on the
achievement of performance criteria that such criteria were in
fact satisfied.
(ii) Forfeiture. A Restricted Share Unit may condition the
Restricted Share Unit and/or the lapse of any restriction or
restrictions on any combination of the achievement of one or
more performance goals and/or the completion of a specified
period of service as the Committee shall determine at the time
the Restricted Share Unit Award is made. To the extent
determined by the Committee, the Committee shall adopt
performance goals, certify completion of such goals, and
comply with other Code requirements necessary to comply with
performance-based compensation requirements of Code Section
162(m). Performance goals for Restricted Share Unit Awards may
be based, in whole or in part, on one or more of the following
performance-based criteria or such other criteria as the
Committee may determine: (i) attainment during the deferral
period of a specific price per Share; (ii) attainment during
the deferral period of a specific rate of growth or increase
in the amount of growth in the price per Share; (iii)
attainment during the deferral period of a specific level of
the Company's earnings or earnings per Share; (iv) attainment
during the deferral period of a specified rate of growth or
increase in the amount of growth of the Company's earnings or
earnings per Share; (v) attainment during the deferral period
of a specified level of the Company's cash flow or cash flow
per Share; (vi) attainment during the deferral period of a
specific rate of growth or increase in the amount of
19
<PAGE> 20
growth of the Company's cash flow or cash flow per Share;
(vii) attainment during the deferral period of a specified
level of the Company's return on equity; (viii) attainment
during the deferral period of a specified rate of growth or
increase in the amount of growth of the Company's return on
equity; (ix) attainment during the deferral period of a
specified level of the Company's return on assets; or (x)
attainment during the deferral period of a specific rate of
grown or increase in the Company's return on assets. Except as
otherwise determined by the Committee, at the date of grant or
thereafter, upon termination of employment (as determined
under criteria established by the Committee during the
applicable deferral period or portion thereof to which
forfeiture conditions apply (as provided in the Award
Agreement evidencing the Restricted Share Units), or upon
failure to satisfy any other conditions precedent to the
delivery of Shares or cash to which such Restricted Share
Units relate, all Restricted Share Units that are at that time
subject to deferral or restriction shall be forfeited;
provided, however, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Restricted Share Units will be waived in whole or
in part in the event of termination resulting from specified
causes, and the Committee may in other cases waive in whole or
in part the forfeiture of Restricted Share Units.
(f) Performance Shares and Performance Units. The Committee is authorized
to grant Performance Shares or Performance Units or both to Employees
on the following terms and conditions:
20
<PAGE> 21
(i) Performance Period. The Committee shall determine a
Performance Period (the "Performance Period") of one or more
years and shall determine the performance objectives for grant
of Performance Shares and Performance Units. Performance
objectives may vary from Employee to Employee and shall be
based upon such performance criteria as the Committee may deem
appropriate. Performance Periods may overlap and Employees may
participate simultaneously with respect to Performance Shares
and Performance Units for which different Performance Periods
are prescribed.
(ii) Award Value. At the beginning of a Performance Period, the
Committee shall determine for each Employee or group of
Employees with respect to the Performance Period the range of
number of Shares, if any, in the case of Performance Shares,
and the range of dollar values, if any, in the case of
Performance Units, which may be fixed or may vary in
accordance with such performance or other criteria specified
by the Committee, which shall be paid to an Employee as an
Award if the relevant measure of Company performance for the
Performance Period is met.
(iii) Significant Events. If during the course of a Performance
Period there shall occur significant events as determined by
the Committee which the Committee expects to have a
substantial effect on a performance objective during such
period, the Committee may revise such objective; provided,
however, that, if an Award Agreement so provides, the
Committee shall not have any discretion to increase the amount
of compensation payable under the Award to the extent such as
21
<PAGE> 22
increase would cause the Award to lose its qualification as
performance-based compensation for purposes of Section
162(m)(4)(C) of the Code and the regulations thereunder.
(iv) Forfeiture. A Performance Share or Unit Award may condition
the grant of such Award and/or the lapse of any restriction or
restrictions on any combination of the achievement of one or
more performance goals and/or the completion of a specified
period of service as the Committee shall determine at the time
the Performance Share or Unit Award is made. To the extent
determined by the Committee, the Committee shall adopt
performance goals, certify completion of such goals, and
comply with other Code requirements necessary to comply with
performance-based compensation requirements of Code Section
162(m). Performance goals for Performance Share or Unit Awards
may be based, in whole or in part, on one or more of the
following performance-based criteria or such other criteria as
the Committee may determine: (i) attainment during the
Performance Period of a specific price per Share; (ii)
attainment during the Performance Period of a specific rate of
growth or increase in the amount of growth in the price per
Share; (iii) attainment during the Performance Period of a
specific level of the Company's earnings or earnings per
Share; (iv) attainment during the Performance Period of a
specified rate of growth or increase in the amount of growth
of the Company's earnings or earnings per Share; (v)
attainment during the Performance Period of a specified level
of the Company's cash flow or
22
<PAGE> 23
cash flow per Share; (vi) attainment during the Performance
Period of a specific rate of growth or increase in the amount
of growth of the Company's cash flow or cash flow per Share;
(vii) attainment during the Performance Period of a specified
level of the Company's return on equity; (viii) attainment
during the Performance Period of a specified rate of growth or
increase in the amount of growth of the Company's return on
equity; (ix) attainment during the Performance Period of a
specified level of the Company's return on assets; or (x)
attainment during the Performance Period of a specific rate of
growth or increase in the Company's return on assets. Except
as otherwise determined by the Committee, at the date of grant
or thereafter, upon termination of employment during the
applicable Performance Period, Performance Shares and
Performance Units for which the Performance Period was
prescribed shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in an individual case, that
restrictions or forfeiture conditions relating to Performance
Shares and Performance Units will be waived in whole or in
part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or
in part the forfeiture of Performance Shares and Performance
Units.
(v) Payment. Each Performance Share or Performance Unit may be
paid in whole Shares, or cash, or a combination of Shares and
cash either as a lump sum payment or in installments, all as
the Committee shall determine, at the time of grant of the
Performance Share or Performance Unit of otherwise, commencing
as soon as practicable after the end of the relevant
Performance Period. The Committee must certify in writing
prior to payment of any Performance Share or
23
<PAGE> 24
Performance Unit that the performance objectives and any other
material items were in fact satisfied.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to Employees. The Committee may provide, at the date of
grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may
specify, provided that Dividend Equivalents (other than freestanding
Dividend Equivalents) shall be subject to all conditions and
restrictions of the underlying Awards to which they relate.
(h) Other Share-Based Award. The Committee is authorized, subject to
limitations under applicable law, to grant to Employees such other
Awards that may be denominated or payable in, valued in whole or in
party by reference to, or otherwise based on, or related to, Shares, as
deemed by the Committee to be consistent with the purposes of the Plan,
including, without limitation, Unrestricted Shares awarded purely as a
"bonus" and not subject to any restrictions or conditions, other rights
convertible or exchangeable into Shares, purchase rights for Shares,
Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee, and Awards
valued by reference to the performance of specified Subsidiaries or
Affiliates. The Committee shall determine the terms and conditions of
such Awards at date of grant or thereafter. Shares delivered pursuant
to an Award in the nature of a purchase right granted under this
Section 5 (h) shall be purchased for such consideration, paid for at
such times, by such methods, and in such forms, including, without
limitation, cash,
24
<PAGE> 25
Shares, notes or other property, as the Committee shall determine. Cash
Awards, as an element of or supplement to any other Award under the
Plan, shall also be authorized pursuant to this Section 5(h).
SECTION 6. OTHER PROVISIONS APPLICABLE TO AWARDS
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted to
Employees either alone or in addition to, in tandem with, or in
exchange or substitution for, any other Award granted under the Plan or
any Award granted under any other Plan or agreement of the Company, any
Subsidiary or Affiliate, or any business entity to be acquired by the
Company or a Subsidiary or Affiliate, or any other right of an Employee
to receive payment from the Company or any Subsidiary or Affiliate.
Awards may be granted in addition to, in tandem with such other Awards
or Awards. The per Share exercise price of any Option, grant price of
any Stock Appreciation Right, or purchase price of any other Award
conferring a right to purchase Shares which is granted, in connection
with the substitution of Awards granted under any other Plan or
agreement of the Company or any Subsidiary or Affiliate or any business
entity to be acquired by the Company or any Subsidiary or Affiliate,
shall be determined by the Committee, in its discretion.
(b) Terms of Awards. The term of each Award granted to an Employee shall be
for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any Incentive Stock Option
or a Stock Appreciation Right granted in tandem therewith exceed a
period of ten years from the date of its grant (or such shorter period
as may be applicable under Section 422 of the Code).
25
<PAGE> 26
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an
Award may be made in such forms as the Committee shall determine at the
date of grant or thereafter, including, without limitation, cash,
Shares, or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis. The Committee may
make rules relating to installment or deferred payments with respect to
Awards, including the rate of interest to be credited with respect to
such payments.
(d) Nontransferability. Unless otherwise set forth by the Committee in an
Award Agreement, Awards (except for vested Shares) shall not be
transferable by a Participant except by will or the laws of descent and
distribution (except pursuant to a Beneficiary designation) and shall
be exercisable during the lifetime of a Participant only by such
Participant or his guardian or legal representative. A Participant's
rights under the Plan may not be pledged, mortgaged, hypothecated, or
otherwise encumbered, and shall not be subject to claims of the
Participant creditors.
SECTION 7. DIRECTOR'S OPTIONS
The Committee is authorized to grant Nonqualified Stock Options to Directors on
such terms and conditions as it shall determine.
SECTION 8. CHANGE OF CONTROL PROVISIONS
The Committee may determine the effect of any change of control on the terms of
any Options or other Awards granted hereunder, including without limitation (i)
the definition of change of control, (ii) the effect of any change of control on
the terms of the options, including without
26
<PAGE> 27
limitation on excercisability, or (iii) whether any special rights or cash-out
provisions shall be availale in the event of a change of control shall occur.
(a) Acceleration of Exercisability and Lapse of Restrictions; Cash-Out of
Awards. In the event of a Change of Control, the following acceleration
and cash-out provisions shall apply unless otherwise provided by the
Committee at the time of the Award grant.
(i) All outstanding Awards pursuant to which the Participant may
have rights the exercise of which is restricted or limited,
shall become fully exercisable; unless the right to lapse of
restrictions or limitations is waived or deferred by a
Participant prior to such lapse, all restrictions or
limitations (including risks of forfeiture and deferrals) on
outstanding Awards subject to restriction or limitations under
the Plan shall lapse; and all performance criteria and other
conditions to payment of Awards under which payments of cash,
Shares or other property are subject to conditions shall be
deemed to be achieved or fulfilled and shall be waived by the
Company.
(ii) For a period of up to 60 days following a Change of Control,
the Participant may elect to surrender any outstanding Award
and to receive, in full satisfaction therefor, a cash payment
equal to the value of such Award calculated on the basis of
the Change of Control Price of any Shares or the Fair Market
Value of any property other than Shares relating to such
Award; provided, however, that in the case of an Incentive
Stock Option, or a Stock Appreciation Right granted in tandem
therewith, the cash payment shall be based upon the Fair
Market Value of Shares or the date of exercise. In the event
that an Award is granted in tandem
27
<PAGE> 28
with another Award such that the Participant's right to
payment for such Award is an alternative to payment of another
Award, the Participant selecting to surrender any such tandem
Award shall surrender all alternative Awards related thereto
and receive payment for the Award which produces the highest
payment to the Participant.
(b) Definitions of Certain Terms. For purposes of this Section 8, the
following definitions, in addition to those set forth in Section 2,
shall apply:
(i) "Change of Control" means and shall be deemed to have occurred
if (a) any person (within the meaning of the Exchange Act),
other than the Company or a Related Party, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of Voting Securities
50% or more of the total voting power of all the
then-outstanding Voting Securities, (b) the individuals who,
as of the effective date of the Plan, constitute the Board of
Directors of the Company together with those who first become
Directors subsequent to such date and whose recommendation,
election or nomination for election to the Board was approved
by a vote of at least a majority of the Directors then still
in office who either were Directors as of the effective date
of the Plan or whose recommendation, election or nomination
for election was previously so approved (the "Continuing
Directors"), cease for any reason to constitute a majority of
the members of the Board, (c) the shareholders of the Company
approve a merger, consolidation, recapitalization or
reorganization of the Company, reverse split of any class of
Voting Securities, or an acquisition of
28
<PAGE> 29
securities or assets by the Company, or consummation of any
such transaction if shareholder approval is not obtained,
other than (i) any such transaction on which would result in
more than 50% of the total voting power represented by the
voting securities of the surviving entity outstanding
immediately after such transaction being beneficially owned by
more than 50% of the holders of outstanding Voting Securities
immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing
holders not substantially altered in the transaction, or (ii)
any such transaction which would result in a Related Party
beneficially owning more than 50% of the voting securities of
the surviving entity outstanding immediately after such
transaction, (d) the shareholders of the Company approve a
Plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets other than any such
transaction which would result in a Related Party owning or
acquiring more than 50% of the assets owned by the Company
immediately prior to the transaction.
(ii) "Change of Control Price" means, with respect to a Share, the
higher of (a) the highest reported sales price of Shares on
the principal exchange on which the Shares are traded during
the 30 calendar days preceding a Change of Control, or (b) the
highest price paid or offered in a transaction which either
(i) results in a Change of Control, or (ii) would be
consummated but for another transaction which results in a
Change of Control and, if it were consummated, would result in
Change of Control. With respect to clause (b) in the preceding
sentence, the "price paid or offered" will be equal to the sum
of (i) the face amount of any
29
<PAGE> 30
portion of the consideration consisting of cash or cash
equivalents and (ii) the Fair Market Value of any portion of
the consideration consisting of real or personal property
other than cash or cash equivalents, as established by an
independent appraiser selected by the Committee.
(iii) "Related Party" means (a) a wholly-owned Subsidiary of the
Company; or (b) an Employee or group of Employees of the
Company or any wholly-owned Subsidiary of the Company; or (c)
a trustee or other fiduciary holding securities under an
Employee benefit Plan of the Company or any wholly-owned
Subsidiary of the Company; or (d) a corporation owned directly
or indirectly by the shareholders of the Company in
substantially the same proportion as their ownership of Voting
Securities.
(iv) "Voting Securities or Security" means any securities of the
Company which carry the right to vote generally in the
election of Directors.
SECTION 9. GENERAL PROVISIONS
(a) Compliance with Legal and Trading Requirements. The Plan, the granting
and exercising of Awards or Director's Options thereunder, and the
other obligations of the Company under the Plan and any Award
Agreement, shall be subject to all applicable federal and state laws,
rules and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion,
may postpone the issuance or delivery of Shares under any Award or
Director's Option until completion of such stock exchange or market
system listing or registration or qualification of such Shares or other
required action under any state or federal law, rule or regulation as
the Company may
30
<PAGE> 31
consider appropriate, and may require any Participant to make such
representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Shares in
compliance with applicable laws, rules and regulations. No provisions
of the Plan shall be interpreted or construed to obligate the Company
to register any Shares under federal or state law.
(b) No Right to Continued Employment or Service. Neither the Plan nor any
action taken thereunder shall be construed as giving any Employee the
right to be retained in the employ or service of the Company or any of
its Subsidiaries or Affiliates, nor shall it interfere in any way with
the right of the Company of any of its Subsidiaries or Affiliates to
terminate any Employee's or Director's employment or service at any
time.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under
the Plan, including from a distribution of Shares, or any payroll or
other payment to an Employee, amounts of withholding and other taxes
due in connection with any transaction involving an Award, and to take
such other action as the Committee may deem advisable to enable the
Company and Employees to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Shares or
other property and to make cash payments in respect thereof in
satisfaction of an Employee's tax obligations.
(d) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan, except that any such amendment,
alteration, suspension, discontinuation, or termination shall be
31
<PAGE> 32
subject to the approval of the Company's shareholders to the extent
such shareholder approval is required (i) to insure that such Awards
will be performance-based compensation" pursuant to Code Section 162(m)
or (ii) under Section 422 of the Code; provided, however, that, without
the consent of an affected Participant, no amendment, alteration,
suspension, discontinuation, or termination of the Plan may impair the
rights or, in any other manner, adversely affect the rights of such
Participant under any Award or Director's Options theretofore granted
to him or her.
(e) No Rights to Awards; No Shareholder Rights. No Employee or Employee
shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Employees and
Employees. No Award shall confer on any Employee any of the rights of a
shareholder of the Company unless and until Shares are duly issued or
transferred to the Employee in accordance with the terms of the Award.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" Plan for incentive compensation. With respect to any
payments not yet made to a Participant pursuant to an Award or
Director's Options, nothing contained in the Plan or any Award or
Director's Option shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided,
however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Shares, other Awards, or other property pursuant
to any Award, which trusts or other arrangements shall be consistent
with the "unfunded" status of the Plan unless the Committee otherwise
determines with the consent of each affected Participant.
32
<PAGE> 33
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations the power of
the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of Options and
other Awards otherwise than under the Plan, and such arrangements may
be either applicable generally or only in specific cases.
(h) Not Compensation for Benefit Plans. No Award payable under this Plan
shall be deemed salary or compensation for the purpose of computing
benefits under any benefit Plan or other arrangement of the Company for
the benefit of its Employees or Directors unless the Company shall
determine otherwise.
(i) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award or Director's Option. Cash shall be
paid in lieu of such fractional Share.
(j) Governing Law. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan, and any Award Agreement
shall be determined in accordance with the laws of the state of
Missouri without giving effect to principles of conflict of laws.
(k) Effective Date; Plan Termination. The Plan shall become effective as of
August 1997, (the "Effective Date") upon approval by the affirmative
votes of the holders of a majority of voting securities of the Company
voting upon the adoption of the Plan. The Plan shall terminate as to
future Awards on the date which is ten (10) years after the Effective
Date, but any Award granted may extend beyond such date.
33
<PAGE> 34
(l) Titles and Headings. The titles and headings of the sections in the
Plan are for convenience of reference only. In the event of any
conflict, the text of the Plan, rather than such titles or headings,
shall control.
34
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this
9th day of September, 1997, by and Digital Teleport, Inc., a Missouri
corporation (the "Company"), and Robert F. McCormick ("Executive").
WITNESSETH:
WHEREAS, the Company desires to obtain the benefit of the
services of Executive, and Executive desires to be employed by the Company and
render such services on the terms and conditions, including compensation,
hereinafter set forth;
WHEREAS, in the event that Executive terminates employment
with the Company, Executive acknowledges that, by accepting employment with a
person or entity offering products or services competitive with the Company's,
Executive would put him or herself in a position where Executive would
unavoidably be called on to utilize and/or disclose the Company's trade secrets
and confidential information relating to the Company's business or to use
Company customer contacts in violation of this Employment Agreement, and that
the only practicable method for insuring compliance with this Employment
Agreement is for Executive to refrain from employment with any competitor of the
Company for a reasonable period of time.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth, it is hereby agreed as follows:
1. Employment. Executive is hereby employed by the Company and
Executive hereby accepts such employment upon the terms and conditions
hereinafter set forth, provided that the employment of Executive upon the terms
and conditions set forth herein are contingent upon Executive passing a
pre-employment physical examination, a detailed background investigation (which
Executive hereby consents to) and a verification of information provided by
Executive to the Company.
2. Term of Employment. The term of this Employment Agreement
shall commence on the date first set forth above and shall end on the third
anniversary of such date (the "Employment Period"), unless sooner terminated as
provided in Section 5 hereof. On the second anniversary of the date hereof, the
Chief Executive Officer and the Employee shall meet to discuss the Company's
intention as to the structure and nature of Executive's employment relation with
the Company, if any, following the Employment Period.
3. Duties. Executive shall serve in a managerial capacity with
the title Vice President and Chief Financial Officer (which areas of
responsibilities may be modified from time to time by the Company's President)
with the Company or the business of the Company as presently conducted, and as
said business may evolve during the Employment Period, on a full-time basis.
During the Employment Period, Executive shall devote such time, attention,
skill, energy and efforts as may be necessary for the faithful performance of
duties assigned to Executive.
<PAGE> 2
4. Compensation.
(a) During the Employment Period, the Company shall pay
Executive as compensation for his services during the Employment Period, a base
salary (the "Base Salary") at a rate of One Hundred Sixty Thousand Dollars
($160,000) per year, such Base Salary to be payable in accordance with the
Company's usual payment practices. Additionally, Executive shall be entitled to
participate in all of the Company's employee benefit plans generally available
to employees of the Company.
(b) Executive shall receive a one-time signing bonus (the
"Signing Bonus") in an amount equal to $16,000, payable by the Company upon
Executive's passing of the physical examination and background check provided in
Section 1 hereof. In the event Executive voluntarily terminates his employment
with the Company prior to the one-year anniversary hereof, Executive shall
reimburse the Company an amount equal to the Signing Bonus.
(c) Executive will be eligible for an annual incentive pay
program, pursuant to which the Executive may receive a bonus of up to 30% of
Executive's Base Salary, upon the achievement of individual performance goals
which will be jointly agreed upon by Executive and the Company. Within 30 days
of the beginning of each fiscal quarter, the Chief Executive Officer and
Executive shall meet to formulate recommendations for such goals (which might be
quarterly or longer in duration), which shall be submitted to the Board of
Directors for approval (unless the Board shall have delegated the authority to
approve such goals to the Chief Executive Officer. To the extent earned, such
bonus will be payable annually on the first, second and third anniversaries of
the date hereof.
(d) Executive will receive a grant of options to purchase 300
shares of the Company's outstanding common stock, which is equivalent to
one-half of one percent (.5%) of the Company's outstanding equity stock as of
the date hereof. Such options shall be qualified "incentive" stock options to
the extent permitted by federal tax law, and shall otherwise be non-qualified
stock options. Executive shall receive an additional grant of one-quarter of one
percent (.25%) of the Company's outstanding equity interest upon consummation of
an initial public offering of the Company's common stock ("IPO"). The options
shall have the features set forth in Exhibit A hereto. The grant date shall be
as soon as reasonably practicable following the date hereof, not to exceed
[three] months.
(d) All compensation shall be subject to customary withholding
taxes and other employment and usage taxes as required with respect thereto.
5. Termination of Employment. Prior to the expiration of the
Employment Period, this Employment Agreement and Executive's employment may be
terminated by the Company as follows:
(a) Upon written notice to Executive in the event Executive
becomes disabled. For this purpose, disability shall be defined as the inability
of Executive to substantially perform his duties for a period of 180 consecutive
days. In the event of a disagreement concerning the
2
<PAGE> 3
existence of any such disability, the matter shall be resolved by a
disinterested licensed physician chosen by the Company.
(b) At the election of the Company, for "Cause" immediately
upon written notice by the Company to Executive. For the purposes of this
Employment Agreement, "Cause" shall mean:
(1) willful or prolonged absence from work by Executive (other
than by reason of disability due to physical or mental illness) or
failure, neglect or refusal by Executive to perform his duties and
responsibilities hereunder;
(2) material breach by Executive of any of the covenants
contained in this Employment Agreement;
(3) the Executive's commission of fraud or dishonesty against
the Company or willful misfeasance or nonfeasance of duty intended to
injure or having the effect of injuring the reputation, business or
business relationships of the Company, its subsidiaries or affiliates
or their respective officers, directors or employees; or
(4) the commission by Executive of any crime involving moral
turpitude or which could reflect unfavorably upon the Company,
including without limitation embezzlement, theft, fraud or other
similar act.
(c) For any other cause or without cause, upon written notice
to Executive.
Upon termination of this Employment Agreement, all rights and
obligations of the parties hereunder shall cease, except: (i) if this Employment
Agreement is terminated without cause pursuant to Subsection (c) above prior to
the end of the Employment Period, Executive shall receive all of his base salary
for the remainder of such Employment Period; and (ii) termination of employment
pursuant to this Section 5 or otherwise shall not terminate or otherwise affect
the rights and obligations of the parties pursuant to Sections 7 through 10 and
13 through 17 hereof.
6. Change of Control.
(a) If (i) the Company terminates Executive's employment without Cause
during the period commencing with the date of a Change of Control (as
hereinafter defined) and ending twelve months following the Change of Control
(the "Change of Control Period"), or (ii) Company terminates Executive's
employment without Cause within three months prior to a Change of Control unless
the Company can reasonably demonstrate that such termination was not in
connection with or not in anticipation of a Change of Control, the Executive
shall be entitled to receive as compensation Change of Control Payments (as
hereinafter defined) and such Change of Control Payments shall be in lieu of any
other payments described in Section 5 herein. Notwithstanding anything to the
contrary contained herein, nothing in this Agreement shall relieve Employer of
its obligation of providing Executive with all retirement and deferred
3
<PAGE> 4
compensation benefits in accordance with the terms of all retirement and
deferred compensation plans in which Executive participates.
(b) The term "Change of Control" for purposes of this section shall
mean a change of control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Exchange Act"), or any comparable successor provisions. Without limiting
the foregoing, a "Change of Control" also means for purposes of this Agreement,
regardless of its meaning under the provisions of the Exchange Act:
(i) The purchase or other acquisition (other than from the
Company) by any person, entity or group of persons, within the meaning
of Section 13(d) or 14(d) of the Exchange Act (excluding, for this
purpose, the Company or its subsidiaries or any employee benefit plan
of the Company or its subsidiaries), of beneficial ownership, (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or
more of either the then outstanding shares of common stock or the
combined voting power of the Company's then outstanding voting
securities entitled to vote in the election of directors; or
(ii) Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were the shareholders of the Company immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of the combined power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities or a liquidation or dissolution of the Company or of the
sale of all or substantially all of the assets of the Company.
(c) The term "Change of Control Payments" shall mean:
(i) Executive's Base Salary for the remainder of the
Employment Period;
(ii) an amount equal to the simple average of
performance bonuses previously paid to Executive, prorated to the end
of the Employment Period; and
(iii) an additional amount equal to Executive's Base
Salary for one year.
7. Third-Party Confidentiality. Executive shall not disclose
to the Company or induce the Company to use any secret or confidential
information belonging to persons not affiliated with the Company. Executive
acknowledges that the Company has disclosed that the Company is now, and may be
in the future, subject to duties to third parties to maintain information in
confidence and secrecy. By executing this Employment Agreement, Executive
consents to be bound by any such duty owed by the Company to any third party.
4
<PAGE> 5
8. Inventions, Etc.; Confidentiality
(a) Any and all ideas, inventions, discoveries, patents,
patent applications, continuation-in-part patent applications, divisional patent
applications, technology, copyrights, derivative works, trademarks, service
marks, improvements, trade secrets and the like, which are developed, conceived,
created, discovered, learned, produced and/or otherwise generated by Executive,
whether individually or otherwise, during the time that Executive is employed by
the Company, whether or not during working hours, that relate to (i) the
business and/or activities of the Company, (ii) the Company's anticipated
research or development or (iii) any work performed by Executive for the
Company, shall be the sole and exclusive property of the Company, and the
Company shall own any and all right, title and interest to such property. The
Executive assigns and agrees to assign to the Company any and all right, title
and interest in and to any such ideas, inventions, discoveries, patents, patent
applications, continuation-in-part patent applications, divisional patent
applications, technology, copyrights, derivative works, trademarks, service
marks, improvements, trade secrets and the like, whenever requested to do so by
the Company, at the Company's expense, and the Executive agrees to execute any
and all applications, assignments or other instruments which the Company deems
desirable or necessary to protect such interests.
(b) Section 8(a) shall not apply to any invention for which no
equipment, supplies, facilities, or confidential and trade secret information of
the Company was used and which was developed entirely on the Executive's own
time, unless (i) the invention relates (A) to the Company's business or (B) to
the Company's actual research or development or (ii) the invention results from
any work performed by the Executive for the Company.
(c) Executive acknowledges that Executive's work for the
Company is expected to bring him into close contact with various confidential
business data of the Company and its clients not readily available to the
public. Accordingly, Executive:
(i) covenants and agrees that (A) during the
Employment Period, except pursuant to appropriate safeguards on
confidentiality and only in connection with the business of the
Company, and (B) after the Employment Period, on any basis for any
reason, Executive shall not use or disclose to anyone except authorized
personnel of the Company, whether or not for her benefit or otherwise,
any confidential matters (collectively, "Confidential Matters"),
concerning the Company or its suppliers, consultants, agents or
clients, whether former, current or potential (collectively, the
"Clients"), including without limitation, all confidential technical
information of the Company, secrets, trade secrets, formulas,
proprietary software, copyrights, Client lists, lists of employees,
confidential evaluations, mailing lists, details of consultant
contracts, pricing policies, sales data and reports, margins,
operational methods and processes, marketing plans or strategies,
business acquisition plans, new personnel acquisition plans, financial
information and other confidential business affairs, learned by
Executive concerning the Company, its Clients, or a third party,
including without limitation, any
5
<PAGE> 6
subsidiaries, partners, affiliates, shareholders, employees, lenders,
suppliers, consultants, agents or joint venture partners of the Company
(collectively, "Affiliates"); and
(ii) covenants and agrees that (A) all confidential
memoranda, notes, sketches, lists (including, without limitation,
mailing and customer lists), records, other confidential documents and
computer diskettes (and all copies thereof) made or compiled by
Executive or made available to her concerning the Company, its Clients
and any Affiliates are the sole property of the Company, and (B) if
such documents are in the possession or control of Executive, Executive
shall deliver them, without retaining any copies thereof, to the
Company promptly at the time of Executive's termination of employment
or at any other time upon request by the Company.
9. Non-Competition Agreement.
(a) Executive covenants and agrees that Executive shall not,
directly or indirectly, as a principal, employee, partner, consultant, agent or
otherwise, compete or assist in competitive activity with the Company, within
the 14 state region in the Company's current written business plan, or in any
other areas in which the Company then operates or has plans to operate, during
the Employment Period and for a period of twelve (12) consecutive months
immediately following the termination of Executive's employment (the period of
time during which Executive is restricted from such competition pursuant to the
foregoing provisions is hereinafter referred to as the "Restricted Period")
without the express prior written consent of the Company; provided, however,
that the running of the Restricted Period shall be tolled during any period of
time in which Executive violates the provisions herein. Without limiting the
generality of what might constitute competitive activity, Executive acknowledges
and agrees that any fiber-optic competitive access provider, competitive or
incumbent local exchange carrier or inter-exchange carrier shall constitute
competitive activity.
(b) During the Restricted Period, Executive shall not directly
or indirectly, alone or in concert with others, solicit or accept the business
of any customer (or any person or entity whom the Company or any of its
employees or agents has solicited as a prospective customer) ("Customer") (nor
provide any services to any Customer) which was a Customer of the Company at any
time during the course of Executive's employment by the Company.
(c) During the Restricted Period, Executive shall not,
directly or indirectly, alone or in concert with others, solicit or encourage
any employee of the Company, or an employee of any person or entity with which
the Company has an agreement through which the Company and the person or entity
are to act in concert with respect to the business of the Company (a
"Consultant"), to leave their respective employment or hire any employee of the
Company or any person who was an employee of the Company at any time within the
one (1) year period prior to the date first above written.
6
<PAGE> 7
(d) During the Restricted Period, Executive shall not,
directly or indirectly, alone or in concert with others, encourage any
consultant which is then under contract with the Company to cease to work for
the Company or any Consultant.
10. Acknowledgment Regarding Restrictions. Executive
recognizes and agrees that the restraints contained in Sections 8 and 9 are
reasonable and enforceable in view of the Company's legitimate interests in
protecting its trade secrets and customer contacts. Executive further
acknowledges that the limitations contained in Sections 8 and 9 are reasonable
as to the duration in time, as to geographic scope and as to the nature of the
activities restricted. However, in the event an appropriate court determines
that the provisions of Sections 8 and 9 are excessively broad as to duration,
geographic scope, prohibited activities or otherwise, the parties agree that
Sections 8 and 9 may be reduced or curtailed to the extent necessary to render
it enforceable.
11. Vacation and Holidays. Executive shall be entitled to
three (3) weeks paid vacation, provided that the Company may require that such
vacation shall be scheduled as mutually agreed by Executive and the Company.
Executive shall be entitled to the following paid holidays: New Year's Day,
Independence Day, Thanksgiving and the day after Thanksgiving, and Christmas Day
[and an additional "floating holiday"].
12. Relocation Expenses. Executive shall be entitled to
receive from the Company reimbursement for the following relocation expenses
(the "Relocation Expenses"), to the extent incurred:
(a) customary real estate transaction fees and expenses,
including brokers' fees, for the sale of Executive's residence in California and
purchase of a residence in the St. Louis metropolitan area;
(b) moving expenses, including normal and customary packing
and moving charges, but not including the moving of automobiles or bulk
material;
(c) temporary housing expenses for up to sixty days, not
to exceed $2,500 per month; and
(d) a relocation supplement of $2,000 cash to be paid upon
Executive's move to the St. Louis metropolitan area to cover incidental moving
expenses (in lieu of reimbursement).
With respect to items (a)-(c) above, reimbursement shall be
made to Executive only for actual expenses incurred, as evidenced in writing in
form reasonably acceptable to the Company. The reimbursement set forth in item
(c) may be used also to pay the expenses of Executive in breaking a lease in the
St. Louis area (subject to the limits described therein), in the event that
Executive does not pass the pre-employment physical examination or detailed
background investigation described above.
7
<PAGE> 8
In the event Executive voluntarily terminates his employment
with the Company prior to the one-year anniversary hereof, Executive shall
reimburse the Company an amount equal to the Relocation Expenses other than
those specified in Sections 12(c) and 12(d).
13. Non-Waiver of Rights. The Company's failure to enforce at
any time any of the provisions of this Employment Agreement or to require at any
time performance by the Executive of any of the provisions hereof shall in no
way be construed to be a waiver of such provisions or to affect either the
validity of this Employment Agreement, or any part of it, or the right of the
Company thereafter to enforce each and every provision in accordance with the
terms of this Employment Agreement.
14. The Company's Right to Injunctive Relief. In the event of
a breach or threatened breach of any of Executive's duties and obligations under
the terms and provisions of Sections 7, 8 or 9, Executive agrees that the
Company shall be entitled to a temporary restraining order and a preliminary and
permanent injunction to prevent such breach or threatened breach because the
harm which might result to the Company's business as a result of any
noncompliance by Executive with any of the provisions of Sections 7, 8 or 9 will
be irreparable. Executive acknowledges that the Company's entitlement to
injunctive relief shall be in addition to the Company's entitlement to damages.
15. The Company's Right to Recover Costs and Fees. Executive
agrees that if Executive breaches or threatens to breach this Employment
Agreement, Executive shall be liable for any attorneys' fees and costs incurred
by the Company in enforcing its rights under this Employment Agreement in the
event that a court determines that Executive has breached this Employment
Agreement or if the Company obtains injunctive relief against the Executive. The
Company agrees that it shall be liable for any attorneys' fees and costs
incurred by Executive in defending against such enforcing, if the Company is
awarded no injunctive relief and a court ultimately determines that Executive
did not breach this Agreement.
16. Prior and/or Present Employment. Executive represents and
warrants to the Company that Executive is not a party to any agreement
containing a noncompetition provision or other restriction with respect to (a)
the nature of any services or business that Executive is entitled to perform or
conduct for the Company or (b) the disclosure or use of any information which
directly or indirectly relates to the nature of the business of the Company or
the services to be rendered by Executive to the Company. Executive further
certifies that he will not disclose or use, during Executive's employment by the
Company, any confidential information that Executive acquired as a result of any
previous employment or under a contractual obligation of confidentiality before
Executive's employment by the Company.
17. Future Employment. During the Restricted Period, Executive
shall inform each new employer, prior to accepting employment, of the existence
of this Employment Agreement and provide that employer with a copy of it.
Executive hereby authorizes the
8
<PAGE> 9
Company to forward a copy of this Employment Agreement, with Section 4
redacted, to any actual or prospective new employer.
18. Assignments. This Employment Agreement shall be freely
assignable by the Company and shall inure to the benefit of, and be binding
upon, the Company, its successors and assigns and/or any other corporate entity
which shall succeed to the business presently being operated by the Company,
but, being a contract for personal services, neither this Employment Agreement
nor any rights hereunder are assignable by Executive.
19. Governing Law. This Employment Agreement shall be
interpreted in accordance with and governed by the laws of the State of Missouri
without regard to its conflict of law rules. The parties agree that exclusive
venue and jurisdiction for any action brought under this Employment Agreement
shall lie in the County of St. Louis, Missouri.
20. Amendments. No modification, amendment or waiver of any of
the provisions of this Employment Agreement shall be effective unless in writing
and signed by the parties hereto.
21. Notices. Any notices to be given by either party hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed, certified or registered mail, postage prepaid, as follows: to the
Company at Digital Teleport, Inc., 11111 Dorsett Road, St. Louis, Missouri,
Attn.: Richard D. Weinstein, President; and to Executive at 101 Fawn Place,
Danville, California 94526; or to such other address as may have been furnished
to the other party in writing.
22. Reflection and Advice of Counsel Encouraged. This
Employment Agreement places restrictions on Executive's right to seek employment
with certain employers or to engage in businesses competitive with the Company's
business in the event that the Executive terminates his or her employment with
the Company. By signing this Employment Agreement, Executive acknowledges that
he or she has had ample time to reflect on these restrictions and has been
encouraged to seek the advice of counsel.
23. Entire Agreement. This Employment Agreement is the entire
agreement between the parties and supersedes any previous oral or written
agreement or understanding between the Company and Executive with respect to the
subject matter hereof. There are no representations, warranties, promises or
undertakings other than those expressly contained in this Employment Agreement.
24. Confidentiality of Employment Agreement. Executive
acknowledges that the terms and provisions in this Agreement arise from a unique
set of circumstances. Therefore, Executive agrees to keep the terms of this
Employment Agreement strictly confidential and shall not reveal such terms to
any person, including, without limitation, any other employee of the Company.
9
<PAGE> 10
25. Severability. Subject to severability provisions integral
to any paragraph of this Agreement, the unenforceability, invalidity or
illegality of any provision of this Agreement shall not affect or impair the
continuing enforceability or validity of any other part of this Agreement, all
of which shall survive and be valid and enforceable.
26. Counterparts. This Employment Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
27. Headings. The headings in this Employment Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Employment Agreement.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date first above written.
DIGITAL TELEPORT, INC.
By: Richard D. Weinstein
------------------------------
Name: Richard D. Weinstein
Title: President
EMPLOYEE
Robert F. McCormick
------------------------------
Robert F. McCormick
11
<PAGE> 12
EXHIBIT A
Stock Options
1. Prior to IPO, 100% of the stock options would vest after five years from
the date of the grant.
2. Following IPO, the options would vest 25% after the end of each of the
first, second, third and fourth years of the grant date. Previously issued
options will vest as if the Company had been public on the date of the
grant.
3. Following year three, even if a new employment contract is not tendered,
100% of the previously granted options would vest in the event Executive is
terminated without cause.
4. The exercise price will be equal to the fair market value at the time of
the grant.
5. The options will have a term of ten years.
6. The options shall vest upon a change of control as defined in the option
agreement.
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment") is made and
entered into as of this 28th day of January, 1998, by and between Digital
Teleport, Inc., a Missouri corporation (the "Company"), and Robert F. McCormick
("Executive"), amending that certain Employment Agreement ("Employment
Agreement") dated the 9th day of September, 1997, by and between the Company
and Executive.
WITNESSETH:
WHEREAS, certain disputes have arisen between Executive and the Company
with respect to compensation;
WHEREAS, the Company desires to retain the benefit of the services of
Executive, and Executive desires to continue to be employed by the Company and
render such services on the terms and conditions contained in the Employment
Agreement as modfied herein, including compensation, hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, it is hereby agreed as follows:
1. Bonus. A one-time cash bonus of $65,000 shall be paid upon
consummation, within the next three months, of a high-yield debt offering
having net proceeds of at least $150 million. This bonus is in addition to any
other bonus which may become payable under the Employment Agreement. It is
understood that the Company may determine not to proceed with or consummate the
high-yield offering for any reason, including without limitation that (i) it
considers the interest rate required by the offering agents for the offering
("Offering Agents") too high, (ii) it does not want to issue warrants in
conjunction with such offering, or (iii) it does not want to issue warrants in
the amount required by the Offering Agents; if the Company so determines, there
shall be no liability to the Executive pursuant to the first sentence of this
Section 1.
2. Options. In lieu of all of the stock options otherwise provided for
by the Employment Agreement, Executive will receive an option in the form of
Exhibit A hereto under the Company's stock option plan attached as Exhibit B
hereto.
3. Efforts to Find Alternative Employment. The Executive has terminated
any and all efforts to seek or evaluate alternative employment possibilities.
Without limiting the generality of the foregoing, the Executive has terminated
any agreement, arrangement or understanding he has with any "head-hunter" or
executive placement consultant, and has requested that any such person, who has
had contact with the Executive since joining the Company, terminate any formal
or informal efforts on behalf of the Executive and not call the Executive for
any reason, including without limitation to discuss any specific or general
alternate
<PAGE> 2
employment opportunities. The Executive has no intention at this time to
recommence any efforts to seek or evaluate alternative employment
possibilities.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date first above written.
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
-------------------------------
Name: Richard D. Weinstein
Title: President
EMPLOYEE
/s/ Robert F. McCormick
-----------------------------------
Robert F. McCormick
<PAGE> 1
EXHIBIT 10.11
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT ("Amendment") is made and
entered into as of the 28th day of January, 1998, by and between Digital
Teleport, Inc., a Missouri corporation (the "Company"), and Robert F. McCormick
("Executive"), amending that certain Employment Agreement ("Employment
Agreement") dated the 9th day of September, 1997, by and between the Company
and Executive, as amended by Amendment No. 1 to Employment Agreement
("Amendment No. 1") dated January 28, 1998.
WITNESSETH:
WHEREAS, pursuant to Amendment No. 1, Executive received an option to
purchase 300 shares of the Company's Common Stock;
WHEREAS, the grant in Amendment No. 1 was in lieu of all other options
provided for pursuant to the Employment Agreement;
WHEREAS, the parties want there to be provision for an additional grant of
150 shares upon consummation of an initial public offering by the Company, with
an exercise price equal to the offering price in such initial public offering;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, it is hereby agreed as follows:
1. Options. In addition to the options provided for in Amendment No. 1,
upon the consummation of an initial public offering by the company having net
proceeds to the Company, Executive will receive an option in the form of
Exhibit A to Amendment No. 1 under the Company's stock option plan attached as
Exhibit B thereto, except that such option will be for 150 shares (adjusted
appropriated for stock splits and stock dividends following the date hereof),
and the exercise price shall be the offering price in such public offering.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date first above written.
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
-------------------------------
Name: Richard D. Weinstein
Title: President
EXECUTIVE
/s/ Robert F. McCormick
-----------------------------------
<PAGE> 1
EXHIBIT 10.12
Digital Teleport (DTI)
Carrier Product Attachment
Page 1
PRODUCT ATTACHMENT
CARRIER NETWORKS PRODUCTS
Northern Telecom Inc. ("Nortel") and Digital Teleport, Inc., ("Buyer") agree
as follows:
1. INCORPORATION BY REFERENCE
This Product Attachment shall be incorporated into and made a part of
Network Products Purchase Agreement No. NPPA9704LP between Nortel and
Buyer.
2. DEFINITIONS
For purposes of this Product Attachment:
"Acceptance Criteria" shall mean, with respect to any Products
installed by Nortel hereunder, the standards and specifications
contained in the Nortel Installation Manuals which are applicable to
such Products.
"Equipment" shall mean the equipment listed in Schedule A.
"Extension" shall mean Equipment and/or Software which Nortel engineers
and installs and which is added to an Initial System after the Turnover
Date of the Initial System.
"Initial System" shall mean the Equipment and Software which is
included in any configuration identified in Schedule A as an
"Initial System."
"Installation Site" shall mean Buyer's facility identified in an Order
to which the applicable Products identified in such Order shall be
delivered or at which the applicable Services, if any, are to be
performed, respectively.
"Merchandise" shall mean any Equipment which is not part of a System
and with respect to which no engineering or installation Services shall
be provided by Nortel.
"Product Attachment Term" shall mean the period which shall commence on
the date this Product Attachment is executed by the latter of the
parties and shall expire thirty six (36) months thereafter.
"Services" shall mean the services described in Schedule B.
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
<PAGE> 2
Digital Teleport (DTI)
Carrier Product Attachment
Page 2
"Software" shall mean the software listed in Schedule A.
"Specifications" shall mean with respect to any Products furnished
hereunder, the specifications published by Nortel which Nortel
identifies as its standard performance specifications for such Products
as of the date of Buyer's Order for such Products.
"System" shall mean any Initial System or Extension.
"Turnover Date" shall mean, with respect to any Products installed by
Nortel hereunder, the date on which Nortel provides the Turnover Notice
to Buyer pursuant to Section 8.a. of this Product Attachment.
"Warranty Period" shall mean, with respect to:
(a) Any System, the period which shall commence upon the Turnover
Date with respect to such System and shall expire twelve (12)
months thereafter,
(b) Merchandise, the period which shall commence upon the date of
shipment with respect to such Merchandise by Nortel to Buyer
and shall expire ninety (90) days thereafter,
(c) Installation Services involving any System, the period which
shall commence upon the Turnover Date with respect to such
System and shall expire twelve (12) months thereafter,
(d) Equipment which is repaired or replaced pursuant to Nortel's
obligations under Exhibit D to the Agreement, the period
commencing five (5) days after (i) shipment of the replacement
Equipment to Buyer or (ii) completion of the repair at the
Installation Site of the applicable Equipment and which shall
expire on the later of thirty (30) days thereafter or the last
day of the original Warranty Period with respect to the
Equipment which was repaired or replaced, and
(e) Software which was corrected pursuant to Nortel's obligations
under Exhibit D to the Agreement, the period commencing upon
delivery of the corrected Software by Nortel to Buyer and
expiring on the later of thirty (30) days thereafter or the
last day of the original Warranty Period with respect to such
Software.
3. SCOPE
a. Buyer shall, during the Product Attachment Term, issue Orders for ten
(10) DMS-500 Initial Systems, as described in the attached Schedule A,
Part I, Section
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 3
Digital Teleport (DTI)
Carrier Product Attachment
Page 3
1.0, for delivery and installation in Buyer's facilities to be
designated by the Buyer, of which, Buyer shall issue Orders for a
minimum of five (5) DMS-500 Initial Systems during month number one
(1) through and including month number twelve (12) of the Product
Attachment Term and Buyer shall issue Orders for a minimum of five
(5) DMS-500 Initial Systems during month number thirteen (13) through
and including month number twenty four (24) of the Product Attachment
Term. Buyer shall pay the prices, fees and charges set forth in the
attached Schedule A, Part I, Section 1.2, for the Initial Systems in
accordance with Section 7 of this Product Attachment.
b. In the event that the Buyer, during the Product Attachment Term, fails
to issue Orders for ten (10) DMS-500 Initial Systems for delivery and
installation in the Buyer's facilities, Buyer shall be liable to Nortel
in the amount of *** Dollars ($***) for each DMS-500 Initial
System that Buyer Ordered during the Product Attachment Term. Buyer
shall pay the total sum due and payable to Nortel within thirty (30)
days of the date of Nortel's invoice for payment.
c. For and in consideration of the price for the DMS-500 Initial System,
Nortel and Buyer hereby agree that Buyer's "Correcting" Purchase Order
No. A013597, issued on February 25, 1997, prior to the execution of
this Agreement and the Network Products Purchase Agreement No.
NPPA9704LP, is declared null and void and is hereby canceled without
effecting the terms and conditions of the parties' Agreement provided
herein. Furthermore, the parties agree that Buyer's "Correcting"
Purchase Order No. A013597, was revised and re-issued by Buyer on or
about July 1, 1997, prior to the execution of this Agreement and the
Network Products Purchase Agreement No. NPPA9704LP, is declared null
and void and is hereby canceled without effecting the terms and
conditions of the parties' Agreement provided herein.
d. Buyer may, during the Product Attachment Term, issue Orders for the
DMS-500 Extensions described in the attached Schedule A, Part II, for
delivery and installation in Buyer's facilities designated by the
Buyer. Buyer shall pay the prices, fees and charges set forth in the
attached Schedule A, Part II, for the Extensions in accordance with
Section 7 of this Product Attachment.
e. Buyer may issue Orders for the DMS-500 Optional Software described in
the attached Schedule A, Part IV, during the Product Attachment Term.
Buyer shall receive a ***% discount on the prices, fees and charges set
forth in the attached Schedule A, Part IV, on any DMS-500 Optional
Software Orders included with the Buyer's Order for the DMS-500 Initial
System. Buyer shall receive a ***% discount on the prices, fees and
charges set forth in the attached Schedule A, Part IV, on any DMS-500
Optional Software Orders issued at any other time and prior to the
expiration of the Product Attachment Term.
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
<PAGE> 4
Digital Teleport (DTI)
Carrier Product Attachment
Page 4
f. Nortel expects, over the course of the Product Attachment Term, to
make generally available to its customers certain Software releases
which may replace the Software load shipped as part of the DMS-500
Standard Software Features set forth in Schedule A, Part III, pursuant
to this Agreement ("Software Upgrade"). Buyer may, within six (6)
months of the Turnover Date of each DMS-500 Initial System purchased
under this Agreement, issue an Order for a Software Upgrade for such
Initial System, at no charge to Buyer, within three (3) months of the
period of general availability for the Software Upgrade. Nothing in
this section shall obligate Nortel to make available to Buyer any
Software Upgrades which Nortel does not make generally available to
its other customers during the Product Attachment Term.
4. SCHEDULES
The following Schedules which are attached hereto are an integral part
of the Product Attachment and are incorporated herein by reference:
Schedule A - Products, Prices, and Fees
Schedule B - Services and Charges
Schedule C - Delivery
Schedule D - Documentation
5. ORDERING
With respect to Section 3, ORDERING of the Agreement the following
additional terms shall apply:
a. Buyer shall identify in each Order for Products whether the Products
constitute an Initial System, Extension, or Merchandise. All Orders for
Extensions, Merchandise, or any Services other than engineering and
installation Services provided by Nortel in connection with an Order
for an Initial System shall be subject to written agreement of Buyer
and Nortel on the applicable prices, charges and fees with respect
thereto as required pursuant to Section 6, PRICING, of this Product
Attachment.
b. Notwithstanding Exhibit C to the Agreement, Buyer may by written notice
to Nortel cancel without charge any Order for Products and/or Services
prior to the delivery date of the applicable Products set forth in such
Order or the agreed date for the commencement by Nortel of the
applicable Services ("Service Commencement Date"), except that if Buyer
cancels such Order within six (6) weeks or less of any such date, a
cancellation fee of fifteen percent (15%) of the aggregate price of all
Products and/or Services included in such canceled Order shall be
payable by Buyer. Nortel may invoice such amount upon receipt of
Buyer's notice of cancellation of the Order.
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
<PAGE> 5
Digital Teleport (DTI)
Carrier Product Attachment
Page 5
c. Notwithstanding Exhibit C to the Agreement, Buyer may by written notice
to Nortel not less than six (6) weeks prior to the delivery date of any
Products set forth in an Order and/or the Service Commencement Date of
the applicable Services, delay the delivery date of such Products
and/or the Service Commencement Date of such Services for a period
which shall not exceed ninety (90) days from the date such Products
were originally scheduled to be delivered or ninety (90) days from the
Service Commencement Date, subject to the availability from Nortel of
the applicable Products and/or Services after such period of delay.
d. Except as set forth in Sections 5.b. and 5.c. of this Product
Attachment, any change to an Order after Nortel's acceptance of such
Order shall require written agreement of Nortel and Buyer upon a
written change to the Order ("Change Order") which shall reference the
original Order and be executed by the parties. No such changes shall be
implemented until the applicable Change Order has been executed by the
parties.
e. With respect to each Order for Products which is accepted by Nortel,
Buyer may make a written request at least ninety (90) days prior to
the scheduled shipment date of such Products for a change ("Change")
consisting of certain addition(s) or deletion(s) to such Products.
After receipt of such request, Nortel shall submit a Job Change Order
("JCO") to Buyer for Buyer's approval with respect to the requested
Change, except that Nortel shall be under no obligation to submit such
JCO to Buyer if Nortel determines that the Price applicable to such
Order would be reduced by more than ten percent (10%) as a result of
the implementation of the Change. Each JCO shall state whether the
requested Change shall increase or decrease the Price and/or time
required by Nortel for any aspect of its performance under the
Agreement with respect to such Order. Buyer shall accept or reject the
JCO in writing within ten (10) days of receipt thereof. Failure of the
Buyer to accept or reject the JCO in writing as described above shall
be deemed a rejection of the JCO by Buyer. In the event an accepted
JCO involves the return to Nortel of any Equipment which shall have
been previously delivered to Buyer, Nortel may invoice and Buyer shall
pay the transportation costs and Nortel's then-current restocking
charge for the returned Equipment.
f. Any increase or decrease in the Price with respect to an Order
hereunder which is occasioned by an accepted JCO shall be added to or
subtracted from, as applicable, the amount of the last payment due
pursuant to Section 6 with respect to such Order.
g. If Buyer rejects a proposed JCO, then the rights and obligations of the
parties with respect to the applicable Order shall not be subject to
Buyer's requested Changes, provided that Buyer shall promptly pay to
Nortel all of Nortel's additional costs and expenses incurred hereunder
in accordance with Buyer's requested Changes and Nortel's additional
costs and expenses subsequently
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 6
Digital Teleport (DTI)
Carrier Product Attachment
Page 6
incurred in order that Nortel may be able to perform Nortel's
obligations without modification by the requested Changes, and Nortel
shall be entitled to an extension of the dates for performance of its
obligations with respect to the applicable Order as a result of any
delays in such performance which result from the foregoing.
6. PRICING
With respect to Section 4, PRICES of the Agreement, the following
additional terms shall apply:
a. The prices set forth in Schedule A with respect to any Initial System
shall be in effect for a period which shall commence upon the
effective date of this Product Attachment and shall expire after six
(6) months. Nortel may in its sole discretion, thereafter, increase
any prices set forth in Schedule A upon sixty (60) days prior written
notice to Buyer. The prices listed in Schedule A shall apply to any
Order for an Initial System listed in Schedule A which shall be
received by Nortel prior to the effective date of any change in such
prices as permitted by this Section, provided that delivery date for
such Initial System as set forth in the applicable Order shall be not
more than one-hundred twenty (120) days after Nortel's acceptance of
such Orders.
b. The prices for Equipment and the fees for the right to use the Software
included in any Extension, prices for any Merchandise, and charges for
any Services, other than engineering and installation Services provided
with any Initial System shall be as subsequently agreed in writing by
Nortel and Buyer.
c. All transportation charges associated with the shipment of the Products
to Buyer are included in the prices, fees and charges as set forth in
the attached Schedule A.
7. TERMS OF PAYMENT
With respect to Section 5, TERMS OF PAYMENT, the following additional
terms shall apply:
a. With respect to each Initial System furnished hereunder by Nortel to
Buyer the price listed in Schedule A shall be invoiced by Nortel in
accordance with the following schedule:
(i) Twenty percent (20%) of such price may be invoiced upon Nortel's
acceptance of the Order for such Initial System,
(ii) Fifty percent (50%) of such price may be invoiced on the date of
shipment by Nortel to Buyer of the switch component of such
Initial System,
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
<PAGE> 7
Digital Teleport (DTI)
Carrier Product Attachment
Page 7
(iii) Twenty percent (20%) of such price may be invoiced on the
Turnover Date of such Initial System, and
(iv) Ten percent (10%) of such price may be invoiced on the date of
Acceptance of such Initial System.
b. With respect to each Extension furnished hereunder by Nortel to Buyer,
the applicable price determined in accordance with Section 6.b. of this
Product Attachment shall be invoiced by Nortel in accordance with the
following schedule:
(i) Twenty percent (20%) of such price may be invoiced upon Nortel's
acceptance of the Order for such Extension,
(ii) Fifty percent (50%) of such price may be invoiced on the date of
shipment by Nortel to Buyer of the Equipment included in such
Extension,
(iii) Twenty percent (20%) of such price may be invoiced on the
Turnover Date with respect to such Extension, and
(iv) Ten percent (10%) of such price may be invoiced on the date of
Acceptance of such Extension.
c. Except as may be otherwise agreed in writing by the parties Nortel's
prices for Merchandise and charges for any Services determined in
accordance with Section 6.b. above may be respectively invoiced upon
delivery of such Merchandise and upon performance of such Services by
Nortel.
8. TESTING, TURNOVER, AND ACCEPTANCE
Pursuant to Section 8.1 of the Agreement, the rights and obligations of
the parties with respect to testing, turnover and acceptance of any
Products furnished hereunder and installed by Nortel shall be as
follows:
a. Nortel shall provide Buyer with five (5) days written notice prior to
commencing final commissioning and testing of any Products installed
by Nortel. Buyer shall cause an authorized representative of Buyer to
be present at the applicable Installation Site to witness such final
commissioning and testing, provided that in the event such
representative fails to be present for any reason, Nortel shall not be
required to delay performance of such final commissioning and testing.
In connection with the final commissioning and testing of such
Products, Nortel shall test the Products for conformity with the
applicable Acceptance Criteria. When such tests have been successfully
completed, Nortel shall provide Buyer with written notice ("Turnover
Notice") that the applicable Products meet such
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
<PAGE> 8
Digital Teleport (DTI)
Carrier Product Attachment
Page 8
Acceptance Criteria and are ready for Buyer's testing for
compliance with such Acceptance Criteria. Buyer shall promptly
complete and return to Nortel Buyer's acknowledgment of receipt of
such Turnover Notice.
b. Following the Turnover Date, Buyer may test the applicable Products
for compliance with the Acceptance Criteria using the tests and test
procedures contained in Nortel's Installation Manuals with respect to
such Products. Within fifteen (15) days following the Turnover Date of
the applicable Products, Buyer shall notify Nortel either that Buyer
has accepted such Products in writing using Nortel's standard
Acceptance Notice form or that Buyer has not accepted such Products in
which case Buyer shall also provide Nortel with a written notice
("Notice of Deficiency") which shall provide in reasonable detail the
manner in which Buyer asserts that the Products failed to meet the
Acceptance Criteria. With respect to any such details with which
Nortel agrees, Nortel shall promptly proceed to take appropriate
corrective action and following correction, Buyer may retest the
Products in accordance with this Section. Buyer shall accept the
Products in writing without delay when the tests pursuant to this
Section indicate that the Products comply with the Acceptance
Criteria.
c. With respect to any points of disagreement between Nortel and Buyer
concerning any Notice of Deficiency which are not resolved by Nortel
and Buyer within ten (10) days after the effective date of the Notice
of Deficiency, Buyer, at its option, may waive any rights it may have
on account of any such points of disagreement, or require that the
disputed points be resolved by arbitration.
d. Buyer shall notify Nortel in writing of its election pursuant to
Section 8.c. not later than ten (10) days after the effective date of
the Notice of Deficiency, if any, given to Nortel by Buyer. Upon
expiration of such ten (10) day period unless Buyer has notified Nortel
to the contrary, Buyer shall be deemed to have elected to waive its
right with respect to any points of disagreement then existing between
it and Nortel with respect to such Notice of Deficiency.
e. If Buyer makes timely election to require arbitration of such disputed
points, the arbitrator shall be chosen by mutual agreement. If the
parties cannot agree upon an arbitrator within three (3) days of
Buyer's election to arbitrate, each party shall within three (3) days
thereafter select an independent and an unaffiliated person to be an
arbitrator. These two (2) persons selected shall select a third
person, independent and unaffiliated with either party, as a third
arbitrator. The arbitration shall be conducted in accordance with the
Rules of the American Arbitration Association, provided, however, that
the Arbitrator(s) shall be empowered to reduce the Prices of Products
only to the extent that the Arbitrator(s) find that the benefit of
Buyer's bargain has been reduced. The Arbitrator(s) shall not have any
authority to grant partial or total rescission unless the
Arbitrator(s) determine that (i) Buyer has not substantially received
the benefit of its bargain; and (ii) money damages will not provide an
adequate
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
<PAGE> 9
Digital Teleport (DTI)
Carrier Product Attachment
Page 9
remedy. Judgment upon the award rendered by the Arbitrator(s)
may be entered in any Court of competent jurisdiction.
f. For purposes of this Product Attachment, "Acceptance" of the applicable
Products shall occur upon the earliest of the following and Buyer shall
upon request sign Nortel's Acceptance Notice confirming such Acceptance
without any conditions, restrictions, or limitations of any nature
whatsoever:
(i) The date on which Buyer accepts such Products pursuant to Section
8.b. of this Product Attachment;
(ii) The failure of Buyer to provide Nortel with any notice required
by Section 8.b. of this Product Attachment, with respect to such
Products;
(iii) Use by Buyer of such Products or any portion thereof in
revenue-producing service at any time; or
(iv) Waiver by Buyer of its rights pursuant to Section 8.c or 8.d.
g. Acceptance by Buyer of such Products pursuant to Section 8.f of this
Product Attachment above shall not be withheld or postponed due to:
(i) Deficiencies of such Products resulting from causes not
attributable to Nortel, such as, but not limited to (A)
inaccuracy of information provided by Buyer, (B) inadequacy or
deficiencies of any materials, facilities or services provided
directly or indirectly by Buyer and tested in conjunction with
the applicable Products, (C) other conditions external to the
Products which are beyond the limits specified by Nortel in the
Specifications for the Products and which are used by Nortel in
performance calculations with respect to the Acceptance
Criteria, or (D) spurious outputs from adjacent material; or
(ii) Minor deficiencies or shortages with respect to such Products
which are attributable to Nortel, but of a nature that do not
prevent full and efficient operation of the Products.
h. With respect to any deficiencies of the type described
in Section 8.g.(i), Nortel shall at Buyer's request and expense assist
Buyer in the elimination or minimization of any such deficiencies.
With respect to any deficiencies or shortages as described in the
Section 8.g.(ii), Nortel shall, at Nortel's expense, take prompt and
effective action to correct any such deficiencies or shortages.
i. In the event Buyer's Acceptance of any Products is withheld or
postponed due to any deficiencies of the type described in Section
8.g.(i), Nortel shall invoice and Buyer shall pay Nortel's charges and
reasonable expenses incurred by Nortel
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
<PAGE> 10
Digital Teleport (DTI)
Carrier Product Attachment
Page 10
associated with Nortel's investigation of the reasons for Buyer's
withholding or postponement of such Acceptance.
9. WARRANTIES AND REMEDIES
With respect to Exhibit D, LIMITED WARRANTIES AND REMEDIES, the
following additional terms shall apply:
a. Except as set forth in Section 9.b. below, Nortel shall in performance
of its obligations under Section 2 of Exhibit D to the Agreement, (i)
ship replacement Equipment or complete the repair within thirty (30)
days of Nortel's receipt of the Equipment to be replaced or repaired,
and (ii) commence the correction of the applicable installation
Services within thirty (30) days of receipt of notice from Buyer
pursuant to Section 5 of Exhibit D to the Agreement.
b. For emergency warranty service situations involving the Equipment,
Nortel shall during the applicable Warranty Period use all reasonable
efforts to ship replacement Equipment within twenty-four (24) hours of
notification of the applicable warranty defect by Buyer pursuant to
Section 5 of Exhibit D to the Agreement, provided that Buyer shall
have requested such emergency service. Nortel may invoice Buyer and
Buyer shall pay Nortel's surcharge for emergency warranty services. If
Nortel determines that due to the particular circumstances, onsite
technical assistance is necessary, Nortel shall use all reasonable
efforts to dispatch emergency service personnel to the applicable
Installation Site within twenty-four (24) hours of receipt of notice
from Buyer as described above.
c. All Products to be repaired or replaced, both within and outside of the
applicable Warranty Period, shall be packed by Buyer in accordance with
Nortel's then-current instructions.
d. No later than ninety (90) days prior to the expiration of the Warranty
Period with respect to any Initial System, Nortel shall offer to Buyer
post-warranty support by means of an extended service plan or other
terms, provided that neither party shall have any obligation with
respect thereto except as may be agreed upon in writing by the parties.
10. NOTICES
Pursuant to Section 18.5 of the Agreement, any notices by Buyer to
Nortel which are specified to this Product Attachment shall be
delivered to the following address:
Northern Telecom Inc.
2350 Lakeside Blvd.
Richardson, Texas 75082-4399
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 11
Digital Teleport (DTI)
Carrier Product Attachment
Page 11
Attn.: GM, Carrier Networks
11. ADDITIONAL TERMS
The following additional terms shall apply to the Agreement:
a. With respect to Section 14, BUYER'S RESPONSIBILITIES, the following
additional terms shall apply:
(i) Buyer shall be responsible for ordering and coordinating with each
applicable local telephone company the installation of all central
office trunks and test trunks and Buyer shall be responsible for
all utility charges associated with the installation, testing,
operation and maintenance of Products furnished hereunder,
including, but not limited to, all applicable charges for such
central office trunks, test trunks and any tie lines.
b. Nortel shall provide documentation with respect to the Products in
accordance with Schedule D to this Product Attachment.
NORTHERN TELECOM INC. DIGITAL TELEPORT, INC.
By: /s/ Vickie Yohe By: /s/ J. W. Sheehy
------------------------ -------------------------
(Signature) (Signature)
Name: Vickie Yohe Name: J. W. Sheehy
------------------------ -------------------------
(Print) (Print)
Title: Group VP & General Mgr. Title: Vice-President IC Support
------------------------ -------------------------
Date: 23 Oct 97 Date: September 25, 1997
------------------------ -------------------------
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 12
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART I. DMS-500 INITIAL SYSTEM
NORTEL SHALL ENGINEER THE DMS-500 INITIAL SYSTEM PROVIDED HEREUNDER IN
ACCORDANCE WITH NORTEL'S STANDARD ENGINEERING PRACTICES AND PROCEDURES. AFTER
NORTEL HAS ENGINEERED EACH DMS-500 INITIAL SYSTEM ORDERED BY BUYER HEREUNDER,
NORTEL SHALL PROVIDE BUYER WITH A DETAILED LIST OF THE COMPONENTS OF SUCH
DMS-500 INITIAL SYSTEM.
1.0 DMS-500 INITIAL SYSTEM (E:2880/W:5760 PORT MODEL)
1.1 DMS-500 INITIAL SYSTEM INCLUDES:
A DMS-500 Initial System (E:2880/W:5760 Port Model) shall
consist of the following configuration of Equipment and
Software:
a) SuperNode front end, 64K Single Bay Enhanced Network
and other common Equipment as follows:
- One (1) SuperNode equipped with BRISC60
processor, five (5) ninety six (96) megabyte
memory circuit packs per plane, Message
Switch, and SLM III.
- One (1) 64K Single Bay Enhanced Network to
support an Initial System wired for five
thousand seven hundred sixty (5760) T1 ports
and equipped with two thousand eight hundred
eighty (2880) ports.
- One (1) LLP wired for thirty six (36)
LIU7's, equipped with eight (8) LIU7
links and two (2) EIUs.
- Two (2) ISME frames equipped with service
and test circuits as well as four (4)
Enhanced Digital Recorded Announcement
Machine circuit packs each providing a
maximum of four (4) minutes of recordable
announcement time.
- Two (2) Input Output Equipment (IOE)
frames equipped with:
-> One (1) Mag Tape Device
-> Four (4) SCSI Disk Drive Units
-> Three (3) IOC Shelves
-> Four (4) I/O Controllers providing
thirty two (32) switch interface
ports
-> Four (4) X.25 Automatic File
Transfer circuit packs
- Two (2) MIS frames equipped with required
inverts and terminal block assemblies.
- Two (2) Meridian Cabinet Spare Storage
(MCSS) cabinet to house spares.
- Two (2) Power Distribution Center (PDC)
frames equipped with "A" and "B" feed fuse
panels & fuses as required.
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 13
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART I. DMS - 500 INITIAL SYSTEM
- Miscellaneous Switch Room Equipment as
follows:
-> Two (2) Maintenance Administration
Positions & one set MAP Furniture
-> Two (2) UDS 2440 Modems
-> Two (2) RTIF Terminals
-> One (1) MAP Printer
-> One (1) Helmsman Workstation and
CD-ROM documentation disks
-> One (1) Hardcopy of Northern
Telecom Practices documentation
b) SuperNode Line and Trunk configurable Equipment as follows:
- Six (6) DTEI frames wired for five
thousand seven hundred sixty (5760) ports
equipped with the following:
-> two thousand eight hundred eighty
(2880) SS7 ports
- One (1) ESMA frames wired for nine hundred
sixty (960) ports equipped with the
following:
-> nine hundred sixty (960) TR-303
Compliant Ports
c) DMS-500 Standard Software Features as set forth in Schedule
A, Part III, Section 1.0.
d) Nortel's standard compliment of switch spares.
1.2 DMS-500 INITIAL SYSTEM (E:2880/W:5760 PORT MODEL) PRICING
The price for the DMS-500 (E:2880/W:5760 Port Model) is ***
Dollars($ ***).
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 14
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART II. DMS-500 EXTENSIONS
1.0 DTEI PORT EXTENSIONS
1.1 EQUIPPING OF WIRED ONLY PORTS
The equipping of wired only ports shall be done in a minimum
increment of nine hundred sixty (960) ports, and applies only
to the two thousand eight hundred eighty (2880) unequipped
ports that are part of the wired configuration of the DMS-500
Initial (E:2880/W:5760) Port Model as defined in Part I,
Section 1.1 of this Schedule A. Each nine hundred sixty (960)
port increment includes the following:
a) Twenty (20) DS1 NT6X50AB circuit packs which Nortel
determines to be required in accordance with Nortel's
engineering rules for the DTEI Port Extension, based
on Buyer's Order;
b) Any required DTEI common circuit packs required to
support the equipping of nine hundred sixty (960)
wired only ports;
c) Any required 64K Single Bay ENET expansion, MS, or
processor memory expansions for the BRISC60
processor;
d) Any required Service/Test Circuits;
e) Any required Power Distribution Center (PDC)
Equipment; and
g) Spare circuit packs, if required, based on Nortel's
standard engineering sparing guidelines.
1.2 EQUIPPING WIRED ONLY PORT EXTENSION PRICING
Trunk Type Extension Price Based on 960 Ports
---------- ----------------------------------
SS7 Trunking Port $***/per port
2.0 DTEI PORT EXTENSION, FULLY WIRED AND FULLY EQUIPPED
2.1 DTEI PORT EXTENSION FULLY WIRED AND FULLY EQUIPPED
The prices for a DTEI Port Extension are sold in minimum
increments of nine hundred sixty (960) ports, are configured
for SS7/PTS or ISDN signaling at Buyer's request and include
the following:
a) DTEI hardware and XPM+;
b) Either UTR, STR, CTD for DTCs configured for SS7 or
PTS capability, or UTR and ISDN pre-processor circuit
packs configured for ISDN PRI capability;
c) Any required 64K Single Bay ENET expansion, MS, or
processor memory expansions for the BRISC60
processor;
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 15
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART II. DMS-500 EXTENSIONS
d) Any required Service/Test Circuits;
e) Any required Power Distribution Center (PDC)
Equipment;
f) Optional DTEI Equipment as outlined in 1.3 below at
defined pricing levels; and
g) Spare circuit packs, if required, based on Nortel's
standard engineering sparing guidelines.
2.2 DTEI PORT EXTENSION PRICES
<TABLE>
<CAPTION>
Trunk Type Extension Price Based on 960 Ports
---------- ----------------------------------
<S> <C>
SS7 Trunking Port $***/per port
PRI Trunk Port/Long Distance $***/per port
PRI Trunking Port/Local $***/per port
</TABLE>
2.3 DTEI OPTIONAL EQUIPMENT
2.3.1 DIALABLE WIDEBAND
Nortel shall provide two (2) NTAX78AA circuit packs
per DTC instead of the standard timeswitch circuit
packs on new DTEI Port Extensions for an incremental
price of *** Dollars ($***) per DTC or
*** Dollars ($***) per DTEI frame.
Additional spares, if required, are
*** Dollars ($***) per circuit pack.
2.3.2 ECHO CANCELLATION
The incremental price to upgrade to the NT6X50EC
circuit pack from the standard NT6X50AB circuit pack,
at the time of the order, is *** Dollars ($***)
per port sold in forty eight (48) port increments for
*** ($***) each.
3.0 ESMA PORT EXTENSION, FULLY WIRED AND FULLY EQUIPPED
3.1 ESMA PORT EXTENSION FULLY WIRED AND FULLY EQUIPPED
The prices for an ESMA Port Extensions are sold in minimum
increments of nine hundred sixty (960) ports, are configured
for PTS or ISDN signaling at Buyer's request and include the
following:
a) ESMA Equipment;
b) Universal Tone Receivers (UTRs) and ISDN
pre-processor circuit packs when ISDN BRI capability
is required;
Confidential Materials omitted and filed separately with Securities and
Exchange Commission.
Asterisks denote omissions.
<PAGE> 16
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART II. DMS-500 EXTENSIONS
c) Any required 128K Dual Bay ENET expansion, or
processor memory expansions for the BRISC60
processor;
d) Any required Service/Test Circuits; and
e) Any required Power Distribution Center (PDC)
Equipment.
3.2 EXTENSION PORT PRICES
Trunk Type Extension Net Price Based on 960 Ports
---------- --------------------------------------
ESMA Trunking Port $***/per port
4.0 LINK PERIPHERAL PROCESSOR (LLP)
4.1 LINK PERIPHERAL PROCESSOR EXTENSIONS
Link Peripheral Processor Extensions shall include the following and
shall be priced as set forth below. Buyer shall supply any and all
Chanel Banks, as required.
a) Link Peripheral Processor (LPP) Equipment including LIU7s
and/or EIU circuit packs;
b) Any required MS expansions for the BRISC60 processor;
c) V.35 or DS-0A interface Equipment to support wired
configurations at the time of the order; and
d) Sparing of unique circuit packs, if any, per standard
Nortel engineering sparing rules.
4.2 LINK PERIPHERAL PROCESSOR EXTENSION PRICES
The price for a Link Peripheral Processor Extension to an existing
Initial System wired for thirty six (36) links and equipped with eight
(8) links is *** Dollars ($***), including
installation.
4.2.1 LINK INTERFACE UNIT (LIU) CARD EXTENSIONS TO EQUIP
WIRED LPP
The price for each LIU7 added to an existing LPP is
*** Dollars ($***), excluding
installation.
4.2.2 ETHERNET INTERFACE UNIT (EIU) CARD EXTENSIONS TO
EQUIP WIRED LPP
The price for each EIU added to an existing LPP is
*** Dollars ($***), excluding
installation.
4.2.3 FRAME RELAY INTERFACE UNIT (FRIU) CARD EXTENSIONS TO
EQUIP WIRED LPP
The price for each FRIU added to an existing LPP is
*** Dollars ($***), excluding installation.
Confidential Materials omitted and filed separately with
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 17
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART II. DMS-500 EXTENSIONS
5.0 DMS-500 HOST AND REMOTE SWITCHING LINE EQUIPMENT
5.1 DMS-500 HOST AND REMOTE SWITCHING EQUIPMENT
The startup fee and per line charge for Host and Remote Switching lines
are as follows:
5.1.1 Non-ISDN hardware for Host or Remote Switching includes
one (1) Line Group Controller (LGC) and one (1) Line
Concentrating Module (LCM) requiring a minimum of one hundred
(100) lines. The one (1) time start-up charge is ***
Dollars ($***).
5.1.2 ISDN hardware for Host or Remote Switching includes one
(1) Line Group Controller ISDN (LGCI) and one (1) Line
Concentrating Module ISDN (LCMI) requiring minimum of one
hundred (100) lines. The one (1) time start-up charge is
*** Dollars ($***).
5.2 DMS-500 HOST AND REMOTE SWITCHING EQUIPMENT PER LINE CHARGE
<TABLE>
<S> <C>
The startup fee and per line charge for Host and Remote Switching lines
are as follows:
Initial Per Line charge for POTS/MDC $***
(minimum 100 lines)
Initial Per Line charge for MBS lines $***
(minimum 100 lines)
Initial Per Line charge for BRI lines $***
(minimum 50 lines)
Extension Per Line charge for POTS/MDC $***
(minimum 100 lines)
Extension Per Line charge for MBS lines $***
(minimum 100 lines)
Extension Per Line charge for BRI lines $***
(minimum 50 lines)
</TABLE>
6.0 DMS-500 REMOTE SWITCHING CENTER (RSC-S)
6.1 DMS-500 REMOTE SWITCHING CENTER (RSC) SINGLE CONFIGURATION
The Remote Switching Center (RSC-S) single configuration includes one
(1) single RSC-S plus one (1) Line Trunk Controller (LTC) requiring a
minimum of one hundred (100) lines. The one (1) time start-up charge is
*** Dollars ($***).
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 18
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART II. DMS-500 EXTENSIONS
6.2 DMS-500 REMOTE SWITCHING CENTER (RSC) DUAL CONFIGURATION
The Remote Switching Center (RSC-S) duel configuration includes one (1)
dual RSC-S plus two (2) Line Trunk Controller's (LTC) requiring a
minimum of one hundred (100) lines per RSC-S. The one (1) time start-up
charge is *** Dollars ($***).
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 19
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART III. DMS 500 STANDARD SOFTWARE FEATURES
(DMS-500 SYSTEM)
1.0 DMS-500 STANDARD SOFTWARE FEATURES
1.1 Nortel may deliver Software ordered hereunder in a single
Software load which may include Software which Buyer has not
yet licensed ("Non-licensed Software"). Except as set forth in
Section 1.2 below, Buyer shall not be entitled to use such
Non-licensed Software, until such time as the applicable right
to use fees are paid by Buyer pursuant to Section 1.5.
1.2 For the purpose of gathering market trial information and
prior to payment of any applicable right-to-use fees, certain
Non-licensed Software may be placed in service by Buyer on a
limited, non-revenue-generating, trial basis only ("Feature
Trial"). Buyer may request the right to evaluate such
Non-licensed Software for a maximum period of six (6) months
commencing as of the date of Nortel's written consent to such
Feature Trial. Nortel shall respond to Buyer's request as
described above in writing. Within ten (10) business days
following expiration of the agreed to Feature Trial period,
Buyer shall notify Nortel in writing of its plans for
activation or deactivation of such Non-licensed Software, and
the corresponding number of units activated, if applicable.
1.3 Upon Buyer's placement of any Non-licensed Software in revenue
generating service, Buyer shall pay the applicable
right-to-use fees for such Non-licensed Software pursuant to
this Agreement, except as described in Section 1.2. Buyer
shall also have the option to pay the applicable right-to-use
fees for any Non-licensed Software upon installation of a
Software load containing such Non-licensed Software. For any
Non-licensed Software that is installed and added pursuant to
a product computing module load ("PCL") and or non-computing
module load ("NCL"), if any, the right-to-use fees shall be
the list price for such feature in effect as of the date of
activation.
1.4 To ensure Buyer's proper activation and/or usage of the
appropriate Software, Buyer shall properly notify Nortel at
the address specified in Section 9 of this Product Attachment
to the attention of Director, Sales Engineering, prior to the
activation and/or usage by Buyer of any Software. Buyer shall
identify all Software being activated and/or used (including
the number of units activated, if applicable) in each Intial
System.
1.5 Nortel shall promptly review notification from Buyer provided
pursuant to Section 1.4 above and identify any applicable
prerequisite Equipment or Software required by Buyer prior to
activation and/or usage of the applicable Software. Nortel
shall respond to Buyer's written notice by means of a price
quotation. Such price quotation shall include Nortel's consent
to activate and/or use such Software or notification that such
Software requires engineering to determine whether the current
switch configuration will require additional Equipment prior
to activation and/or usage. Upon Buyer's written acceptance of
Nortel's price quotation, Nortel shall grant its consent to
Buyer to activate and/or use such Software prior to payment of
the applicable right-to-use fees. However, under no
circumstances shall such Software be activated and/or used by
Buyer prior to Buyer's acceptance of Nortel's price quotation.
Nortel shall invoice Buyer for all applicable right to use
fees and associated feature activation engineering charges.
One hundred percent (100%) of such invoiced right to use fees
and engineering
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 20
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART III. DMS 500 STANDARD SOFTWARE FEATURES
(DMS-500 SYSTEM)
charges shall be due and payable within thirty
(30) days of the date of Nortel's invoice therefor.
1.6 Notwithstanding the foregoing, Buyer shall not be required to
pay additional right to use fees associated with the Software
licensed prior to the initial date of this Product Attachment.
1.7 Nortel reserves the right, every six (6) months to submit a
written report for each site containing a Software load. The
written report shall identify all Software activated and/or
used (including the number of incremental units activated, if
applicable) by Buyer during the applicable reporting period.
Buyer shall audit the report against Purchase Order(s) which
have been submitted by Buyer and accepted by Nortel during the
applicable period to determine the existence of any
discrepancies. Buyer shall submit such audited written report
to Nortel at the address specified in Section 9 of this
Product Attachment to the attention of Director, Sales
Engineering, within thirty (30) days from receipt of such
request.
1.8 Nortel also reserves the right to access by remote polling or
to conduct an on-site inspection of any site in which a
Software load is installed and/or to perform an on-site review
of Buyer's books and records related to such site to verify
activation and/or usage of Software.
1.9 Nortel shall issue invoices, for any applicable prices,
charges or fees, in addition to those amounts previously
invoiced, as a result of Buyer's activation and/or usage of
any Software that does not appear on Nortel's written report
or that appear as a result of Nortel's remote polling of an
Initial Systems.
1.10 Upon payment of the applicable right to use fees for Software
activated and/or used by Buyer, Buyer shall receive a
non-exclusive paid-up license to use such Software in
accordance with the provisions of this Agreement. Nortel may
immediately terminate the applicable license granted hereunder
for Buyer's failure to pay the applicable right to use fees
for such Software which has been activated and/or used.
1.11 The obligations of Buyer under this Section 1 shall without
limitation survive the termination of this Agreement and shall
continue if the Software is removed from service. Buyer agrees
to indemnify Nortel or Third Party Software Vendors as
appropriate for any loss or damage resulting from a breach of
this Section 1.
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 21
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART III. DMS 500 STANDARD SOFTWARE FEATURES
(DMS-500 SYSTEM)
2.0 LLT0B0005 SOFTWARE INCLUDED IN THE DMS-500 INITIAL SYSTEM
The following represents the LLT0B0005 Software packages that are
included in the price of the DMS-500 Initial System (E:2880/W:5760 Port
Model). The following is a list of Software only and does not include
any/all required Equipment to provide feature functionality.
<TABLE>
<CAPTION>
Feature/Package Description
--------------- -----------
<S> <C>
UCS00005 UCS Tandem Services
BAS00003 Base Generic
BAS00001 Base COOK
BAS00002 Base ANI
BAS00004 Base OA&M
BAS00007 Base Logs
BASE0001 Base
BASE0009 Base SN Series 70 Processor
TEL00001 Telecom Layer
BAS00020 Base Flexible Bellcore AMA
BAS00028 Base DPP
LOC00001 Local Services
SS700001 SS7 Trunk Signalling
UDD00001 UDD Services
WLC00001 World Line Card Enhanced
EQA00001 Equal Access Local
EQA00002 Equal Access Toll
TEL00008 Tel CCS7 Base
MDC00002 MDC Meridian Special Attendant Console
MDC00004 MDC CLASS on MDC
MDC00008 MDC MBS Standard
MDC00009 MDC PRO
MDC00033 MDC Name/Number Blocking
MDC00010 MDC CLASS on MDC/MPV II
MDC00036 MDC SMDR for PVN
NIO00012 NI-1 PRI Interworking with 4E/5ESS
NIO00022 NIO ISDN PRI Base
DTP00001 Datapath
</TABLE>
Additional software packages included in the DMS 500 (E:2880/W:5760)
initial system:
<TABLE>
<C> <C>
N00R00001 N00 ROUTING
N00 routing
Info Digit 24 Functionality
NSER0001 NETWORK SERVICES
ANI Delivery on DALTIE
STS/Netinfo Mapping
NPRI0001 NETWORK INTERFACES PRI
PRI D-Channel Backup
Access Transport
UDWS0001 UCS DWS
</TABLE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
Asterisks denote omissions.
<PAGE> 22
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART III. DMS 500 STANDARD SOFTWARE FEATURES
(DMS-500 SYSTEM)
<TABLE>
<S> <C>
DWS FG-D ISUP
DWS IMT ISUP
DWS PRI
CRDS0001 CARD SERVICES
Calling Card
Enhanced Calling Card
TCN Log Enhancements
MCCS Dedicated
CRDS0002 TCAP BASED CARD SERVICES
CI Command TESTSS
TCAP Based TCN
CRDS0003 MCCS MVP CARD SERVICES
MCCS Mechanized Voice Prompts
UTRS0001 ROUTING
Carrier ID Code Routing
NSER0002 TCAP BASED AUTHCODE AND
ACCOUNT CODE VALIDATION
TCAP Based Account Code and
Private Speed Validation
TCAP Based Authorization Code
Validation
NSER0003 INTER/INTRA IMT SUPPORT
Inter/Intra IMT Support
PRLT0001 RELEASE LINK TRUNK
AIN00002 AIN ESSENTIALS RELEASE 0.1
AIN00001 AIN PRIMER
ENSR0001 EOPS REORIGINATION
</TABLE>
The Buyer has a Software license for the following three (3) Software
features which may be used on a maximum of five thousand (5000) MDC*
lines. For each additional line in excess of the initial five thousand
(5000), the Software fee is fourteen dollars ($14.00) per each MDC*
line, for each of the following three (3) MDC* Software features.
<TABLE>
<Capiton>
FEATURE/PACKAGE DESCRIPTION
--------------- -----------
<S> <C>
MDC00001* Meridian Digital Centex Minimum
MDC00003* MDC-MDC Standard
MDC00007* MDC MBS Minimum
</TABLE>
The Buyer currently does not have a Software license for any Class*
Lines configured for the DMS-500 Initial System. The following nine (9)
Class* Software features have a Software License fee of twenty nine
dollars ($29.00) per each Class* line:
<TABLE>
<CAPTION>
FEATURE/PACKAGE DESCRIPTION
--------------- -----------
<S> <C>
RES00003* RES Display Functionality and Privacy
RES00005* RES Non Display Services
RES00006* RES Service Enabler
RES00021* RES Anonymous Caller Rejection
RES00030* RES Customer Tracing
RES00032* RES Selective Call Forward
</TABLE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 23
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART III. DMS 500 STANDARD SOFTWARE FEATURES
(DMS-500 SYSTEM)
<TABLE>
<S> <C>
RES00033* RES Selective Call Rejection
RES00034* RES Distinctive Ringing Call Waiting
RES00035* Selective Call Acceptance
</TABLE>
The Buyer currently does not have a Software license for any BRI* Lines
configured for the DMS-500 Initial System. The following three (3) BRI*
Software features have a Software License fee of Two Hundred Fifty
Dollars ($ 250.00) per line, which is applicable for host lines, Remote
Switching Lines and AccessNode lines.
<TABLE>
<CAPTION>
FEATURE/PACKAGE DESCRIPTION
--------------- -----------
<S> <C>
NI000007* "ISDN Base"
NI000008* "Basic Rate Interface"
NI000010* "NI-1 Packet Services"
</TABLE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
<PAGE> 24
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART IV. DMS 500 OPTIONAL SOFTWARE FEATURES
(DMS-500 SYSTEM)
1.0 DMS-500 OPTIONAL SOFTWARE FEATURES
1.1 LLT0B005 SOFTWARE OPTIONAL TO THE DMS-500 INITIAL SYSTEM
The following represents the LLT0B005 optional Software packages that
are not included in the price of the DMS-500 Initial System
(E:2880/W:5760 Port Model) as defined in Schedule A, Part I, Section
1.0 of this Product Attachment. The following Software represents those
feature packages that may be ordered by Buyer at an additional price
for DMS-500 Initial System and does not include any/all required
Equipment to provide feature functionality.
<TABLE>
<CAPTION>
ORDER CODE DESCRIPTION LIST PRICE
- ---------- ----------- ----------
<S> <C> <C>
ACD00001 ACD BASE See Note
The fee is $500 per ACD line plus $5,000 per ACD user group.
ACD00002 ACD CompuCALL See Note
The fee is $7,500 per switched virtual circuit.
ACD00004 ACD Networking See Note
The fee is $25,000 for the first 100 Network ACD lines plus $500.00 per
Network ACD line over the first 100.
ACD00005 ACD MIS See Note
The fee is $250 per ACD line.
ACD00006 ACD Miscellaneous $52,000
ACD00007 ACD Compucall-Func See Note
The fee is $42,000 per switched virtual circuit.
ACD00008 ACD Ctrx Coord V&Dta See Note
The fee is $5,000 per 100 Centrex lines.
ACD00009 ACD Network ACD on SS7 See Note
The fee is $400.00 per ACD line.
ACD00010 ACD Newwork ACD on PRI See Note
The fee is $400.00 per ACD line.
AIN00001 AIN Primer See Note
The fee is $80,000 Net (not subject to any discounts) to be paid annually.
AIN00002 AIN Essentials $700,000
BAS00027 BAS SCM-SLC96 Spec Svcs $12,000
CAIN0200 CAIN Extended Parms $50,000
CAIN0300 CAIN SCP Simulator $30,000
CAIN0400 CAIN Test Query Tool $30,000
</TABLE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 25
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART IV. DMS 500 OPTIONAL SOFTWARE FEATURES
(DMS-500 SYSTEM)
<TABLE>
ORDER CODE DESCRIPTION LIST PRICE
- ---------- ----------- ----------
<S> <C> <C>
CAIN0500 CAIN CUSTDP Trigger $100,000
CAIN0501 CAIN SPECDIG Trigger $100,000
CRDS0001 Basic/Enhanced Calling Card Service $120,000
CRDS0002 TCAP Based Card Service $25,000
CRDS0003 MCCS MVP $50,000
DTP00002 CLASS for Datapath See Note
The fee is $4,000 for the first 100 Datapath* lines plus $1,000 per
100 Datapath* lines over the first 100.
ENS00001 ENS LDT PSAP $125,000
ENS00002 ENS ACD PSAP See Note
The fee is $47,000 plus $2,000 per E911 position. The fee is $32,000
plus $2,000 per E911 position if ENS00001 has been previously licensed.
ENS00005 ENS E911 $15,000
EQA00003 EQA Celular Intrcnect-EO $15,000
EQA00004 EQA Celular Interconnect $25,000
EQA00006 EQA C7ISUPIrlta CntnEAEO $100,000
EQA00007 EQA EA Alt Sw Point $35,000
EQA00008 EQA POTS IraLATA PICeaeo $20,000
EQA00009 EQA IBN IraLATA PIC EAEO $20,000
EQA00010 EQA En.WATS opratn(POTS) $20,000
EQA00011 EQA Equal Access OSS $8,000
EQA00012 EQA C71SUPIerLta Conn.AT $120,000
LEA00001 LEAS-Toll See Note
The fee is $145,000 for the first 50,000 Directory numbers plus $20,000
for each additional Group of 10,000 Directory numbers over the first 50,000.
LEA00002 LEAS-Local $22,500
MDC00005 MDC MBG Minimum $73,500
MDC00006 MDC MBG Standard $167,500
MDC00011 MDC PVN $195,000
MDC00012 MDC Tailored MDC 1 $26,500
MDC00013 MDC Tailored MDC 2 $40,000
MDC00016 MDC Tailored NARS $50,000
</TABLE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
<PAGE> 26
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART IV. DMS 500 OPTIONAL SOFTWARE FEATURES
(DMS-500 SYSTEM)
<TABLE>
<CAPTION>
ORDER CODE DESCRIPTION LIST PRICE
- ---------- ----------- ----------
<S> <C> <C>
MDC00034 MDC Enhanced WATS $20,000
MDC00035 MDC Teen Service See Note
The fee is $5,000 per 100 MDC lines
N00R0001 In-Switch NOO/NXX Service $100,000
N00R0002 TCAP NOO/NXX Service $125,000
NI000002 NI0 DataSPAN See Note
The fee is $20,000 per LPP cabinet.
NI000004 NI0 DWS See Note
The fee is $50,000 plus $11,500 per DWS Access link.
NI000023 NI0 Intertol ISUP & SS7 $200,000
The fee for the functional group PROV0001 is included in the fee for
NI000023
NI000027 NI0 DWS Flexible Acc $71,500
NI000028 NI0 DWS Carrier Acc $200,000
NPRI0001 PRI Network Interface $25,000
NSER0001 Base Network Services $100,000
NSER0002 TCP Based Authcode, Acct. Code & Pvt. Speed Dial Vailidation $20,000
NSER0003 FI+ Inter/Intra IMT Support $50,000
NTS00005 NTS E800 US $60,000
RES00001 RES Access Management $8,000
RES00002 RES Advanced Custom Calling See Note.
The fee is $15,000 for the first 100 Advanced Custom Calling featured
lines plus $2,500 for each additional 100 featured lines. This capability
is sold in increments of 100 featured lines.
RES00004 RES I/F Functionality See Note.
The fee is $35,000. If NTX732 has been previously purchased, the fee is $5,000.
RES00007 RES Signlng, Routing, OAM $20,000
RES00010 RES Telemetry Applic. See Note
The fee is $30,000 plus $5,000 per utility telemetry trunk.
RES00011 RES Univ. Acc to CLASS See Note.
The fee is $169,500 for the first 5000 equipped lines plus
$90,000 for each additional 5000 equipped lines over the first
5000.
RES00013 RES Ext. Bridged Svcs. $7,500
</TABLE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 27
Digital Teleport (DTI)
Carrier Product Attachment
Schedule A
SCHEDULE A
PART IV. DMS 500 OPTIONAL SOFTWARE FEATURES
(DMS-500 SYSTEM)
<TABLE>
<CAPTION>
ORDER CODE DESCRIPTION LIST PRICE
- ---------- ----------- ----------
<S> <C> <C>
RES00014 RES Call Wake Up Svc. See Note.
The fee is $15,000 per switch.
RES00015 RES Sub Act Code Blking $20,000
RES00016 RES Expansion Svcs. See Note.
The fee is $20,000 for the first 100 Single Line Variety pack featured
lines plus $1,500 for each additional 100 featured lines over the first 100
featured lines. This capability is sold in increments of 100 featured lines.
RES00017 RES Teen Service See Note.
The fee is $11,500 for the first 100 Teen lines plus $1,500
for each additional 100 Teen lines over the first 100.
RES00018 RES & MDC Warm Line $5,000
RES00022 RES Calling Na Del Blkng $8,000
RES00024 RES VSLE & Call Logging $50,000
RES00025 RES Call Waiting Display See Note.
The fee is $15,000 for the first 5000 EQUIPPED lines plus $15,000 for
each additional 5000 EQUIPPED lines over the first 5000. This
capability is sold in increments of 5,000 equipped lines.
RES00027 RES Visual Msg. Waiting $10,000
RES00028 RES Bulk Call Line ID See Note.
The fee is $20,000 for the first 50 data links plus $10,000
for each additional 25 links over the first 50.
RES00029 RES Auto. Recall $5,000
RES00030 RES Customer Tracing $3,500
RES00031 RES Cust Tracing Enh $3,500
RES00037 RES Sbscr Prgmbl Rng Ctl $13,000
RES00039 RES SMDI CLID Suppr $12,000
UDWS0001 DWS Base $175,000
UTRS0001 CIC Routing $90,000
</TABLE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 28
Digital Teleport (DTI)
Carrier Product Attachment
Schedule B/Page 1
SCHEDULE B
SERVICES AND CHARGES
ENGINEERING
1. Nortel shall engineer each System furnished hereunder in accordance with
Nortel's engineering practices applicable to such Initial System at the
time such engineering is performed.
2. Nortel's charges for engineering each Initial System are included in the
prices and fees for the Initial System set forth in Schedule A.
3. The provision of any other engineering by Nortel and the charges associated
therewith shall be as subsequently agreed in writing by Nortel and Buyer.
INSTALLATION
1. Nortel shall install each Initial System furnished hereunder at the
applicable Installation Site in accordance with Nortel's installation
practices applicable to such Initial System at the time such installation
is performed.
2. Nortel's charges for performance of such installation are included in the
prices and fees for the Initial System set forth in Schedule A.
3. The provision of any other installation by Nortel and the charges
associated therewith shall be as subsequently agreed in writing by Nortel
and Buyer.
ADDITIONAL SERVICES
1. All other services to be furnished hereunder shall be subject to written
agreement of the parties which shall set forth the terms and conditions
applicable to the provision of such services and a description of such
services and the charges for such services.
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 29
Digital Teleport (DTI)
Carrier Product Attachment
Schedule C/Page 1
SCHEDULE C
DELIVERY
INTENTIONALLY LEFT BLANK
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 30
Digital Teleport (DTI)
Carrier Product Attachment
Schedule D/Page 1
SCHEDULE D
DOCUMENTATION
Certain documentation with respect to the Products may be made available to
Buyer on CD-ROM pursuant to the terms and conditions set forth below.
In addition, Nortel may furnish to Buyer such other documentation with respect
to the Products as Nortel deems appropriate.
HELMSMAN TERMS AND CONDITIONS
1. DEFINITIONS
"CD-ROM" shall mean a compact disk with read-only memory.
"CD-ROM Software" shall mean the computer programs which provide basic
logic, operating instructions or user-related application instructions with
respect to the retrieval of CD-ROM Documentation, along with the documentation
used to describe, maintain and use such computer programs.
"CD-ROM Documentation" shall mean the documentation that Nortel makes
available to its customers on CD-ROM with respect to DMS-250,DMS-300, and/or
DMS-STP Systems.
2. SCOPE
With the delivery of each Initial System ordered by Buyer, Nortel shall
deliver a CD-ROM on which the appropriate CD-ROM Documentation is contained and
a user manual which shall set forth the procedures by which buyer may use the
CD-ROM Software to access to the CD-ROM Documentation.
Buyer shall be solely responsible for obtaining, at its cost and expense,
any computer or other equipment and software required to use the CD-ROM, CD-ROM
Software and/or CD-ROM Documentation.
Buyer may order additional CD-ROMs from Nortel at Nortel's then current fees
therefor, and any such additional CD-ROMs shall be subject to these terms and
conditions.
3. LICENSE
Upon delivery of the CD-ROM, Nortel shall grant to Buyer a non-exclusive,
non-transferable and non-assignable license, subject to these terms and
conditions:
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 31
Digital Teleport (DTI)
Carrier Product Attachment
Schedule D/Page 2
(a) to use CD-ROM Software solely to access to the CD-ROM Documentation; and
(b) to use the CD-ROM Documentation solely to operate and maintain the Initial
System with which it was delivered.
Buyer acknowledges that, as between Nortel and Buyer, Nortel retains title
to and all other rights and interest in the CD-ROM Software and CD-ROM
Documentation. Buyer shall not modify, translate or copy the CD-ROM Software or
CD-ROM Documentation without Nortel's prior written consent. Buyer shall hold
secret and not disclose to any person, except Buyer's employees with a need to
know, any of the CD-ROM Software or CD-ROM Documentation.
Buyer shall not sell, license, reproduce or otherwise convey or directly or
indirectly allow access to the CD-ROM Software or CD-ROM Documentation to any
other person, firm, corporation or other entity.
Except to the extent expressly set forth in this Schedule D, Nortel shall
have no obligations of any nature whatsoever with respect to the CD-ROM Software
or the CD-ROM Documentation.
4. DISCLAIMER OF WARRANTY AND LIABILITY
NORTEL MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY NATURE WHATSOEVER WITH
RESPECT TO THE CD-ROM, CD-ROM SOFTWARE, CD-ROM DOCUMENTATION OR ANY INFORMATION
CONTAINED ON ANY OF THE FOREGOING OR ANY RESULTS OR CONCLUSIONS REACHED BY BUYER
AS A RESULT OF ACCESS TO OR USE THEREOF, OR WITH RESPECT TO ANY OTHER MATTER OR
SERVICE PROVIDED BY NORTEL, WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR AGAINST INFRINGEMENT. NORTEL SHALL NOT BE LIABLE FOR ANY DIRECT,
SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY NATURE WHATSOEVER
INCLUDING ANY SUCH DAMAGES WHICH MAY ARISE OUT OF THE USE OF OR INABILITY TO USE
OR ACCESS THE CD-ROM, THE CD-ROM SOFTWARE, THE CD-ROM DOCUMENTATION, AND FURTHER
INCLUDING LOSS OF USE, REVENUE, PROFITS OR ANTICIPATED SAVINGS REGARDLESS OF HOW
SUCH DAMAGES MAY HAVE BEEN CAUSED.
5. GENERAL
Nothing contained in this Schedule D shall limit, in any manner, Nortel's
right to change the CD-ROM Software or CD-ROM Documentation or the design or
characteristics of Nortel's Products at any time without notice and without
liability.
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission.
Asterisks denote omissions.
<PAGE> 1
EXHIBIT 10.13
FIBER OPTIC CABLE ON FREEWAYS IN MISSOURI
This Agreement is entered into by the Missouri Highway and Transportation
Commission (hereinafter the "MHTC") and Digital Teleport, Inc., (hereinafter the
"Fiber Optic Contractor", or "FOC").
WITNESSETH:
WHEREAS, the Intermodal Surface Transportation Efficiency Act of 1991, P.L.
102-240, 105 Stat. 1914-2207 (ISTEA), enacted at Section 1034 established
requirements for highway management and traffic monitoring systems in 42 U.S.C.
Section 303; and
WHEREAS, pursuant to ISTEA and 42 U.S.C. Section 303, the Federal Highway
Administration (FHWA) has adopted 23 CFR Parts 500 and 626, which govern such
highway traffic management and monitoring systems, with sanctions on those
states which fail to comply with its program mandates; and
WHEREAS, at ISTEA Title Vl, Part B, Congress enacted the Intelligent
Vehicle Highway Systems Act of 1991, calling for the widespread implementation
of intelligent vehicle-highway systems to enhance the capacity, efficiency, and
safety of the Federal-aid highway system and to serve as an alternative to
additional physical capacity of the Federal-aid highway system; and
WHEREAS, within the presently available technology, the development and
installation of a dedicated fiber optic cable system at or in close proximity to
the Federal-aid highway system is desirable or necessary in order to achieve the
mandates of these federal laws and regulations; and
WHEREAS, on February 1, 1994, the FHWA approved the request of the Missouri
Highway and Transportation Department (MHTD) for an exception to its utility
accommodation policy on freeways, to allow longitudinal installation of fiber
optic cables within the freeway right-of-way, provided that this exception does
not compromise other provisions of MHTD's utility policy, including the
prohibition of maintenance access from the freeway roadway; and
WHEREAS, the parties hereto desire to enter into an agreement, under which
the FOC installs and maintains a buried fiber optic cable system on the mainline
freeway system in Missouri, pursuant to a three phase plan to include the St.
Louis metropolitan area, the Kansas City metropolitan area, and certain rural
areas of Missouri, a portion of which system is reserved for the use of the MHTD
and MHTC to aid in complying with these federal legal mandates.
NOW, THEREFORE, in consideration of these mutual covenants, promises and
representations, the parties agree as follows:
-1-
<PAGE> 2
(1) DEFINITIONS:
(A) Airspace: That space located above, at, or below an MHTC
highway's established gradeline, lying within the approved
right-of-way limits.
(B) Boring: Drilling or pushing under roadway.
(C) Collapsed Ring: Redundant fibers within the same cable.
(D) Conduit: Rigid pipe used to house cable.
(E) Crossroads: Any public road or street that crosses over or
under freeways.
(F) Distribution Nodes: A point where lines of the
same speed or different speed are brought together to create a
line of greater speed in the digital hierarchy.
(G) DS-1: Circuit that runs at 1.54 megabits/second.
(H) Exhibit A: Three Phase Construction Plan
Exhibit B: Fiber Optic Terminal Equipment location and
Schedules for Three Phases
Exhibit C: Technical Interface Design
(I) Existing Structures: Bridges, walls, overpasses, etc., that
are currently in place or which might be constructed in the
future.
(J) Fiber Optic Cable Corridor: The three-dimensional area above,
below, and at ground level, within the metes and bounds
description of MHTC's airspace.
(K) Fiber Optic Cable System: The fiber optic cable system
consists of all fiber optic cable, conduits, splices, buildings
and enclosures, manholes and hand holes and optical termination
equipment to provide DSI's, OC-3 and OC-12 circuit capacity.
(L) Highway Purpose: To maintain and operate the state highway
system in Missouri and not for commercial use or resale.
(M) Interchanges: Any point that has ramps or roadways that access
or exit the through lanes on the freeway where FOC will locate
all fiber optic cable corridor components as described in the
definition of Fiber Optic Cable Corridor.
(N) Kansas City Freeway System: As shown on Exhibits A and B.
(O) Mainline Freeway System: Through lanes of a roadway that are
divided and accessible only at interchanges.
-2-
<PAGE> 3
(P) Multiplexor Nodes: A point where lines of the same speed or
different speeds are brought together to create a line of
greater speed in the digital hierarchy.
(Q) OC-3: A circuit that runs at 155.52 mb/s.
(R) OC-12: A circuit that runs at 622.08 mb/s.
(S) Off Hour Services: Services performed after 5:00 p.m. and
before 8:00 a.m. or on weekends or holidays.
(T) Point of Demarcation: Electronic interface apparatus wherein
FOC provides MHTC connections to DS1's, OC3's and OC12's as
required in the Agreement.
(U) Rural Freeway System: As shown on Exhibit A and B.
(V) Schedule of Construction: The FOC will provide the network to
MHTC in three construction phases. Phase One is the St. Louis
metropolitan area, Phase Two is the Kansas City metropolitan
area, and Phase Three is the Federal Rural Limited Access
Interstate as described in Exhibit A. All phases include the
full installation and completion of all fiber optic cable and
electronic terminal equipment. Phase Three will initially
include fiber optic cable to all interchange locations. In
Phase Three, the FOC will locate fiber optic cable terminal
equipment at the locations set forth in Exhibit B.
(W) Self-healing Loop Configuration: If service is lost from one
direction, it will automatically be restored from another
direction.
(X) Sonet: Synchronous Optical Network is a set of domestic phone
company optical standards for fiber optic interfacing rates and
band widths.
(Y) St. Louis Freeway System: As shown in Exhibits A and B.
(Z) Through-pavement: Pavement that goes from one interchange to
another.
(AA) Unconduited: Cable not placed in conduit.
(BB) Urban Area of St. Louis: As shown on map as part of Exhibit B.
(2) PURPOSE: This Agreement establishes the respective responsibilities of
MHTC and the FOC for the purpose of installing and maintaining a buried fiber
optic cable corridor along the mainline freeway system (existing and future) in
Missouri pursuant to the three-phase plan set forth in Exhibit A.
-3-
<PAGE> 4
(3) CONTRACT PERIOD: The initial contract period shall be for forty (40)
years. The contract shall not bind nor purport to bind MHTC or the FOC for any
contractual commitment in excess of the original contract period. MHTC and FOC
shall have the right, at their option, to renew the contract at twenty (20) year
intervals thereafter. In the event the parties exercise this right, all terms,
conditions and provisions of the original contract shall remain the same and
apply during the renewal period. In the event MHTC and FOC exercise this right,
all terms, conditions and provisions of the original contract shall remain the
same and apply during the renewal period, unless otherwise mutually agreed to by
the parties or their successors.
(4) CONTRACT CONSIDERATION: In exchange for granting to FOC an exclusive
easement in the fiber optic cable corridor, and in additional consideration of
the exclusive right to construct and operate the fiber optic cable system in the
fiber optic cable corridor, FOC will provide MHTC with six (6) dedicated and
lighted fiber optic strands in the statewide system and the necessary
connections thereto set forth in Exhibit B, and will maintain them in good
operating condition.
(5) EXCLUSIVE EASEMENT: The exclusive easement granted to FOC by this
Agreement shall be located within MHTC's airspace but outside of the utility
corridor. It shall be broad enough to accommodate the fiber optic cable system
and its maintenance, and shall be located as specified by MHTC's representative.
The fiber optic cable corridor easement shall be exclusive only as to other
fiber optic cable systems or communications systems. An exception is that
another firm's fiber optic cable may cross the easement at approximately a right
angle, with the mutual consent as to location by MHTC and FOC. The existence of
the easement may be recorded by the FOC at its sole option and expense. The
location of the easement shall be movable at MHTC's sole discretion within
MHTC's airspace, provided that MHTC shall bear the cost of any relocation of the
fiber optic cable corridor which it requires of the FOC after the fiber optic
cable system is installed. The FOC shall have the option to locate any part of
the fiber optic cable system within MHTC's utility corridor, but the use of that
corridor shall not be exclusive. This easement is terminable by MHTC or its
successor at its sole discretion at the conclusion of this Agreement and any
option period exercised. Nothing in this provision or Agreement shall limit
MHTC's authority to install its own independent fiber optic cable within MHTC
airspace for highway purposes, if MHTC elects to do so.
(6) CONTRACT DOCUMENTS: This Agreement between MHTC and the FOC
incorporates and merges the terms of: (1) the Request for Proposal (hereinafter
"RFP"), and any amendments thereto; and (2) the FOC's proposal submitted in
response to the RFP.
(7) EASEMENT GRANT AND CONSTRUCTION GUIDELINES:
(A) MHTC, by this Agreement grants to FOC an exclusive easement as
that term is defined in paragraph (5), for the purposes of
constructing and operating the fiber optic cable system within the
defined fiber optic cable corridor.
-4-
<PAGE> 5
(B) No other fiber optic cable will be permitted in the fiber optic
cable corridor (or on the mainline freeway system outside any MHTC
utility corridor unless a variance exists or is granted) as long
as this fiber optic cable system is maintained under this
Agreement. However, this provision shall not prohibit another
firm's fiber optic cable from crossing the fiber optic cable
corridor at approximately a right angle, at a location to be
mutually agreed by MHTC and FOC. No new variance shall be granted
to place fiber optic cable for more than 1000 yards within MHTC's
right-of-way at any one location. Any variance of a greater
distance will be done only with the approval of FOC.
(C) The fiber optic cable is to be buried twenty (20) feet to thirty
(30) feet from the edge of the through-pavement, where possible,
on MHTC right-of-way. Where that is not possible, due to
structures, bridges, walls, lack of right-of-way, etc.,
installation shall be as mutually agreed between MHTC and the FOC.
Where possible, the cable should be placed in existing conduit on
bridge structures or conduit added by the FOC.
(D) Distribution nodes and their associated power needs will be
allowed only at interchanges or crossroads, where a service
vehicle of the FOC will be off the paved roadway.
(E) Boring will be required under any pavement, including roadways and
ramps, in conduit. Crossing of the freeway may be at existing
structures where possible, as determined by MHTC.
(F) The location of all facilities constructed within the fiber optic
cable corridor or on MHTC right-of-way shall be approved by MHTC.
Standard utility permits will be issued covering all the
installations. Any and all such permits or approvals shall be
issued by MHTC's District Engineer for the district of
installation. All plans for the installation of the fiber optic
cable system shall be submitted to MHTC's district engineer for
approval at least 30 days prior to the desired date of excavation
or trenching for installation. Attachment to any structure should
be submitted 60 days prior to installation.
(G) With the exceptions noted in this Agreement, the work shall be
accomplished in accordance with the existing permit policies and
regulations in the Missouri Highway and Transportation
Commission's Revised Rule 7 CSR 10-3.010 Location and Re-Location
of Utilities on State Highways.
(8) TERMS AND CONDITIONS:
(A) MHTC's use of the fiber optic cable corridor will be for highway
purposes. MHTC shall have access nodes at each interchange along
the freeway system set forth in Exhibit B. MHTC shall have
dedicated six (6) fibers for the provision of service in a
self-healing loop configuration of a collapsed ring.
-5-
<PAGE> 6
(B) The FOC shall own and operate the fiber optic cable system and
retain all the revenues derived from it. If MHTC transfers or
relinquishes ownership rights in any property on which the fiber
optic cable system is located while this or a successive contract
exists, MHTC shall preserve the FOC's easement and other rights
under this Agreement. This includes, but is not limited to, the
continuity of self-healing loops.
(9) FOC'S FAILURE TO PERFORM:
(A) If the FOC fails to either complete the installation of its system
as bid or to provide the service as bid on a regular and
uninterrupted basis, in accordance with its timetable as bid, the
FOC will be liable to MHTC for all resulting damages allowed by
law which its breach has caused MHTC and the traveling public.
These damages shall include but are not limited to: delay and
impact costs, public inconvenience, and expenses of any kind
resulting from the failure of the system to be in place and fully
functional, and all MHTC costs to remedy the breach, including
self-help or hiring a replacement firm to complete the work.
(B) Force Majeure: If the following events occur, MHTC or the FOC
shall be given an adequate time to remedy the situation unless
performance becomes impossible or impractical by an act of God,
war, riot, fire, explosion, accident, flood, sabotage, inclement
weather, governmental laws, regulations, strikes, lockouts or
injunctions or any other cause beyond the reasonable control of
such party, subject to the following. These conditions do not
constitute grounds for avoidance of the contract, but merely
excusable delay. A condition, however, will not be excusable if
it does not directly affect performance under the terms of the
contract.
1. The party invoking this provision shall immediately notify
the other party verbally and promptly thereafter in writing
of the cause for the delay, restriction or limitation of its
ability to perform, together with an estimate of the extent
to which its performance has been and will be delayed.
2. Should a "Force Majeure" delay the performance of this
Agreement for a period in excess of thirty (30) days, the
party delayed from performing shall on or before the 1st and
15th day of each calendar month thereafter notify the other
party of its best estimate of the length of time that "Force
Majeure" will remain in effect and, notwithstanding any
provision herein to the contrary, the other party may take
such reasonable actions as will mitigate any damages.
-6-
<PAGE> 7
(10) EQUIPMENT TO BE PROVIDED BY THE FIBER OPTIC CONTRACTOR:
(A) General Description: The FOC will construct the network in the
three phases as set forth in Exhibit A. This construction will
result in the installation of all fiber optic cables on the
routes and detailed per FOC route maps set forth in Exhibit B.
(B) Equipment to be Provided:
FIBER OPTIC TERMINAL EQUIPMENT
The FOC will furnish and install Northern Telecom fiber optic
terminal equipment, or its equivalent. The equipment the FOC
provides for MHTC will be updated at any time the FOC updates any
portion of the fiber optic cable system on MHTC right-of-way.
FIBER OPTIC CABLE
The FOC will furnish single mode fiber optic cable that meets
necessary "fiber optic link-loss" budgets for the specific
path/distance application. Fiber optic cable will contain
"Corning" standard quality glass or the equivalent.
(C) Graphic Outline Displaying Technical Interface Between
Components: the FOC design of technical interface set forth in
Exhibit C.
(11) INSTALLATION: [TIMETABLE FOR COMPLETION OF EACH PHASE]
(A) St. Louis Metropolitan Area (*)
(B) Kansas City Metropolitan Area (*)
(C) Rural Interstate (*)
(*) The FOC's timetable for the completion of Phases 1, 2 and 3 is
set forth in Exhibits A and B.
(12) MAINTENANCE
(A) General Maintenance:
1. General Maintenance. General maintenance will be the same
for all three phases and associated service areas. FOC
technicians will be responsible for the maintenance of the
network.
2. Preventive Maintenance. Preventive maintenance programs will
be provided to maintain all equipment in accordance with the
manufacturer's specifications. This will further ensure
that all equipment is maintained to the manufacturer's
specified tolerances and qualities.
-7-
<PAGE> 8
3. Warranties and liabilities. The FOC will be responsible for
all warranties and liabilities for service and performance
to ensure satisfactory network performance to points of
demarcation.
4. Distribution of Duties Among the FOC and Subcontractors:
The FOC will have the ultimate responsibility to MHTC for
all aspects of the network installation and operation,
including those aspects the FOC subcontracts to other firms.
5. Service. Service will be provided seven (7) days a week,
twenty-four (24) hours a day.
(a) The primary service locations, in accordance with the
installation and completion of FOC three construction
phases shall be located in St. Louis, Jefferson City
and Kansas City.
(b) A minimum of two (2) service representatives located at
the three primary locations will be certified by the
FOC on the equipment to be serviced.
(c) The following is how the FOC will respond to off-hours
requests for service on holidays, weekends and
vacations: Twenty-four (24) hours a day, seven (7)
days a week.
(d) The following procedures for the FOC's service
representatives staffing shall apply during vacation
and holidays. A minimum of two service technicians
will be on immediate call.
(e) The following procedures shall apply to FOC's service
personnel during normal working hours and on weekends:
a minimum of two (2) technicians during normal working
hours available in each of the three (3) primary areas
and available for call after hours and on weekends.
(f) The guaranteed response time following notification is
two (2) hours for a major or minor outage. Response
time is determined when a qualified technician,
certified on the FOC furnished equipment, is on-site or
the problem is corrected.
(g) Moves, additions and changes, and other service calls
shall be completed within 48 hours after a request for
normal service. Any special work will be completed
within other time frames, to be agreed upon by MHTC and
FOC.
-8-
<PAGE> 9
(13) STATE AND FEDERAL REGULATIONS: The FOC agrees to abide by all federal
and state regulations which pertain to the subject matter of this Agreement and
shall maintain and/or obtain any necessary certifications, licenses, or
governmental approval and file any required reports, tariffs, or notices needed
to effectuate the terms of this Agreement.
(14) RIGHTS GRANTED: This Agreement grants the FOC an easement within the
fiber optic cable corridor in return for the consideration set forth in
paragraph 4. This easement may be terminated by MHTC at MHTC's option upon the
occurrence of any of the following events: (1) material failure to provide
fiber optic cable service to MHTC in accord with the terms of this Agreement
between MHTC and the FOC, including but not limited to the failure to develop or
maintain in good repair the fiber optic cable system and any related equipment
owned or operated by the FOC; (2) a breach or default by the FOC of any
provision of this Agreement; (3) the termination of this Agreement or any option
period exercised; and (4) the bankruptcy or insolvency of the FOC.
(15) RIGHT TO CURE: In the event that MHTC determines that FOC is in
violation of any of its obligations under this Agreement or should any event
occur which would give MHTC the right to terminate this Agreement including, but
not limited to the provisions of paragraph (14), MHTC shall notify FOC of said
violation in writing, after which, notwithstanding anything else herein to the
contrary, FOC shall have a period of ninety (90) days from the date of such
notice to cure such violation. This ninety (90) day period may be extended upon
the agreement of the parties.
(16) FOC PREFERENCE: As in the case of highway expansion which conflicts
with the location of existing utilities, if:
(A) The FOC desires the fiber optic cable corridor to be placed in a
location in MHTC's airspace which is already occupied by MHTC
utility corridor, or another utility is occupying that location
by permit or variance; and
(B) The fiber optic cable corridor cannot be located in a feasible or
prudent manner elsewhere in MHTC's airspace in that vicinity;
then, MHTC shall have the option to either acquire additional right-of-way in
which to place the fiber optic cable corridor in a manner acceptable to the FOC,
or MHTC shall remove and relocate the other utility or utility corridor at its
sole expense, so that the FOC may place its fiber optic cable system in that
corridor, as necessary.
(17) SALE OR ASSIGNMENT: FOC reserves the right to sell or assign, at any
time, any or all of its rights under this Agreement, or any of FOC's assets
under this Agreement to any entity which shall agree, in writing, to abide by
the terms of this Agreement and to take over each and every obligation of the
FOC set out herein. FOC shall provide written notice to MHTC of any such sale
or assignment and provide MHTC the written assignee's agreement to abide by the
terms of this Agreement and to undertake the obligations of the FOC no later
than thirty (30) days prior to the effective date of any such sale or
assignment.
(18) TERMINATION OF THE AGREEMENT: When this Agreement and the rights it
conveys is terminated, the FOC shall have the option to:
-9-
<PAGE> 10
(A) Remove all fiber optic cable and related appurtenances from
MHTC's property at the FOC's own cost and repair all damages to
MHTC's property which result. The FOC shall have one-hundred and
eighty (180) days from the termination of this Agreement to
complete that work. The FOC shall not block or materially delay,
impede or interrupt traffic to effect the removal of its property
and shall not take any action which creates a dangerous condition
of public property or which would endanger any pedestrian or
occupant of a motor vehicle. If the FOC elects this option, the
FOC must remove all hazardous or regulated wastes it generates or
is responsible for (directly or indirectly) from MHTC property
and must restore MHTC property to at least the condition it was
in before it was awarded this Agreement, in accord with all
federal, state and local environmental laws, regulations and
ordinances.
(B) Sell the fiber optic cable system and the FOC's owned equipment
and fixtures pertinent to the system on MHTC property to MHTC, or
any portion thereof which is acceptable to MHTC, at a price to be
mutually agreed upon.
(C) Sell the fiber optic cable system and the FOC's owned equipment
and fixtures pertinent to the system on the MHTC property to a
successor provider of fiber optic cable services to MHTC, or sell
any portion thereof to a successor provider which is acceptable
to MHTC.
(D) Abandon the entire fiber optic cable system on MHTC's property,
or any portion thereof, in a written notice to MHTC, in which
instance that portion of the fiber optic cable system becomes the
sole and exclusive property of MHTC; except, however, the FOC may
not abandon any items or equipment which may contain or create
hazardous or regulated wastes or materials without prior notice
to MHTC of the description and location of those materials. MHTC
may refuse to accept the abandonment of all or any portion of the
fiber optic cable system tendered by the FOC until any hazardous
or regulated wastes or materials have been removed in accord with
all applicable laws. In any event, the FOC remains liable for
the remediation and full restoration of any damaged real or
personal property and for injuries or death resulting from the
presence of any hazardous or regulated wastes or materials on or
adjacent to MHTC's property, which wastes or materials are or
were owned, placed or operated by the FOC.
(19) APPLICABLE STATE LAWS AND ENCUMBRANCES: At no time during this
Agreement or any renewal period thereto shall the FOC place, install or deposit
any hazardous waste or hazardous substance in the MHTC airspace. This does not
include, however, those hazardous substances which are lawfully and properly
contained within the FOC's equipment or structures. If the FOC causes, allows
or permits a spill of a hazardous waste or substance within MHTC airspace, or on
property immediately adjacent thereto, then the FOC shall remain solely liable.
(A) Conflict of Interest: No official or employee of MHTC or its
governing body and no other public official of MHTC who exercises
any functions or responsibilities in the review or approval of
the undertaking or carrying out of the project covered by this
Agreement shall voluntarily acquire any personal interest,
directly or indirectly, in the Agreement or the proposed
Agreement. The FOC covenants that it presently has no interest
and shall not acquire any
-10-
<PAGE> 11
interest, directly or indirectly, which will conflict in any
manner or degree with the performance of the services hereunder.
The FOC further covenants that no person having any such known
interest shall be employed or conveyed an interest, directly or
indirectly, in the contract.
(B) Title: Title to any leased and/or lease-purchased equipment
required by the Agreement shall be held by and vested in the FOC.
MHTC shall not be liable in the event of loss, incident,
destruction, theft, damage, etc., for the leased equipment,
including but not limited to devices, wires, software, technical
literature, etc. It shall be the FOC's sole responsibility to
obtain insurance coverage for such loss in the amount the FOC
deems appropriate.
(C) Liability Insurance: The FOC shall obtain sufficient liability
insurance to protect itself and MHTC from tort liability due to
the construction, installation, operation, maintenance and repair
of the fiber optic cable system on MHTC's right-of-way. At a
minimum, the FOC shall obtain the following insurance coverage:
1. The FOC shall obtain commercial general liability insurance,
having minimum liability limits of one million dollars for
each bodily injury or property damage occurrence, combined
single limit, one million dollars aggregate; and one million
dollars product/completed operations aggregate. Each such
policy shall be endorsed so as to cover liability arising
from underground property damage.
2. The FOC shall obtain commercial automobile liability
insurance for all vehicles owned or used by the FOC in any
phase of the construction, installation, operation,
maintenance and repair of the fiber optic cable system on
MHTC's right-of-way. The minimum limits of liability of
such insurance shall be one million dollars combined single
limit.
(D) Workers Compensation: Workers compensation insurance shall be
maintained at all times by the FOC in amounts sufficient to
comply with all the obligations of the FOC under the laws of the
State of Missouri relating to workers compensation.
(E) Subcontractors: The FOC shall be responsible to see that its
subcontractors possess at least the same minimum extent of
liability insurance at such times that they are constructing,
installing, operating, maintaining or repairing any portion of
the fiber optic cable system on MHTC's right-of-way.
(F) Proof of Insurance: The FOC shall provide proof of insurance to
MHTC within seven (7) business days upon receipt of a written
request for same from an authorized representative of MHTC. The
FOC shall also provide proof of insurance to MHTC of any
subcontractor, or require that subcontractor to do so, within
seven (7) business days upon receipt of a written request for
that subcontractor's insurance status from an authorized
representative of MHTC.
-11-
<PAGE> 12
(20) LIABILITIES, RIGHTS AND REMEDIES: The FOC agrees that MHTC shall not
be responsible for any liability incurred by the FOC or its employees arising
out of the ownership, selection, possession, leasing, renting, operation,
control, use, maintenance, delivery, return and/or installation of equipment
provided by the FOC except as otherwise provided in this Agreement. No
provision in this Agreement shall be construed expressly or implied as a waiver
by MHTC of any existing or future right and/or remedy available by law in the
event of any claim made by, or default in or breach of contract of the FOC.
Notwithstanding the above, the FOC shall not be liable for any damages incurred
by MHTC or its subordinate department and employees, due to causes beyond the
reasonable control of the FOC, attributable to any service, products or actions
of any person other than the FOC, its employees, subcontractors and agents.
(21) FOC'S LIABILITY FOR NEGLIGENT ACTS OR OMISSIONS: The FOC shall be
responsible for any and all injury or damage as a result of any negligent acts
or omissions in the services rendered under the terms and conditions of this
Agreement. In addition to the liability imposed upon the FOC on account of
personal injury, bodily injury (including death) or property damage suffered as
a result of the FOC's negligence, the FOC assumes the obligation to save
harmless MHTC including its employees and assigns from every expense, liability
or cost arising out of such negligent act or omission. The FOC also agrees to
hold harmless MHTC, its employees and assigns for any negligent act or omission
committed by any subcontractor or other person employed by or under the
supervision of the FOC under the terms of this Agreement.
(22) MHTC'S LIABILITY TO THE FIBER OPTIC CONTRACTOR: MHTC will reimburse
the FOC for all actual repair costs if the MHTC personnel or any other
contractor or subcontractor to MHTC damages or destroys any part of the fiber
optic cable system or equipment installed by the FOC. However, MHTC, its
employees, agents and assigns will not be liable for lost revenues or any other
types of incidental or consequential damages sustained by the FOC as a result of
an inadvertent or unintentional cable cut or other loss of signal transmission.
This provision does not limit the scope of liability of an MHTC highway
construction contractor or subcontractor to the FOC for actionable negligence in
the construction, reconstruction, repair or maintenance of a state highway or
other state transportation facility.
(23) PERFORMANCE AND PAYMENT BOND: The FOC must furnish and attach to this
Agreement, a performance and payment bond on the form provided by MHTC without
deviations, omissions or additions, in at least the penal sum of Two Hundred
Fifty Thousand Dollars ($250,000.00). This bond shall be issued and executed by
a surety or sureties acceptable to MHTC, to ensure the proper and prompt
completion of the work in accordance with the provisions of this contract, and
to ensure payment for all labor performed and materials installed, consumed or
used in the work. The bond, if executed by a surety which is a corporation
organized in a state other than Missouri, shall be signed by an agent or broker
licensed by the Director of the Missouri Department of Insurance. The bond
shall remain in full force and effect until the entire fiber optic cable system,
and all related equipment and materials are fully installed and operational, in
accordance with the terms of this contract. At such time, and upon production
of satisfactory documentation by the FOC that it has paid in full the costs of
all labor performed and materials installed, consumed or used in the fiber optic
cable system, the FOC may apply to MHTC to substitute another bond having the
penal sum of not less than Fifty Thousand Dollars ($50,000), to ensure the
continued maintenance and performance of that system for the remaining term of
this Agreement in accord with its provisions, and the payment for all labor
performed and materials installed, consumed
-12-
<PAGE> 13
or used in that phase of the contract work. The initial bond shall remain in
effect for the purpose of satisfying those valid project claims against the FOC
for work, materials or obligations performed or incurred prior to the date a
valid substitute bond was accepted by MHTC. In any event, the original or a
valid substitute bond shall remain in full force and effect at all times,
without a break in coverage, for the initial period and all renewal periods of
this Agreement. No initial or substitute performance and payment surety bond
shall be cancelled except prospectively, and with at least thirty (30) days'
advance notice in writing to MHTC and the FOC. Prior to such effective date of
cancellation of the performance and payment bond, the FOC must obtain and submit
to MHTC a valid substitute bond meeting all terms of this Agreement.
(24) AMENDMENTS: No modification of any provision of the Agreement shall
be made or construed to have been made unless such modification is mutually
agreed to in writing by the FOC and MHTC and incorporated in a written amendment
to the Agreement and approved by MHTC prior to the effective date of such
modification.
(25) COMMUNICATIONS AND NOTICES: Any notices required or permitted to be
delivered under this Agreement shall be in writing and shall be deemed to be
delivered on the earliest to occur of (a) actual receipt; or (b) three (3)
business days after having been deposited with the United States Postal Service,
postage prepaid, certified mail, return receipt requested; or (c) one (1)
business day after having been deposited with a reputable overnight express mail
service that provides tracking and proof of receipt of items mailed. All
notices shall be addressed to MHTC or the FOC, as the case may be, at the
address or addresses set forth below, or such other addresses as the parties may
designate in a notice similarly sent:
If to MHTC, address to:
Missouri Highway and Transportation Commission
Capitol Avenue and Jefferson Street
P.O. Box 270
Jefferson City, Missouri 65102
Attn: Division Engineer, Maintenance and Traffic
and if to the Fiber Optic Contractor:
Digital Teleport, Inc.
11111 Dorsett Road
St. Louis, Missouri 63043
Attn: Richard D. Weinstein, President
(26) VENUE: No action may be brought by either party hereto concerning any
matter, thing or dispute arising out of or relating to the terms, performance,
nonperformance or otherwise of this Agreement except in the Circuit Court of
Cole County, Missouri. The parties agree that this Agreement is entered into at
Jefferson City, Missouri, and substantial elements of its performance will take
place or be delivered at Jefferson City, Missouri, for which the FOC consents to
venue of any action against it in Cole County, Missouri. The FOC shall cause
this provision to be incorporated in all of its contracts with subcontractors
for this fiber optic cable system, to be binding upon all subcontractors of the
FOC in the performance of this Agreement.
-13-
<PAGE> 14
(27) WAGE LAWS: The FOC and its subcontractors shall pay the prevailing
hourly rate of wages for each craft or type of workmen required to execute this
project work as determined by the Department of Labor and Industrial Relations
of Missouri, and they shall further comply in every respect with the minimum
wage laws of Missouri and the United States. Federal wage rates under the
Davis-Bacon or other federal acts apply to and govern this Agreement also for
such work which is performed at the jobsite, in accord with 29 CFR Part 5. Thus,
this Agreement is subject to the "Work Hours Act of 1962", Public Law 87-581, 76
Stat. 357, as amended, and its implementing regulations. The FOC shall take
those acts which may be required to fully inform itself of the terms of, and to
comply with, state and federal labor and wage laws applicable to this Agreement.
(28) NONDISCRIMINATION ASSURANCE: With regard to work under this
Agreement, the FOC agrees as follows:
(A) Civil Rights Statutes: The FOC shall comply with all state and
federal statutes relating to nondiscrimination, including but not
limited to Title VI and Title VII of the Civil Rights Act of
1964, as amended (42 U.S.C. 2000d and 2000e), as well as any
applicable titles of the Americans with Disabilities Act. In
addition, if the FOC is providing services or operating programs
on behalf of the Department or Commission, it shall comply with
all applicable provisions of Title II of the Americans with
Disabilities Act.
(B) Executive Order: The FOC shall comply with all the provisions of
Executive Order 94-03, issued by the Honorable Mel Carnahan,
Governor of Missouri, on the fourteenth (14th) day of January
1994, promulgating a Code of Fair Practices in regard to
nondiscrimination, which is incorporated herein by reference and
made a part of this Agreement. This Executive Order prohibits
discriminatory practices by the state, the FOC or its
subcontractors based on race, color, religion, national origin,
sex, age, disability or veteran status.
(C) Nondiscrimination: The FOC shall not discriminate on grounds of
the race, color, religion, creed, sex, disability, national
origin, age or ancestry of any individual in the selection and
retention of subcontractors, including procurement of materials
and leases of equipment. The FOC shall not partcipate either
directly or indirectly in the discrimination prohibited by 49 CFR
Subtitle A, Part 21, Section 21.5, including employment
practices.
(D) Solicitations for Subcontracts, Including Procurements of
Material and Equipment: These assurances concerning
nondiscrimination also apply to subcontractors and suppliers of
the FOC. In all solicitations either by competitive bidding or
negotiation made by the FOC for work to be performed under a
subcontract including procurement of materials or equipment, each
potential subcontractor or supplier shall be notified by the FOC
of the requirements of this Agreement relative to
nondiscrimination on grounds of the race, color, religion, creed,
sex, disability or national origin, age or ancestry of any
individual.
-14-
<PAGE> 15
(E) Information and Reports: The FOC shall provide all information
and reports required by the Agreement, or orders and instructions
issued pursuant thereto, and will permit access to its books,
records, accounts, other sources of information, and its
facilities as may determined by MHTC or the U.S. Department of
Transportation to be necessary to ascertain compliance with other
contracts, orders and instructions. Where any information
required of FOC is in the exclusive possession of another who
fails or refuses to furnish this information, the FOC shall so
certify to MHTC or the U.S. Department of Transportation as
appropriate, and shall set forth what efforts it has made to
obtain the information.
(F) Sanctions for Noncompliance: In the event the FOC fails to
comply with the nondiscrimination provisions of this Agreement,
MHTC shall impose such contract sanctions as it or the U.S.
Department of Transportation may determine to be appropriate,
including but not limited to:
1. Withholding of payments to the FOC under the Agreement until
the FOC complies; and/or
2. Cancellation, termination or suspension of the Agreement, in
whole or in part, or both.
(29) COMMISSION REPRESENTATIVE: MHTC's Division Engineer for Maintenance
and Traffic is designated as MHTC's representative for the purpose of
administering the provisions of this Agreement. The Division Engineer for
Maintenance and Traffic may designate additional representatives, generally or
for specific purposes, as deemed appropriate by MHTC.
(30) FIBER OPTIC CONTRACTOR'S REPRESENTATIVE: Richard D. Weinstein,
Digital Teleport, Inc.'s President, is designated as the FOC's representative
for the purpose of administering the provisions of this Agreement.
(31) LAW OF MISSOURI TO GOVERN: The Agreement shall be construed according
to the laws of the state of Missouri. The FOC shall comply with all local,
state and federal laws and regulations relating to the performance of the
Agreement.
(32) CONFIDENTIALITY: Neither the FOC nor MHTC shall disclose to third
parties confidential factual matter provided by either party, except as may be
required by federal or state statutes or regulations by court order, or as
authorized by the provider of that confidential information. Either party shall
notify the other immediately of any request for such information.
(33) NONSOLICITATION: The FOC warrants that it has not employed or
retained any company or person, other than a bona fide employee working for the
FOC, to solicit or secure this Agreement, and that it has not paid or agreed to
pay any company or person, other than a bona fide employee, any fee, commission,
percentage, brokerage fee, gifts, or any other consideration, contingent upon or
resulting from the award or making of this Agreement. For breach or violation
of this warranty, MHTC shall have the right to terminate this Agreement without
liability, or in its discretion, to deduct from the Agreement price or
consideration, or otherwise recover, the full amount of such fee, commission,
percentage, brokerage fee, gifts, or contingent fees.
-15-
<PAGE> 16
(34) SEVERABILITY: To the extent that a provision of this Agreement is
contrary to the constitution or the laws of the State of Missouri or of the
United States, that provision shall be void and unenforceable. However, the
balance of the Agreement shall remain in full force and effect between MHTC and
the FOC.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date last written below.
Executed by Digital Teleport, Inc. this 29 day of July, 1994.
Executed by the Commission this 29 day of July, 1994.
MISSOURI HIGHWAY AND DIGITAL TELEPORT, INC.
TRANSPORTATION COMMISSION
/s/ Gary Chullino /s/ Richard D. Weinstein
------------------------------- ---------------------------------
Assistant Chief Engineer Richard D. Weinstein, President
Attest: Attest:
/s/ Mari Ann Winters By /s/ Richard D. Weinstein
------------------------------- ---------------------------------
Secretary to the Commission Title Pres/Sec'y
Approved as to Form: Approved as to Form:
/s/ Marci L. Horton /s/ Richard S. Brownlee III
------------------------------- ---------------------------------
Commission Counsel Richard Brownlee, Attorney at Law
-16-
<PAGE> 17
[GRAPHIC: Map of the State of Missouri, showing location and extent of
St. Louis metropolitan area Freeway System infrastructure.]
EXHIBIT A - Phase One: 100% St. Louis Metropolitan Area
FOC will construct and maintain fiber and points of demarcation for the St.
Louis Freeway System as set forth in MHTC RFP.
<PAGE> 18
[GRAPHIC: Map of the State of Missouri, showing location and extent of
Kansas City metropolitan area Freeway System infrastructure]
EXHIBIT A - Phase Two: 100% Kansas City Metropolitan Area
FOC will construct and maintain fiber and points of demarcation for the
Kansas City Freeway System on all interchanges similar to those for the
St. Louis Freeway System.
<PAGE> 19
[GRAPHIC: Map of the State of Missouri showing the location and extent of
the Federal Rural Freeway System in the northwestern, central and
southeastern quadrants of the State.]
EXHIBIT A - Phase Three: 100% Rural, Interstate, Including, Columbia to
Jefferson City to Lake of the Ozark, to I-44
FOC will construct and maintain fiber and points of demarcation for the
Rural Freeway System per Exhibit A Phase Three attached.
<PAGE> 20
[GRAPHIC: Map of the State of Missouri, from the immediate previous page,
indicating the names of the various towns located on the Federal Rural Freeway
System.]
EXHIBIT A PHASE THREE - ATTACHED
<PAGE> 21
DIGITAL TELEPORT, INC.
TIMELINE/CONSTRUCTION SCHEDULE
COMMENSING ON OR BEFORE, 9/94
[Timeline graphic showing anticipated construction schedule for construction of
fiber optic network serving St. Louis, Kansas City and the Rural Interstate
regions.]
EXHIBIT B
<PAGE> 22
EXHIBIT C
[Technical Diagrams graphically displaying the technical interfaces between the
different components (interchange, interchanges to OC-3 network, OC-12
backbone and traffic operation center) of the fiber optic network (3 pages).]
<PAGE> 1
EXHIBIT 10.14
FIBER OPTIC CABLE ON FREEWAYS IN MISSOURI
AMENDMENT
This amendment to the Agreement executed July 29, 1994, is entered into by
the Missouri Highway and Transportation Commission (hereinafter the "MHTC") and
Digital Teleport, Inc., (hereinafter the "Fiber Optic Contractor," or "FOC").
(1) Paragraph (23) of the original Agreement is hereby amended to
read as follows:
(23) PERFORMANCE AND PAYMENT BOND: The FOC must furnish and attach to
this Agreement, a performance and payment bond on the form provided by MHTC
without deviations, omissions or additions, in at least the penal sum of Two
Hundred Fifty Thousand Dollars ($250,000). This bond shall be issued and
executed by a surety or sureties acceptable to MHTC, to ensure the proper and
prompt completion of the work in accordance with the provisions of this
contract, and to ensure payment for all labor performed and materials
installed, consumed or used in the work. The bond, if executed by a surety
which is a corporation organized in a state other than Missouri, shall be
signed by an agent or broker licensed by the Director of the Missouri
Department of Insurance. A bond shall remain in full force and effect until
the entire fiber optic cable system, and all related equipment and materials
are fully installed and operational, in accordance with the terms of this
contract. Provided however, the bond will be issued on an annually renewable
basis. All renewals will be at the option of the surety, and will be provided
in the form of a written continuation certificate executed by the surety. The
continuation certificate will be provided to MHTC no later than thirty (30)
days prior to the expiration of the current bond. At such time, and upon
production of satisfactory documentation by the FOC that it has paid in full
the costs of all labor performed and materials installed, consumed or used in
the fiber optic cable system, the FOC may apply to MHTC to substitute another
bond, or Irrevocable Letter of Credit acceptable to MHTC, having the penal sum
of not less than Fifty Thousand Dollars ($50,000), to ensure the continued
maintenance and performance of that system for the remaining term of this
Agreement in accord with its provisions, and the payment for all labor
performed and materials installed, consumed or used in that phase of the
contract work. The initial bond(s) shall remain in effect for the purpose of
satisfying those valid project claims against the FOC for work, materials or
obligations performed or incurred prior to the date a valid $50,000 substitute
bond, or Irrevocable Letter of Credit, was accepted by MHTC. In any event, the
original, or a valid substitute bond, or Irrevocable Letter of Credit, shall
remain in full force and effect at all times, without a break in coverage, for
the initial period and all renewal periods of this Agreement. No initial or
substitute performance and payment surety bond shall be cancelled except
prospectively, and with at least thirty (30) days' advance notice in writing to
MHTC and the FOC. Neither non-renewal by the surety, nor failure, nor
inability of the FOC to file a replacement bond shall constitute a loss to the
MHTC which is recoverable under the expiring bond. The Surety's liability
under this bond and all continuation certificates issued in connection
therewith shall not be cumulative and shall in no event exceed the amount as
set forth in the bond, or in any additions, riders, or endorsements properly
issued by the surety as supplements thereto. Prior to such effective date of
cancellation of the performance and payment bond, the FOC must obtain and
submit to MHTC a valid substitute bond, or Irrevocable Letter of Credit,
meeting all terms of this Agreement. The FOC shall not perform any
construction, work or maintenance under the original contract without an
original bond or an Irrevocable Letter of Credit in full force during the
actual time of performance of the original contract.
<PAGE> 2
(2) All other terms and conditions of the original Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date last written below.
Executed by Digital Teleport, Inc. this 21 day of September , 1994.
------ --------------
Executed by the Commission this 22 day of September , 1994.
------ --------------
MISSOURI HIGHWAY AND DIGITAL TELEPORT, INC.
TRANSPORTATION COMMISSION
/s/ Gary Chullino /s/ Richard D. Weinstein
--------------------------------- ---------------------------------
Assistant Chief Engineer Richard D. Weinstein, President
Attest: Attest:
/s/ Mari Ann Winters By /s/ Richard D. Weinstein
--------------------------------- -----------------------------
Secretary to the Commission
Title Pres/Secy
-----------------------------
Approved as to Form: Approved as to Form:
/s/ Marci L. Horton /s/ Richard S. Brownlee III
--------------------------------- ---------------------------------
Commission Counsel Richard Brownlee, Attorney at Law
-2-
<PAGE> 1
EXHIBIT 10.15
FIBER OPTIC CABLE ON FREEWAYS IN MISSOURI
SECOND AMENDMENT
This second amendment to the Agreement executed July 29, 1994 is entered
into by the Missouri Highway and Transportation Commission (hereinafter the
"MHTC") and Digital Teleport, Inc., (hereinafter the "Fiber Optic Contractor,
"or "FOC").
(1) Paragraph (27), "Wage Laws", in the original Agreement is hereby
deleted in its entirety as unnecessary. This contract is a service contract,
and not a public works contract.
(2) All other terms and conditions of the original Agreement as previously
amended at Paragraph (23), shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date last written below.
Executed by Digital Teleport, Inc. this 28th day of October , 1994.
-------- ----------
Executed by the Commission this 7th day of November , 1994.
------- -----------
MISSOURI HIGHWAY AND DIGITAL TELEPORT, INC.
TRANSPORTATION COMMISSION
/s/ Gary Chullino /s/ Richard D. Weinstein
- --------------------------------- ---------------------------------
Assistant Chief Engineer Richard D. Weinstein, President
Attest: Attest:
/s/ Mari Ann Winters By /s/ Richard D. Weinstein
- --------------------------------- -----------------------------
Secretary to the Commission
Title Pres/Secy
------------------------------
Approved as to Form: Approved as to Form:
/s/ Gregory W. Schroeder /s/ Richard S. Brownlee III
- --------------------------------- ---------------------------------
Commission Counsel Richard Brownlee, Attorney at Law
<PAGE> 1
EXHIBIT 10.16
FIBER OPTIC CABLE ON FREEWAYS IN MISSOURI
THIRD AMENDMENT
This third amendment to the Agreement executed July 29, 1994 is entered
into by the Missouri Highway and Transportation Commission (hereinafter the
"MHTC") and Digital Teleport, Inc (hereinafter the "Fiber Optic Contractor", or
"FOC").
WITNESSETH:
WHEREAS, it is to the mutual benefit of the parties to modify the July 29,
1994 Agreement, by providing additional locations for the FOC to install its
fiber optic cable and related equipment outside of existing utility corridors
on MHTC highway right-of-way, in certain locations which provide further IVHS
(now "Intelligent Transportation System" or "ITS") resources for MHTC and its
state highway and transportation system; and
WHEREAS, it is to the mutual benefit of the parties for the FOC to receive
these additions to the Fiber Optic Cable System, in return for MHTC having
that system fully connected to all Missouri Department of Transportation
(MoDOT) District headquarters office buildings at no additional expense to
MHTC;
NOW, THEREFORE, in consideration of these mutual covenants, promises and
representations, the parties agree as follows:
(1) AMENDMENTS: The original Agreement, as previously modified by a first
and second amendment to that Agreement, is further amended as follows:
(A) Section (1), "DEFINITIONS", is amended by adding a subsection (CC),
"System Additions", to read as follows:
(CC) System Additions: Those proposed Fiber Optic
Cable System builds that are agreed to by MHTC and FOC, which
were not designated on the original freeway system designated
in the Agreement, but which are now considered necessary to
support that system and the MHTC's intent in developing that
system.
(B) Section (1), "DEFINITIONS", is further amended by modifying its
subsection "H", adding a new "Exhibit D", so that the subsection now reads in
full as follows:
(H) Exhibit A: Three Phase Construction Plan
Exhibit B: Fiber Optic Terminal Equipment location and Schedules
for Three Phases
Exhibit C: Technical Interface Design
Exhibit D: System Additions
(C) Section (7), "EASEMENT GRANT AND CONSTRUCTION GUIDELINES", is amended
by adding a subsection (H), to read as follows:
(H) Commencing no later than January 1, 1997, the FOC shall
physically mark the surface location of the existing buried cable or
conduit on an on-
<PAGE> 2
going basis until all locations are marked in a manner acceptable and
approved by MHTC's Division Engineer for Traffic. Cable or conduit which
are placed after October 1, 1996, that are shown in Exhibits A and B
shall be marked by the FOC within sixty (60) calendar days after burial
of the cable or conduit. Cable or conduit placed as shown in Exhibit D
shall be marked by the FOC within forty-five (45) calendar days after
burial of the cable or conduit, if any of the locations are not within
the existing utility corridor. The surface location of cable or conduit
buried within the utility corridor may (but need not be) physically
marked in the same manner.
(D) Section (7), "EASEMENT GRANT AND CONSTRUCTION GUIDELINES",
is further amended by adding a subsection (I), to read as follows:
(I) All terms and conditions of this Agreement will govern and
apply to all system additions (as shown in Exhibit D), except that
any such system additions shall be relocated at the expense of the
FOC, if relocation is deemed necessary by the MHTC or by its
Commission Representative designated in Section (29) of this
Agreement.
(E) Section (11), "INSTALLATION", is amended by adding a subsection (D),
which subsection reads as follows:
(D) System Additions:
1. Without regard to the FOC's timetable for the completion of
Phases 1, 2 and 3, the installation of those system additions
described in Exhibit D must be completed by the FOC no later than
July 31, 1998. If the system additions are not completely installed
and operational on the designated routes and locations, the FOC must
provide alternative, comparable and acceptable service to the MHTC no
later than July 31, 1998. At the sole option of the MHTC, if any
system additions are incomplete and no alternate, comparable and
acceptable service is provided by the FOC by July 31, 1998, under
this Agreement and Exhibit D, any partial Fiber Optic Cable System
installations within those designated routes may be reconsidered for
disposition by the MHTC. If an alternate service is provided to a
designated route shown in Exhibit D, the designated route shown in
Exhibit D may be removed at any time after July 31, 2000, at the sole
discretion of the MHTC.
2. Further, the FOC shall connect all of the MoDOT District
Headquarters office buildings to the Fiber Optic Cable System either
from the original system, the system additions, or by other means of
access, no later than July 31, 1998. The FOC's obligation shall be
to connect the system to the exterior of one such building within
each district headquarters complex at a location to be specified by
the Division Engineer for Traffic. The authority to install any
system additions in locations outside of the utility corridor is
conditioned upon compliance with this provision.
(2) EXTENSIONS FOR WORK TO BE COMPLETED BY THE FOC: At the sole option
of the MHTC, the MHTC may allow an extension of time for the FOC to complete the
work required under this Agreement or in any of the amendments to the Agreement.
The FOC shall formally request an extension in writing to the MHTC regarding
such an
-2-
<PAGE> 3
extension. The MHTC will respond in writing to the FOC regarding the FOC's
request for an extension to complete any of the required work.
(3) NAME CHANGE OF HIGHWAY AND TRANSPORTATION DEPARTMENT: With the
enactment of H.B. 991, effective August 28, 1996, the "department of highways
and transportation" is to be known as the Department of Transportation." As a
result, any references in the Agreement or in any of the previous amendments to
the Missouri Highway and Transportation Department (MHTD) shall now be referred
to the Missouri Department of Transportation (MoDOT).
(4) REAFFIRMATION OF CONTRACT AS AMENDED: Except as they may be amended by
this third amendment, all other terms and conditions of the original Agreement,
and those contained in the first and second amendments to that Agreement, shall
remain in full force and effect.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have entered into this agreement on the
date last written below.
Executed by Digital Teleport, Inc. this 4th day of October, 1996.
Executed by MHTC this 9th day of October, 1996.
MISSOURI HIGHWAY AND
TRANSPORTATION COMMISSION DIGITAL TELEPORT, INC.
By: /s/ Gary Chullino By /s/ Richard D. Weinstein
------------------------ ----------------------------
Richard D. Weinstein, President
Title: Deputy Chief Engineer
Attest: Attest:
/s/ Mari Ann Winters By: /s/ Richard D. Weinstein
- ---------------------------- ---------------------------
Secretary to the Commission
Title: Sec'y
------------------------
Approved as to Form: Approved as to Form:
/s/ Robert M. Hibbs /s/ Richard S. Brownlee III
- ---------------------------- -------------------------------
Commission Counsel Richard S. Brownlee, III
Attorney at Law
-4-
<PAGE> 5
SYSTEM ADDITIONS
St. Louis Metropolitan Area Additions
(1) Route 367 - Route 67 from I-270 to Mississippi River
(2) Route 94 from I-70 to Route 40/I-64
Outside Additions
(1) Route 60 from Route 65 to Route 76 (Willow Springs)
(2) Route 61 from I-70 to Route 36 (Hannibal)
(3) Route 63 from I-70 to Route 36 (Macon)
(4) Route 65 from I-44 to the Arkansas state line
(including Route 765 in Branson)
(5) Route 71 from I-435 to I-44 and continuing to Arkansas state line (future
I-49)
EXHIBIT D
<PAGE> 1
EXHIBIT 10.17
[DTI - DIGITAL TELEPORT, INC. LETTERHEAD]
February 7, 1997
Mr. Tom Dollus,
Asst. Division Engineer - Traffic Division
MO. DEPARTMENT OF TRANSPORTATION
105 W. Capitol Avenue
Jefferson City, MO 65102
re: Extension of Schedule Phase 1, 2 & 3
completion dates of the "Fiber Optic Cable
on the Freeways in Missouri" Agreement,
dated July 29, 1994
Dear Mr. Dollus:
Pursuant to paragraph (2) of the "Third Amendment" executed by the parties on
October 9th, 1996, please herein find a request for a "Revised Schedule" of
dates for completion of the phases of the project. The amended dates for
completion are as follow:
Phase One: September 30, 1997
Phase Two: July 31, 1998
Phase Three: December 31, 1998
Indicate the acceptance of the revised completion dates on behalf of MHTC and
return three executed copies to us. Thank you for your cooperation in this
matter.
11111 Dorsett Rd. - St. Louis, Missouri 63043 - (314) 253-6600
Fax (314) 253-6699
<PAGE> 2
- Page -2-
02/07/97
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein
------------------------------
Title: President
------------------------------
Dated: February 7, 1997
------------------------------
ACCEPTED BY:
MISSOURI HIGHWAY AND TRANSPORTATION
COMMISSION
By: /s/ Gary Chullino
----------------------------------------
Title: Deputy Chief Engineer
----------------------------------------
Dated: February 13, 1997
----------------------------------------
APPROVED AS TO FORM:
/s/ Robert M. Hibbs
- -----------------------------------------
Assistant Counsel
ATTEST
/s/ Mari Ann Winters
- -----------------------------------------
Secretary to State Highway &
Transportation Commission
<PAGE> 1
EXHIBIT 10.18
FIBER OPTIC CABLE AGREEMENT
This Fiber Optic Cable Agreement (the "Agreement") is entered
into this 28th day of May, 1997, by and between the Arkansas State Highway and
Transportation Department (hereinafter the "AHTD") and Digital Teleport, Inc.
(hereinafter the "Fiber Optic Company," or "FOC").
W I T N E S S E T H:
WHEREAS, 23 U.S.C. Sections 109 and 111 and Federal
Regulations promulgated pursuant thereto, govern use and points of access to the
Interstate and other controlled access highways and the 1989 Policy of The
American Association of State Highway and Transportation Officials provides for
longitudinal use when a determination is made that denial of such use would
result in severe hardship or is contrary to the public interest;
WHEREAS, the United States Telecommunications Act of 1996
requires the provision of right of way for telecommunications purposes by states
on a nondiscriminatory basis;
WHEREAS, with the presently available technology, the
development and installation of a dedicated Fiber Optic Cable System at or in
close proximity to the Federal-Aid highway system is desirable or necessary in
order to achieve the mandates of certain federal laws and regulations; and
WHEREAS, the parties hereto desire to enter into an agreement,
under which the FOC installs and maintains a buried Fiber Optic Cable System on
certain highways in Arkansas, a portion of which system is reserved for the use
of the AHTD to aid in complying with these federal legal mandates.
NOW, THEREFORE, in consideration of these mutual covenants,
promises and representations, the parties agree as follows:
(1) DEFINITIONS:
(A) Airspace: That space located above, at, or below an
AHTD highway's established grade line, lying within
the approved right-of-way limits.
(B) FCAH: Interstate and other fully controlled access
highways in the State of Arkansas ("FCAH").
(C) Fiber Optic Cable Corridor: The three-dimensional
area above, below, and at ground level, within the
metes and bounds description of AHTD's Airspace
along the FCAH from the Missouri State Line on
I-540 to the District 4 Headquarters in Fort Smith
<PAGE> 2
and from Fort Smith to the District 8 Headquarters
in Russellville on I-40 and to Little Rock on I-40.
(D) Fiber Optic Cable System: The Fiber Optic Cable
System consists of all fiber optic cable, conduits,
splices, buildings and enclosures, manholes, hand
holes and related appurtenances.
(E) Highway Purpose: To maintain and operate the state
highway system in Arkansas and not for commercial
use or resale.
(F) Point of Demarcation: Splice points wherein the FOC
provides AHTD connection access to AHTD's six (6)
dark fibers as required in the Agreement.
(G) Utility Accommodation Policy: The Utility
Accommodation Policy, as adopted by the Arkansas
State Highway Commission and as amended by the
Commission from time to time.
(2) PURPOSE: This Agreement establishes the respective
responsibilities of AHTD and the FOC for the purpose of installing and
maintaining a buried Fiber Optic Cable System in the Fiber Optic Cable Corridor.
(3) CONSIDERATION: In exchange for granting to FOC a permit
for the construction and operation of the Fiber Optic Cable System in the Fiber
Optic Cable Corridor, the FOC, at no charge to the AHTD, will provide AHTD with
six (6) dedicated dark fiber optic strands along the Fiber Optic Cable Corridor
so long as the FOC, or any of its successors or assignees, continues to occupy
the Fiber Optic Cable Corridor; additionally, the FOC shall install, at no cost
to the AHTD, dark fiber optic cables from the Fiber Optic Cable Corridor along
I-540 from the Missouri Line along the I-540 right-of-way of the AHTD into the
AHTD's District Headquarters in Fort Smith, Arkansas, and from Fort Smith to the
District 8 Headquarters in Russellville and to Little Rock along the I-40
right-of-way, all to the satisfaction of the AHTD; and the FOC shall at no time
charge any fees for the usage of any strands dedicated to the AHTD nor shall
their successors or assigns so long as the FOC or any of its successors or
assignees continues to occupy the Fiber Optic Cable Corridor.
(4) THE PERMIT: Nothing contained in this Agreement shall be
construed as the granting of an easement from the AHTD to the FOC. AHTD hereby
grants to FOC only a permit for the construction and operation of the Fiber
Optic Cable System within the defined Fiber Optic Cable Corridor. The permitted
activities granted to the FOC by this Agreement shall be located within the
AHTD's airspace in the Fiber Optic Cable Corridor and may be revocable in
-2-
<PAGE> 3
accordance with the Utility Accommodation Policy, and, if so revoked, the AHTD
shall terminate this Agreement. If such Agreement is so terminated by the AHTD,
the FOC hereby specifically agrees that it shall have absolutely no legal
recourse against the AHTD or the Arkansas State Highway Commission, or any of
that Department's or Commission's officers, agents, servants, or employees. This
Agreement may also be terminated by the FOC in accordance with the provisions of
this Agreement. The permitted activities shall be broad enough to accommodate
the Fiber Optic Cable System and its maintenance, and shall be located as
specified by AHTD's representative. The FOC shall have the option to locate any
part of the Fiber Optic Cable System within the Fiber Optic Cable Corridor, but
the use of that corridor shall not be exclusive. Nothing in this Agreement shall
limit AHTD's authority to install its own independent fiber optic cable within
AHTD Airspace for Highway Purposes, if AHTD elects to do so. If a third party is
allowed to install a fiber optic cable within AHTD Airspace, FOC may inspect any
such installation prior to its commencement and any such third party will be
required to pay the cost of any additional protection for the Fiber Optic Cable
System which the FOC might reasonably require.
(5) CONTRACT DOCUMENTS: This Agreement between AHTD and the
FOC incorporates by reference the terms of the Utility Accommodation Policy.
(6) CONSTRUCTION GUIDELINES:
(A) The location of all facilities constructed within
the Fiber Optic Cable Corridor or on AHTD
right-of-way shall be approved by Chief Utility
Section, AHTD. Standard utility permits will be
issued covering all the installations. All plans for
the installation of the Fiber Optic Cable System
shall be submitted to AHTD's Chief Utility Section
for approval at least 30 days prior to the desired
date of excavation or trenching for installation.
Attachment to any structure shall be submitted
thirty (30) days prior to installation. AHTD will
approve or disapprove any such submissions within
fifteen (15) days of receipt thereof. AHTD's
approval or disapproval of such plans shall be made
in accordance with the Utility Accommodation Policy.
(B) With the exceptions noted in this Agreement, all
work shall be accomplished in accordance with the
permit policies and regulations, including those set
forth in the Utility Accommodation Policy.
-3-
<PAGE> 4
(7) TERMS AND CONDITIONS:
(A) AHTD's use of the AHTD fibers will be solely for
Highway Purposes. AHTD shall have access to the AHTD
fibers along the Fiber Optic Cable Corridor at
predetermined splice points. Within ten (10) days
from the date of this Agreement, AHTD will advise
FOC of AHTD's determination of the splice and access
points as required by AHTD for its dark fibers.
(B) The FOC shall own and operate the Fiber Optic Cable
System and retain all revenues derived from it.
(8) FORCE MAJEURE: If a party's performance of its obligations
hereunder becomes impossible or impractical because of an act of God, war, riot,
fire, explosion, accident, flood, sabotage, inclement weather, strikes, lockouts
or injunctions or any other cause beyond the reasonable control of such party,
such party shall be given a reasonably adequate time to remedy such situation.
These conditions do not constitute grounds for avoidance of a party's
obligations hereunder but merely excusable delay. A condition, however, will not
excuse performance if it does not directly affect performance under the terms
hereof.
1. The party invoking this provision shall immediately
notify the other party orally and promptly
thereafter provide notice in writing of the cause
for the delay, restriction or limitation of its
ability to perform, together with an estimate of the
extent to which its performance has been and will be
delayed.
2. Should a "Force Majeure" delay the performance of
this Agreement for a period in excess of thirty (30)
days, the party delayed from performing shall on or
before the 1st and 15th day of each calendar month
thereafter notify the other party of its best
estimate of the length of time such "Force Majeure"
will remain in effect and, notwithstanding any
provision herein to the contrary, the other party
may take such reasonable actions as will mitigate
any damages.
-4-
<PAGE> 5
(9) CABLE AND EQUIPMENT:
The FOC will furnish all fiber optic cable that meets
FOC's cable specifications and all equipment necessary for installation of the
cable. Each party will provide its own optronics and electronics to operate its
own fiber or that dedicated to it.
(10) MAINTENANCE:
(A) General Maintenance:
1. General Maintenance. FOC technicians will be
responsible for the maintenance and protection
of the Fiber Optic Cable System, including the
six AHTD dark fibers in accordance with FOC's
company policies. This maintenance obligation
with respect to the AHTD fibers shall apply only
to those areas where AHTD fibers co-occupy cable
contained in the Fiber Optic Cable System.
2. Distribution of Duties Among the FOC and
Subcontractors: The FOC will have the
responsibility for all aspects of the
installation of the Fiber Optic Cable System,
including those aspects the FOC subcontracts to
other firms.
(11) STATE AND FEDERAL REGULATIONS: The FOC agrees to abide by
all federal and state regulations which pertain to the subject matter of this
Agreement and shall maintain and/or obtain any necessary certifications,
licenses, or governmental approval and file any required reports, tariffs, or
notices needed to effectuate the terms of this Agreement.
(12) RIGHT TO CURE: In the event that AHTD determines that FOC
is in material violation of any of its obligations under this Agreement, AHTD
shall notify FOC of said violation in writing, after which, notwithstanding
anything else herein to the contrary, FOC shall have a period of ninety (90)
days from the date of such notice to cure such violation. This ninety (90) day
period may be extended upon the agreement of the parties.
(13) RELOCATION: In the event of any highway expansion which
conflicts with the location of the Fiber Optic Cable System the Fiber Optic
Cable Corridor will be relocated in AHTD's Airspace in accordance with the
Utility Accommodations Policy.
(14) SALE OR ASSIGNMENT: The FOC reserves the right to sell or
assign, at any time, any or all of its rights under this
-5-
<PAGE> 6
Agreement, or any of FOC's assets under this Agreement. The FOC shall provide
written notice to AHTD of any such sale or assignment and provide AHTD any such
assignee's written agreement to abide by the terms of this Agreement and to
undertake the obligations of the FOC no later than thirty (30) days prior to
the effective date of any such sale or assignment.
(15) TERMINATION OF THE AGREEMENT: When this Agreement and the
right it conveys is terminated, the FOC shall have the option to:
(A) Sell the Fiber Optic Cable System and the FOC's
owned equipment and fixtures pertinent to the system
on AHTD property to AHTD, or any portion thereof
which is acceptable to AHTD, at a price to be
mutually agreed upon.
(B) Sell the Fiber Optic Cable System and the FOC's
owned equipment and fixtures pertinent to the
system on the AHTD property to a successor provider
of fiber optic cable services to AHTD, or sell any
portion thereof to a successor provider which is
acceptable to AHTD.
(C) Abandon the entire Fiber Optic Cable System on
AHTD's property, or any portion thereof, in a
written notice to AHTD, in which instance that
portion of the Fiber Optic Cable System becomes the
sole and exclusive property of AHTD; except,
however, the FOC may not abandon any items or
equipment which may contain or create hazardous or
regulated wastes or materials without prior notice
to AHTD of the description and location of those
materials. AHTD may refuse to accept the
abandonment of all or any portion of the Fiber
Optic Cable System tendered by the FOC until any
hazardous or regulated wastes or materials have
been removed in accord with all applicable laws. In
any event, the FOC remains liable for the
remediation and full restoration of any damaged
real or personal property and for injuries or death
resulting from the presence of any hazardous or
regulated wastes or materials on or adjacent to
AHTD's property, which wastes or materials are or
were owned, placed or operated by the FOC.
(16) APPLICABLE STATE LAWS AND ENCUMBRANCES: At no time during
this Agreement shall the FOC place, install or deposit any hazardous waste or
hazardous substance in the AHTD Airspace. This does not include, however, those
hazardous substances which are
-6-
<PAGE> 7
lawfully and properly contained within the FOC's equipment or structures. If the
FOC causes, allows or permits a spill of a hazardous waste or substance within
AHTD Airspace, or on property immediately adjacent thereto, then the FOC shall
remain solely liable.
(17) INSURANCE:
(A) Liability Insurance: The FOC shall obtain
sufficient liability insurance to protect itself
and AHTD from tort liability, due to the
construction, installation, operation, maintenance
and repair of the Fiber Optic Cable System on
AHTD's right-of-way. At a minimum, the FOC shall
obtain the following insurance coverage:
1. The FOC shall obtain commercial general
liability insurance, having minimum liability
limits of one million dollars for each bodily
injury or property damage occurrence, combined
single limit, one million dollars aggregate;
and one million dollars product/completed
operations aggregate. Each such policy shall be
endorsed so as to cover liability arising from
underground property damage.
2. The FOC shall obtain commercial automobile
liability insurance for all vehicles owned or
used by the FOC in any phase of the
construction, installation, operation,
maintenance and repair of the Fiber Optic Cable
System on AHTD's right-of-way. The minimum
limits of liability of such insurance shall be
one million dollars combined single limit.
(B) Workers' Compensation: Workers' compensation
insurance shall be maintained at all times by the
FOC in amounts sufficient to comply with all the
obligations of the FOC under the laws of the State
of Arkansas relating to workers compensation.
(C) Subcontractors: The FOC shall be responsible to see
that its subcontractors possess at least the same
minimum extent of liability insurance at such times
that they are constructing, installing, operating,
maintaining or repairing any portion of the Fiber
Optic Cable System on AHTD's right-of-way.
-7-
<PAGE> 8
(D) Proof of Insurance: The FOC shall provide proof of
insurance to AHTD within seven (7) business days
upon receipt of a written request for same from an
authorized representative of AHTD. The FOC shall
also provide proof of insurance to AHTD of any
subcontractor, or require that subcontractor to do
so, within seven (7) business days upon receipt of
a written request for same from an authorized
representative of AHTD.
(18) LIABILITIES, RIGHTS AND REMEDIES: The FOC agrees that
AHTD shall not be responsible for any liability incurred by the FOC or its
employees arising out of the ownership, selection, possession, leasing, renting,
operation, control, use, maintenance, delivery, return and/or installation of
equipment provided by the FOC except as otherwise provided in this Agreement. No
provision of this Agreement shall be construed expressly or implied as a waiver
by AHTD of any existing or future right and/or remedy available by law in the
event of any claim made by, or default in or breach of contract of the FOC.
Notwithstanding the above, the FOC shall not be liable for any damages incurred
by AHTD or its subordinate department and employees, due to causes beyond the
reasonable control of the FOC, attributable to any service, products or actions
of any person other than the FOC, its employees, subcontractors and agents.
(19) FOC'S LIABILITY FOR NEGLIGENT ACTS OR OMISSIONS: The FOC
shall be responsible for any and all injury or damage as a result of any
negligent acts or omissions in the services rendered under the terms and
conditions of this Agreement. In addition to the liability imposed upon the FOC
on account of personal injury, bodily injury (including death) or property
damage suffered as a result of the FOC's negligence, the FOC assumes the
obligation to save harmless AHTD, including its employees and assigns, from
every expense, liability or cost arising out of such negligent act or omission.
The FOC also agrees to hold harmless AHTD, its employees and assigns for any
negligent act or omission committed by any subcontractor or other person
employed by or under the supervision of the FOC under the terms of this
Agreement.
(20) LIMITATION OF LIABILITY AND WARRANTY: In no event shall
either party be liable to the other or any other person, firm or entity in any
respect, including, without limitation, for any damages, either direct,
indirect, consequential, special, incidental, actual, punitive, or any other
damages, or any lost profits of any kind or nature whatsoever, caused by
mistakes, accidents, errors, omissions, interruptions, delays, or defects in
transmission, including those which may be caused by the regulatory or judicial
authorities, arising out of or related to this agreement or the obligations of
such party pursuant to this agreement. Neither party makes any warranty, whether
express,
-8-
<PAGE> 9
implied, or statutory, as to the description, quality, merchantability,
completeness or fitness for any purpose of the services, or as to any other
matter, all of which warranties are hereby excluded and disclaimed.
(21) AMENDMENTS: No modification of any provision of the
Agreement shall be made or construed to have been made unless such modification
is mutually agreed to in writing by the FOC and AHTD and incorporated in a
written amendment to the Agreement and approved by AHTD prior to the effective
date of such modification.
(22) COMMUNICATIONS AND NOTICES: Any notices required or
permitted to be delivered under this Agreement shall be in writing and shall be
deemed to be delivered on the earliest to occur of (a) actual receipt; or (b)
three (3) business days after having been deposited with the United States
Postal Service, postage prepaid, certified mail, return receipt requested; or
(c) one (1) business day after having been deposited with a overnight express
mail service that provides tracking and proof of receipt of items mailed. All
notices shall be addressed to AHTD or the FOC, as the case may be, at the
address or addresses set forth below, or such other addresses as the parties may
designate in a notice similarly sent:
If to AHTD, address to:
Arkansas State Highway and Transportation Department
P.O. Box 2261
Little Rock, AR 72203
Attention: Utilities Section
and if to Fiber Optic Contractor:
Digital Teleport, Inc.
11111 Dorsett Road
St. Louis, Missouri 63043
Attention: Richard D. Weinstein, Chief Executive Officer
(23) AHTD REPRESENTATIVE: The Director of Highways and
Transportation shall designate AHTD's representative for the purpose of
administering the provisions of this Agreement. Until further notice from that
Director, the AHTD's representative shall be the AHTD's Chief-Utility Section.
That Director may designate additional representatives, generally or for
specific purposes, as deemed appropriate by such Director.
(24) FIBER OPTIC CONTRACTOR'S REPRESENTATIVE: The Chief
Executive Officer, is designated as the FOC's representative for the purpose of
administering the provisions of this Agreement.
-9-
<PAGE> 10
(25) LAW OF ARKANSAS TO GOVERN: The Agreement shall be
construed according to the laws of the state of Arkansas. The FOC shall comply
with all local, state and federal laws and regulations relating to the
performance of the Agreement.
(26) CONFIDENTIALITY: With the exception of the contents of
this Agreement neither the FOC nor AHTD shall disclose to third parties
confidential factual matter provided by either party, except as may be required
by federal or state code provisions, laws, regulations, or statutes, or by court
order, or as authorized by the provider of that confidential information.
(27) NONSOLICITATION: The FOC warrants that it has not
employed or retained any company or person, other than a bona fide employee
working for the FOC, to solicit or secure this Agreement, and that it has not
paid or agreed to pay any company or person, other than a bona fide employee,
any fee, commission, percentage, brokerage fee, gifts, or any other
consideration, contingent upon or resulting from the award or making of this
Agreement. For breach or violation of this warranty, AHTD shall have the right
to terminate this Agreement without liability, or in its discretion, to deduct
from the Agreement price or consideration, or otherwise recover, the full amount
of such fee, commission, percentage, brokerage fee, gifts, or contingent fees.
(28) WAGE LAWS: This contract is a service contract, and not a
public works contract.
(29) SEVERABILITY: To the extent that a provision of this
Agreement is contrary to the constitution or the laws of the State of Arkansas
or of the United States, that provision shall be void and unenforceable.
However, the balance of the Agreement shall remain in full force and effect
between AHTD and the FOC.
IN WITNESS WHEREOF, the parties have entered into this
Agreement on the date last written below.
Executed by Digital Teleport, Inc. this 28th day of May, 1997.
Executed by the Arkansas State Highway and Transportation
Department this 29th day of May, 1997.
ARKANSAS STATE HIGHWAY AND DIGITAL TELEPORT, INC.
TRANSPORTATION DEPARTMENT
By: /s/ Dave J. Towers By: /s/ Richard D. Weinstein, Pres.
----------------------- ---------------------------------
-10-
<PAGE> 1
EXHIBIT 10.27
COMMERCIAL LEASE
THIS LEASE, made this 31st day of December, 1996, by and
between Richard D. Weinstein ("Lessor"), and Digital Teleport, Inc., a
Missouri corporation ("Tenant"),
WITNESSETH:
1. DESCRIPTION OF LEASED PREMISES. Lessor hereby demises and
leases to Tenant approximately 10,000 square feet of the approximately 14,400
square foot building located at 11111 Dorsett Road, St. Louis, Missouri 63043
(the "Leased Premises").
2. PERMITTED USE. The Leased Premises shall be used as general
business and administrative offices and for such other purposes as Lessor and
Tenant may agree. Tenant, in the use of the premises, shall faithfully observe
in all material respects, all applicable City, County, State and Federal
ordinances, laws, statutes and regulations now in force or which may hereafter
be in force.
3. COMMENCEMENT. The Term of the lease shall commence on January
1, 1997, and shall end on December 31, 1997, both inclusive, unless sooner
terminated as provided herein. Tenant shall have the right to extend this lease,
at the same rental and upon all of the same terms, provisions and conditions
herein contained, for additional terms of one year each until the headquarters
of the Company have relocated from the Leased Premises, by giving Lessor written
notice of such extension at least thirty (30) days prior to the commencement of
such additional term.
4. RENTAL. Subject to adjustment as hereinafter provided, Tenant
shall pay to Lessor as Rent for the Leased Premises during the lease term the
sum of Seventy-Five Thousand Dollars ($75,000.00) per year for each and every
year of said Term, payable in equal monthly installments of Six Thousand, Two
Hundred Fifty Dollars ($6,250.00) each, on the first day of each calendar month
of the lease term, in advance, at the office of the Lessor as set forth in
Section 22 hereof.
All Rent payable under this lease shall be paid without set-off
or deduction and appropriate apportionment of monthly rental installments shall
be made for any partial months at the beginning and at the end of the term of
this lease.
5. TENANT'S OBLIGATIONS. Tenant agrees that no representations
as to the condition of the Leased Premises or the appropriateness of the Leased
Premises for its intended use has been made by Lessor to Tenant either directly
or indirectly prior to or at the execution of this lease that are not herein
expressed. During the continuance of this lease Tenant shall keep the Leased
Premises and its appurtenances in good order and repair, replacing all glass
broken, including but not limited to plate glass with glass of the same size and
quality as that
<PAGE> 2
broken; shall not allow any waste or misuse of the water or other utilities;
shall not make or permit noises or odors objectionable to the public; shall pay
for all damages to the Leased Premises caused by any waste, misuse or neglect by
Tenant of the Leased Premises, its apparatus or appurtenances; shall not
overload, damage or deface the Leased Premises, or do any act or thing or bring
or keep anything thereon which may make void or voidable any insurance on the
premises or the Leased Premises or which may render an increase or extra
premiums payable for insurance; and at the expiration of the time mentioned in
this lease, or at an earlier termination thereof by forfeiture or otherwise,
shall yield up the Leased Premises together with all its apparatus and
appurtenances to Lessor in the same condition as when leased, reasonable wear
and tear and damage by fire or other casualty beyond the control of Tenant
excepted, and will surrender all original and duplicate keys of the several
doors and such other things as appertain to the Leased Premises.
6. UTILITIES AND TAXES. Tenant shall be responsible for the
payment of all utilities metered or otherwise charged to the Leased Premises,
including but not limited to electricity, gas, water, sewage, garbage collection
and telephone services. Tenant shall also be responsible for payment of all
state and local taxes assessed upon the Leased Premises. Lessor agrees to
reasonably cooperate with Tenant in disputing any such tax assessments.
7. INSURANCE. Tenant agrees that it will, at all times during
the Term of this lease and at its own expense, carry public liability insurance
covering property damage, death and personal injury in, on, or about the Leased
Premises in an amount as may be reasonably required by the Lessor; provided,
however, that in no event shall the amounts of such coverages be greater than
the existing coverage amounts maintained by Lessor on the Leased Premises
immediately prior to the execution of this lease unless such amounts are
reasonably acceptable to Tenant. Tenant shall furnish Lessor certificates
evidencing all such insurance coverage upon demand.
Lessor and Tenant hereby waive any rights each may have against
the other on account of any loss or damage occasioned to Lessor or Tenant, as
the case may be, their respective property, the Leased Premises or its contents,
arising from any risk generally covered by fire and extended coverage insurance,
vandalism, malicious mischief and sprinkler leakage; and the parties each, on
behalf of their respective insurance companies insuring the property of either
Lessor or Tenant against any such loss, hereby waive any right of subrogation
that it might have against Lessor or Tenant, as the case may be, to the maximum
extent permitted by law without obtaining the express consent of their
respective insurance companies.
8. ALTERATIONS AND REPAIRS. If the Tenant desires alterations,
repairs or improvements, the Tenant shall do same at the Tenant's expense,
provided that (i) all work shall be done by contractors reasonably approved in
writing by Lessor, (ii) Tenant shall furnish to Lessor prior to commencing any
work, security reasonably satisfactory to Lessor,
2
<PAGE> 3
against items for labor and material, (iii) the work shall be reasonably
approved by Lessor, and (iv) no part of the work shall be of a character which
will require changes outside the leased premises or will adversely affect the
Lessor's governmental permits relative to the Leased Premises or the cost of
fire insurance for the Leased Premises. All alterations, repairs or improvements
whether made by Lessor or Tenant which are so permanently attached or affixed to
the Leased Premises that their removal would cause substantial damage to the
Leased Premises shall become the sole property of Lessor upon termination of the
lease whether by expiration of term or otherwise. Tenant shall have the right to
remove all such alterations, repairs or improvements that are not so permanently
affixed or attached to the Leased Premises that their removal would cause
substantial damage to the Leased Premises; provided, however that Tenant shall
repair any and all damage to the Leased Premises relating to the installation
and/or removal of such alterations, repairs or improvements removed by Tenant.
9. NO LIENS. Tenant covenants and agrees that it has no power to
incur any indebtedness giving a right to a lien of any kind or character upon
the right, title, or interest of Lessor in and to the Leased Premises and the
property of which the Leased Premises is a part, and that no person shall ever
be entitled to any lien superior to the interest in this lease reserved to
Lessor upon the premises directly or indirectly derived through or under Tenant,
or its agents or servants, or on account of any act or omission of Tenant.
Should any such lien be filed, Lessor may, but shall not be obligated to,
procure its discharge by any lawful means. In such event, Lessor shall be
entitled to recover from Tenant all amounts paid in the course of procuring said
discharge, including reasonable attorney's fees and costs.
10. HOLD HARMLESS. Lessor shall not be liable for any damage
occasioned by failure to keep the Leased Premises in repair, and shall not be
liable for any damage done or occasioned by or from electric current, plumbing,
gas or the elements, unless said damage is caused directly by Lessor.
11. LESSOR'S RIGHT TO ENTER PREMISES. Tenant hereby grants to
Lessor such licenses or easements in or around the Leased Premises or any
portion or portions thereof as shall be reasonably required to maintain and
operate the Leased Premises, provided that no exercise, occupancy under, or
enjoyment of any such license or easement shall result in any unreasonable
interference with Tenant's use, occupancy, or enjoyment of the leased premises
as contemplated by this lease. Tenant also hereby grants to Lessor the right to
enter the Leased Premises or any portion or portions thereof to examine the same
and show them to prospective fee owners, ground lessees, mortgagees and tenants.
The provisions of this Section shall not be construed to impose any obligations
upon Lessor.
12. SUBORDINATION. This lease, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the real property of
which the Leased Premises is a part and to any and all
3
<PAGE> 4
advances made on the security thereof and to all renewals, modifications,
consolidation, replacements and extensions thereof; provided that any such
agreement contains a covenant to the effect that so long as there shall be no
default on the part of Tenant entitling Lessor to terminate this lease, or if
such default exists, so long as the time to cure such default has not expired,
then this lease shall not be terminated or modified, nor shall the rights of
Tenant hereunder, or its occupancy of the Leased Premises be affected in any way
by reason of such agreement or any foreclosure action instituted in connection
therewith. Notwithstanding such subordination, Tenant's right to quiet
possession of the Leased Premises shall not be disturbed if Tenant is not in
default and so long as Tenant shall pay the rent and observe and perform all of
the provisions of this lease, unless this lease is otherwise terminated pursuant
to its terms. Tenant agrees to execute any documents required to effectuate such
subordination or to make this lease prior to the lien of any mortgage, deed of
trust or ground lease, as the case may be, and failing to do so within fifteen
(15) days after written demand, does hereby make, constitute and irrevocably
appoint Lessor as Tenant's attorney in fact and in Tenant's name, place and
stead, to do so.
13. TERMINATION, DEFAULT AND REMEDIES.
If Tenant defaults in payment of Rent and such default is not
cured within ten (10) days after written notice from Lessor of such default, or
if Tenant defaults in any other of Tenant's obligations hereunder and such
default is not cured within thirty (30) days after written notice from Lessor of
such default; provided, however, that if such default is not capable of cure
within such 30-day period and Tenant is diligently proceeding to cure, Tenant
shall have a commercially reasonable time to cure such default; then all Rent
shall become due and Lessor may (i) declare this lease terminated and enter into
and repossess the Leased Premises and expel Tenant and its chattels; or (ii)
enter into and repossess the Leased Premises and relet the same. In such event,
Tenant shall be liable to Lessor for all costs and expenses incurred by Lessor,
including reasonable attorneys' fees, in recovering possession or in collecting
delinquent rent, whether or not litigation is commenced; (ii) all costs of
redecorating, repairing, renovating and remodeling the Leased Premises as
required to relet; (iii) all advertising and brokerage costs and expenses
incurred in reletting or attempting to relet the Leased Premises. Lessor may sue
for sums in advance or from time to time as same accrue. If Lessor terminates
this lease as a result of a default by Tenant, Lessor agrees to use reasonable
efforts to mitigate damages resulting from such default.
If this lease is terminated at the election of Lessor, as
aforesaid, or in any other way, Tenant shall, without demand, surrender and
deliver up the Leased Premises and property peaceably to Lessor immediately upon
such termination, and if Tenant shall remain in possession of the Leased
Premises, or any part thereof, one day after the termination of this lease in
any of the ways above named, Tenant shall be deemed guilty of forcible detainer
of the Leased Premises under the statutes of the State of Missouri and shall be
subject to all the conditions and
4
<PAGE> 5
provisions above named and to eviction and removal forcibly or otherwise with or
without process of law as above stated. After the commencement of a suit, or
after final judgment, for possession of said premises, Lessor may receive and
collect any rent due from Tenant, and the payment of said rent shall not waive
or affect said suit or said judgment. All rights of Lessor in the event of
default herein enumerated shall be in addition to and without prejudice to any
remedy or remedies which Lessor may have at law or in equity for nonpayment of
rent or for breaches of the covenants and agreements hereof.
14. BANKRUPTCY. If any proceedings under the present or any
future Bankruptcy Act be instituted by or against Tenant and such proceedings
are not dismissed within sixty (60) days, or if a receiver, custodian or trustee
be appointed for or ordered to dispose of Tenant's business or property, or if
Tenant makes any assignment or conveyance for the benefit of creditors, the same
shall constitute a breach of this lease, and Lessor shall forthwith on that
breach be entitled to (i) collect actual damages therefor as provided by law or
notwithstanding any other provisions of this lease to the contrary, (ii) recover
from Tenant as and for liquidated damages an amount equal to the difference
between the rent reserved hereunder for the unexpired portion of the term
demised and the fair and reasonable rental value of the leased premises for the
same period, (iii) collect the reasonable fees of Lessor's attorneys incurred in
connection with such bankruptcy or insolvency proceedings. In addition to its
rights to collect actual or liquidated damages and attorneys' fees, Lessor shall
have the rights of termination, entry and repossession as set forth above in the
preceding Section.
15. RIGHT TO CURE TENANT'S DEFAULT. If Tenant is in default
under any provision of this lease, other than the provision requiring the
payment of rent, and Lessor has given written notice of default, and if Tenant
shall fail to cure, or to commence with due diligence to cure, such default
within thirty (30) days after receipt of such notice, then Lessor may
immediately, or any time thereafter, without notice, cure such default on behalf
of Tenant and at the expense of Tenant. If Lessor at any time is compelled to
pay or elects to pay any sum of money, or do any act which will require the
payment of any sum of money, by reason of failure of Tenant to comply with any
provision of this lease, or if Lessor be compelled to incur any expense,
including reasonable attorney's fees in instituting, prosecuting and/or
defending any action or proceeding instituted by reason of any default of Tenant
hereunder, the sum or sums so paid by Lessor shall be repaid by Tenant to Lessor
on demand.
16. NO WAIVER. The fact that Lessor does not exercise its right
hereunder in the event of breach of covenants herein by Tenant shall not be
deemed a waiver of such rights as to subsequent breaches of covenants herein by
Tenant.
17. CONDEMNATION. In the event that the Leased Premises shall be
taken by the exercise of the power of eminent domain, this lease shall terminate
as of the date of the taking of possession by or the vesting of title in the
condemning authority. All income, rent,
5
<PAGE> 6
awards or interest derived from or damages awarded for any such taking under the
power of eminent domain shall belong to and be the property of Lessor, whether
such damages shall be awarded for compensation for diminution in value of the
leasehold or for the fee of the Leased Premises. Notwithstanding the foregoing,
Tenant shall have the right to maintain an action and make a claim in its own
name to the condemning authority for the value of any trade fixtures, equipment,
merchandise or personal property of any kind belonging to Tenant and not forming
a part of the Leased Premises, or for the cost of moving the all or any of the
same, Tenant's other relocation costs or expenses so long as no such claim or
action adversely affects any claim or action of Lessor. A voluntary sale by
Lessor to any party having the power of eminent domain, either under the threat
of condemnation or while condemnation proceedings are pending, shall be deemed
to be a taking by eminent domain.
18. DESTRUCTION. If the Leased Premises shall be destroyed in
whole or in part by fire, the elements or other casualty so as to render the
leased premises wholly unfit for occupancy and if the damage cannot be repaired
within 90 days from the happening of said injury or Lessor advises Tenant within
30 days of such destruction that Lessor will not repair the Leased Premises
within said 90 days, this lease shall terminate as of the date of such injury
without further liability on the part of either party hereto. In the event of
any such termination, Tenant shall immediately surrender the possession of the
Leased Premises and all rights therein to Lessor, and Lessor shall have the
right to immediately enter into and take possession of the Leased Premises and
shall not be liable for any loss, damage or injury to the property or person of
Tenant. If Lessor repairs the Leased Premises within said 90 days this lease
shall continue in full force and effect. Tenant shall not be required in any
event to pay rent for any portion of said 90 days during which the Leased
Premises is wholly unfit for occupancy.
19. SUBLETTING AND ASSIGNING. Tenant shall not sublet the Leased
Premises or any part thereof, nor allow the same to be used or occupied by any
other person or for any other use than that herein specified, nor assign or
encumber this lease or any interest therein, without the written consent of
Lessor, which consent shall not be unreasonably withheld; provided, however,
that Tenant may pledge its rights and privileges under this lease to secure
financial obligations to third parties, without the need to obtain the consent
of Lessor. Any consent to any assignment, transfer or sublease which may be
given by Lessor shall not constitute a release of Tenant from the full
performance by it of the covenants on the part of the Tenant herein contained.
20. NOTICES AND PLACE OF PAYMENT. Any notice, demand, request,
consent, approval, or other communication which either party hereto is required
or desires to give or make or communicate upon or to the other shall be in
writing and shall be given or made or communicated by United States registered
or certified mail, addressed, in the case of Lessor to Richard Weinstein, 11111
Dorsett Road, St. Louis, Missouri 63043, and addressed in the case of Tenant to
Digital Teleport, Inc., 11111 Dorsett Road, St. Louis, Missouri 63043, Attn:
President,
6
<PAGE> 7
subject to the right of either party to designate a different address
by notice similarly given. Any notice, demand, request, consent, approval, or
other communication so sent shall be deemed to have been given, made, or
communicated, as the case may be, on the date the same was deposited in the
United States mail as registered or certified matter with postage thereon fully
prepaid.
All payments by Tenant to Lessor pursuant to any provision of
this lease shall be paid to Richard Weinstein at the above-listed address.
21. SECTION HEADINGS. The Section headings appearing in this
lease are inserted only as a matter of convenience and for reference purposes,
and in no way define, limit or describe the scope and intent of this lease or
any Section hereof, nor in any way affect it.
22. SUCCESSORS BOUND. All the terms of this lease shall extend
to and be binding upon the respective heirs, executors, administrators,
successors and assigns of the respective parties hereto.
23. GOVERNING LAW. This lease shall be governed by and construed
and interpreted in accordance with the internal laws of the State of Missouri
applicable to contracts made and to be performed wholly within such state,
without regard to choice or conflict of laws provisions.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this lease
as of the date first above written.
TENANT LESSOR
DIGITAL TELEPORT, INC.
By: /s/ Richard D. Weinstein /s/ Richard D. Weinstein
------------------------------- -------------------------
Richard D. Weinstein Richard D. Weinstein
Title: President Date: 12/31/96
---------------------------- ---------------------
Date: 12/31/96
-----------------------------
8
<PAGE> 1
EXHIBIT 10.28
COMMERCIAL LEASE EXTENSION AGREEMENT
------------------------------------
THIS COMMERCIAL LEASE EXTENSION AGREEMENT (the "Agreement") is entered
into as of the 31st day of December, 1997, by and between RICHARD D. WEINSTEIN
("Lessor"), and DIGITAL TELEPORT, INC., a corporation organized under the laws
of the State of Missouri ("Tenant").
WITNESSETH
----------
WHEREAS, Lessor and Tenant entered into a commercial lease dated
December 31, 1996, (the "Lease"), respecting certain premises consisting of
approximately 10,000 square feet of the approximately 14,400 square foot
building located at 11111 Dorsett Road, St. Louis, Missouri 63043; and
WHEREAS, Lessor and Tenant desire to extend the term of the Lease for
an additional period of one (1) year;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, and other considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Lease Term Extension. The term of the Lease, which is scheduled to
expire on December 31, 1997, is hereby extended for a period of one (1)
year, which term shall end on December 31, 1998, both inclusive. The
word "term" where used in the Lease shall mean the duration of the
Lease, as extended by this Agreement.
2. Ratification. Except as expressly amended by this Agreement, all other
terms and conditions of the Lease shall remain unaltered and in full
force and effect and Lessor and Tenant each hereby ratify and confirm
the same as of the date hereof.
3. Successors Bound. This Agreement shall be binding on and shall inure to
the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
4. Section Headings. The section headings appearing in this Agreement are
inserted only as a matter of convenience and for reference purposes
only. The section headings in no way define, limit or describe the
scope and intent of this Agreement or any section hereof, nor in any
way affect it.
5. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Missouri
applicable to contracts made and to be performed wholly within such
State, without regard to choice or conflict of law provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LESSOR TENANT
DIGITAL TELEPORT, INC.
/s/ Richard D. Weinstein By: /s/ Richard D. Weinstein
-------------------------- --------------------------------
Richard D. Weinstein Richard D. Weinstein, President
<PAGE> 1
EXHIBIT 10.29
EXECUTION COPY
DTI HOLDINGS, INC.
(a Missouri corporation)
506,000 Units Consisting of
12 1/2% Senior Discount Notes due 2008
and Warrants to Purchase Common Stock
PURCHASE AGREEMENT
Dated: February 13, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. Representations and Warranties 2
(a) Representations and Warranties by the Company 2
(i) Similar Offerings 3
(ii) Offering Memorandum 3
(iii) Independent Accountants 3
(iv) Financial Statements 3
(v) No Material Adverse Change in Business 3
(vi) Good Standing 4
(vii) Subsidiaries 4
(viii) Capitalization 4
(ix) Authorization of Agreement 4
(x) Authorization of the Indenture 4
(xi) Authorization of the Notes 5
(xii) Authorization of the Warrant Agreement 5
(xiii) Authorization of the Warrants 5
(xiv) Authorization of the Warrant Shares 5
(xv) Authorization of the Registration Rights Agreement 6
(xvi) Authorization of the Warrant Registration Rights
Agreement 6
(xvii) Description of the Registration Rights Agreement,
Warrant Registration Rights Agreement, the Securities,
the Notes, the Warrants, the Common Stock, the
Warrant Agreement and the Indenture 6
(xviii) Absence of Defaults and Conflicts 6
(xix) Absence of Labor Dispute 7
(xx) Absence of Proceedings 7
(xxi) Possession of Intellectual Property 8
(xxii) Absence of Further Requirements 8
(xxiii) Possession of Licenses and Permits 8
(xxiv) Title to Property 9
(xxv) Tax Returns 9
(xxvi) Environmental Laws 10
(xxvii) Investment Company Act 10
(xxviii)Internal Controls 10
(xxix) Rule 144A Eligibility 10
(xxx) No General Solicitation 11
(xxxi) No Registration Required 11
(xxxii) No Directed Selling Efforts 11
(xxxiii)Solvency 11
(b) Officer's Certificates 11
SECTION 2. Sale and Delivery to Initial Purchasers; Closing 11
(a) Securities 11
</TABLE>
Exh-H-3
<PAGE> 3
<TABLE>
<S> <C> <C>
(b) Payment 12
(c) Qualified Institutional Buyer 12
(d) Denominations; Registration 12
SECTION 3. Covenants of the Company 12
(a) Offering Memorandum 12
(b) Notice and Effect of Material Events 12
(c) Amendment to Offering Memorandum and Supplements 13
(d) Qualification of Securities for Offer and Sale 13
(e) DTC 13
(f) Use of Proceeds 13
(g) Restriction on Sale of Securities 13
(h) PORTAL 14
SECTION 4. Payment of Expenses 14
(a) Expenses 14
(b) Termination of Agreement 14
SECTION 5. Conditions of Initial Purchasers' Obligations 14
(a) Opinion of Counsel for the Company 14
(b) Opinion of FCC Counsel for the Company 14
(c) Opinion of State Regulatory Counsel for the Company
for the State of Missouri 15
(d) Opinion of State Regulatory Counsel for the Company
for the State of Arkansas 15
(e) Opinion of Special Counsel for the Company for
Litigation Matters 15
(f) Opinion of Counsel for Initial Purchasers 15
(g) Officers' Certificate 15
(h) Accountant's Comfort Letter 16
(i) Bring-down Comfort Letter 16
(j) PORTAL 16
(k) Additional Documents 16
(l) Termination of Agreement 16
(m) Stock Split 16
SECTION 6. Subsequent Offers and Resales of the Securities 16
(a) Offer and Sale Procedures 16
(i) Offers and Sales Only to Qualified Institutional
Buyers 16
(ii) No General Solicitation 17
(iii)Purchases by Non-Bank Fiduciaries 17
(iv) Subsequent Purchaser Notification 17
(v) Restrictions on Transfer 17
(b) Covenants of the Company 18
(i) Due Diligence 18
(ii) Integration 18
</TABLE>
Exh-H-4
<PAGE> 4
<TABLE>
<S> <C> <C>
(iv) Rule 144A Information 18
(v) Restriction on Repurchases 18
(c) Resale Pursuant to Rule 903 of Regulation S,
Rule 144A or Other Exemption 19
(d) Offers and Sales in the United Kingdom 19
SECTION 7. Indemnification 20
(a) Indemnification of Initial Purchasers 20
(b) Indemnification of Company and Directors 21
(c) Actions Against Parties; Notification 21
(d) Settlement Without Consent if Failure to Reimburse 22
SECTION 8. Contribution 22
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery 23
SECTION 10. Termination of Agreement 23
(a) Termination; General 23
(b) Liabilities 24
SECTION 11. Notices 24
SECTION 12. Parties 24
SECTION 13. GOVERNING LAW AND TIME 24
SECTION 14. Effect of Headings 24
</TABLE>
<TABLE>
<S> <C>
Schedule A - List of Initial Purchasers
Schedule B - Pricing Terms
Schedule C - Schedule of Foreign Jurisdictions
Exhibit A - Form of Registration Rights Agreement
Exhibit B - Form of Warrant Agreement
Exhibit C - Form of Warrant Registration Rights Agreement
Exhibit D - Form of Opinion of Bryan Cave LLP
Exhibit E - Form of Opinion of Lukas McGowan, Nace & Gutierrez, Chartered
Exhibit F - Form of Opinion of Hendren & Andrae, LLC
Exhibit G - Form of Opinion of Wright, Lindsey & Jennings, LLP
Exhibit H - Form of Opinion of Evans & Dixon
</TABLE>
Exh-H-5
<PAGE> 5
DTI HOLDINGS, INC.
(a Missouri corporation)
506,000 Units Consisting of $506,000,000
Aggregate Principal Amount at Maturity
12 1/2% Senior Discount Notes due 2008 and
2,530,000 Warrants to Purchase an Aggregate of
3,926,560 Shares of Common Stock
PURCHASE AGREEMENT
February 13, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
TD SECURITIES (USA) INC.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
DTI Holdings, Inc., a Missouri corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and TD Securities (USA) Inc. (the "Initial Purchasers"), with
respect to the issue and sale by the Company and the purchase by the Initial
Purchasers of the respective number of the Company's Units (the "Units" or the
"Securities"), each Unit consisting of $1,000 aggregate principal amount at
maturity of the Company's Senior Discount Notes due 2008 (the "Notes") and five
warrants (the "Warrants"), each Warrant entitling the holder thereof to
purchase 1.552 shares of common stock, par value $0.01 per share (after giving
effect to a 1000 to 1 stock split (the "Stock Split") to be completed prior to
the Closing Time referred to in Section 2(b) hereof, the "Common Stock"), of
the Company. The Notes and Warrants are more fully described in Schedule B
hereto. The Notes are to be issued pursuant to an indenture dated as of
February 23, 1998 (the "Indenture"), between the Company and The Bank of New
York, trustee (the "Trustee"); and the Warrants are to be issued pursuant to a
warrant agreement dated as of February 23, 1998 (the "Warrant Agreement"),
between the Company and The Bank of New York, warrant agent (the "Warrant
Agent"). Securities issued in book-entry form will be issued to Cede & Co. as
nominee of The Depository Trust Company ("DTC") pursuant to a letter agreement,
to be dated as of the
<PAGE> 6
Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among the
Company, the Trustee and DTC.
The holders of Notes will be entitled to the benefits of a Registration
Rights Agreement in substantially the form attached hereto as Exhibit A, with
such changes as shall be agreed to by the parties hereto (the "Registration
Rights Agreement"), pursuant to which the Company will file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") registering the Notes or the Exchange Notes
referred to in the Registration Rights Agreement under the Securities Act of
1933, as amended (the "1933 Act").
The holders of Warrants will be entitled to the benefits of a Warrant
Registration Rights Agreement in substantially the form attached hereto as
Exhibit C, with such changes as shall be agreed to by the parties hereto (the
"Warrant Registration Rights Agreement") which provides for the registration of
the Warrants under the 1933 Act under certain circumstances set forth therein.
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agree that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time on or after the date of this Agreement. The
Securities are to be offered and sold through the Initial Purchasers without
being registered under the 1933 Act, in reliance upon exemptions therefrom.
Pursuant to the terms of the Securities and the Indenture, investors that
acquire Securities may only resell or otherwise transfer such Securities if
such Securities are hereafter registered under the 1933 Act or if an exemption
from the registration requirements of the 1933 Act is available, including the
exemptions afforded by Rule 144A ("Rule 144A") and Regulation S ("Regulation
S") of the rules and regulations promulgated under the 1933 Act by the
Commission.
The Company has prepared and delivered to the Initial Purchasers copies of
a preliminary offering memorandum dated February 2, 1998 (the "Preliminary
Offering Memorandum") and has prepared and will deliver to the Initial
Purchasers, on the date hereof or the next succeeding day, copies of a final
offering memorandum dated February 13, 1998 (the "Final Offering Memorandum"),
each for use by the Initial Purchasers in connection with its solicitation of
purchases of, or offering of, the Securities. "Offering Memorandum" means,
with respect to any date or time referred to in this Agreement, the most recent
offering memorandum (whether the Preliminary Offering Memorandum or the Final
Offering Memorandum, or any amendment or supplement to either such document),
including exhibits thereto and any documents incorporated therein by reference,
which has been prepared and delivered by the Company to the Initial Purchasers
in connection with its solicitation of purchases of, or offering of, the
Securities.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to the Initial Purchasers as of the date hereof and as of the
Closing Time, and agrees with the Initial Purchasers, as follows:
(i) Similar Offerings. The Company and its affiliates, as such term
is defined in Rule 501(b) under the 1933 Act ("Affiliates"), have not,
directly or indirectly, solicited any
2
<PAGE> 7
offer to buy, sold or offered to sell or otherwise negotiated in respect
of, and will not, directly or indirectly, solicit any offer to buy or
offer to sell or otherwise negotiate in respect of, in the United States
or to any United States citizen or resident, any securities which are or
would be integrated with the sale of the Securities, or with the Notes or
the Warrants taken separately, in a manner that would require the
Securities, the Notes or the Warrants to be registered under the 1933
Act.
(ii) Offering Memorandum. The Offering Memorandum does not, and at
the Closing Time will not, include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering
Memorandum made in reliance upon and in conformity with information
furnished to the Company in writing by the Initial Purchasers expressly
for use in the Offering Memorandum.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to
the Company within the meaning of Regulation S-X under the 1933 Act.
(iv) Financial Statements. The financial statements, together with
the related schedules and notes, included in the Offering Memorandum
present fairly in all material respects the financial position of the
Company at the dates indicated and the statements of operations,
stockholders' deficit and cash flows of the Company for the periods
specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Offering Memorandum present fairly in
all material respects in accordance with GAAP the information required to
be stated therein. The selected financial data and the summary financial
information included in the Offering Memorandum present fairly in all
material respects the information shown therein and have been compiled on
a basis consistent with that of the audited and unaudited financial
statements included in the Offering Memorandum.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Offering Memorandum, except
as otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its subsidiary,
taken as a whole, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company, other than those in the
ordinary course of business, which are material with respect to the
Company, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(vi) Good Standing. The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Missouri and has
3
<PAGE> 8
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Offering Memorandum and
to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement, the Warrant Agreement, the Warrant
Registration Rights Agreement, the Indenture and the Securities,
including the Notes and the Warrants; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
each of the jurisdictions set forth on Schedule C hereto, which include
all of the jurisdictions in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(vii) Subsidiaries. Digital Teleport, Inc. (the "Subsidiary") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Missouri, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum in each of the
jurisdictions set forth on Schedule C hereto, which include all of the
jurisdictions in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed in
the Offering Memorandum, all of the issued and outstanding capital stock
of each such Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of such Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
The Subsidiary is the only subsidiary of the Company.
(viii) Capitalization. The authorized, issued and outstanding capital
stock of the Company is as set forth under the caption "Capitalization" in
the Offering Memorandum; provided that such capital stock shall be adjusted
to give effect to the Stock Split prior to the Closing Time. The shares of
issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; none
of the outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any securityholder
of the Company.
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization of the Indenture. The Indenture has been duly
authorized by the Company and, at the Closing Time, will have been duly
executed and delivered by the Company and, when executed by the Trustee,
will constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
4
<PAGE> 9
(xi) Authorization of the Notes. The Notes have been duly authorized
by the Company and, at the Closing Time, will have been duly executed by
the Company and, when authenticated and issued in the manner provided for
in the Indenture and delivered against payment of the purchase price
therefor as provided in this Agreement, (A) will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law),
and (B) will be in the form contemplated by, and entitled to the benefits
of, the Indenture and the Registration Rights Agreement.
(xii) Authorization of the Warrant Agreement. The Warrant Agreement
has been duly authorized by the Company and, at the Closing Time, will
have been duly executed and delivered by the Company and, when duly
executed and delivered by the Warrant Agent, will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforceability thereof may be limited
by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(xiii) Authorization of the Warrants. The Warrants have been duly
authorized by the Company and, at the Closing Time, will have been duly
executed by the Company and, when executed and issued in the manner
provided for in the Warrant Agreement and delivered against payment of the
purchase price therefor as provided in this Agreement, (A) will constitute
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law), and (B) will be in the form contemplated by, and entitled to
the benefits of, the Warrant Agreement.
(xiv) Authorization of the Warrant Shares. The shares of Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares") have
been duly authorized and reserved by the Company and, when issued and
delivered upon exercise of the Warrants in accordance with the terms of
the Warrants and the Warrant Agreement, will be validly issued, fully paid
and non-assessable and will not be subject to any preemptive or similar
rights.
(xv) Authorization of the Registration Rights Agreement. The
Registration Rights Agreement has been duly authorized by the Company and,
at the Closing Time, will have been duly executed and delivered by the
Company and, when executed by the Initial Purchasers, will
5
<PAGE> 10
constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to
or affecting enforcement of creditor's rights generally, (y) the
enforceability thereof may be limited by general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law) and (z) any rights to indemnity and contribution may be
limited by federal and state securities laws and public policy
considerations.
(xvi) Authorization of the Warrant Registration Rights Agreement.
The Warrant Registration Rights Agreement has been duly authorized by the
Company and, at the Closing Time, will have been duly executed and
delivered by the Company and, when executed by the Initial Purchasers,
will constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to
or affecting enforcement of creditor's rights generally, (y) the
enforceability thereof may be limited by general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law) and (z) any rights to indemnity and contribution may be
limited by federal and state securities laws and public policy
considerations.
(xvii) Description of the Registration Rights Agreement, Warrant
Registration Rights Agreement, the Securities, the Notes, the Warrants,
the Common Stock, the Warrant Agreement and the Indenture. The
Registration Rights Agreement, Warrant Registration Rights Agreement, the
Securities, the Notes, the Warrants, the Common Stock, the Warrant
Agreement and the Indenture will conform in all material respects to the
respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms previously
delivered to the Initial Purchasers.
(xviii) Absence of Defaults and Conflicts. Neither the Company nor
the Subsidiary is (1) in violation of its Articles of Incorporation or
by-laws (or other similar organizational documents), (2) in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which it is a party or by which or any of them may be bound, or to which
any of its property or assets is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a Material
Adverse Effect or (3) in violation of any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Company, the Subsidiary or any of their assets or properties, except
as disclosed in the Offering Memorandum or except for such violations that
would not result in a Material Adverse Effect; and the execution, delivery
and performance of this Agreement, the Indenture, the Securities, the
Warrant Agreement and the Registration Rights Agreement, the Warrant
Registration Rights Agreement and any other agreement or instrument
entered into or issued or to be entered into or issued by the Company or
the Subsidiary in connection with the transactions contemplated hereby or
thereby or in the
<PAGE> 11
Offering Memorandum and the consummation of the transactions contemplated
herein and in the Offering Memorandum (including the issuance and sale of
the Securities and the use of the proceeds from the sale of the
Securities as described in the Offering Memorandum under the caption "Use
of Proceeds") and compliance by the Company with its obligations
hereunder and thereunder do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute
a breach of, or default or a Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or the Subsidiary pursuant to,
the Agreements and Instruments except for such conflicts, breaches or
defaults or liens, charges or encumbrances that, singly or in the
aggregate, would not result in a Material Adverse Effect, nor will such
action result in any violation of the provisions of the charter or
statute, as applicable, or by-laws (or other similar organizational
documents) of the Company or the Subsidiary or any applicable law,
statute, rule, regulation (including, without limitation, the
Communications Act of 1934, as amended, and the rules and regulations of
the Federal Communications Commission (the "FCC") thereunder), judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or the
Subsidiary or any of their assets or properties, including, without
limitation, the FCC except where such violation would not result in a
Material Adverse Effect. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or the Subsidiary.
(xix) Absence of Labor Dispute. No labor dispute with the
employees of the Company or the Subsidiary exists or, to the knowledge of
the Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers, customers or contractors, which, in either
case, may reasonably be expected to result in a Material Adverse Effect.
(xx) Absence of Proceedings. Except as disclosed in the Offering
Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company or the Subsidiary, or to
which the Company is a party, which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be
expected to result in a Material Adverse Effect or to adversely affect
the consummation of this Agreement, the Indenture, the Warrant Agreement,
the Securities, the Registration Rights Agreement or the Warrant
Registration Rights Agreement, or the performance by the Company of its
obligations hereunder or thereunder. The aggregate of all pending legal
or governmental proceedings to which the Company or the Subsidiary is a
party or of which any of their respective properties or assets is the
subject which are not described in the Offering Memorandum, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
(xxi) Possession of Intellectual Property. The Company and the
Subsidiary own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses,
<PAGE> 12
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor the Subsidiary has received any notice and is not otherwise aware of
any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances
which would render any Intellectual Property invalid or inadequate to
protect the interest of the Company or the Subsidiary therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in a Material Adverse Effect.
(xxii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required (x) for the lawful operation of the business of
the Company and its Subsidiary as described in the Offering Memorandum
under the caption "Business" in the manner and to the full extent now
operated or proposed to be operated as described in the Offering
Memorandum, except for such filings, authorizations, approvals, consents,
licenses, orders, registrations, qualifications or decrees that would
not, singly or in the aggregate, result in a Material Adverse Effect, (y)
assuming the Initial Purchasers comply with the procedures set forth in
Section 6(a), for the performance by the Company of its obligations
hereunder, in connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the transactions contemplated
by this Agreement, the Registration Rights Agreement, the Warrant
Registration Rights Agreement or the Offering Memorandum or (z) to permit
the Company to (1) effect payments of principal of and premium and
interest on the Notes and, if issued, the Exchange Notes referred to in
the Registration Rights Agreement, (2) perform its other obligations
under the Indenture or (3) perform its obligations under the Warrant
Agreement and the Warrant Registration Rights Agreement. No event has
occurred which permits (nor has an event occurred which with notice or
lapse of time or both would permit) the revocation or termination of any
authorization, approval, consent, license, order, registration,
qualification or decree described under clause (x) of this paragraph or
which might result in any other material impairment of the rights of the
Company therein or thereunder.
(xxiii) Possession of Licenses and Permits. The Company and the
Subsidiary possess such material permits, licenses, approvals,
concessions, consents and other authorizations (including, without
limitation, all permits required for the operation of the business of the
Company and the Subsidiary by the FCC and each state and local authority
that regulates the activities of the Company) (collectively,
"Governmental Licenses") issued by the appropriate federal, state, local
or foreign regulatory agencies or bodies, other governmental authorities
or self regulatory organizations necessary to conduct the business now
operated by it; the Company and the Subsidiary are in compliance with the
terms and conditions of all such Governmental Licenses, except as
disclosed in the Offering Memorandum and except where the failure so to
comply would not, singly or in the aggregate, result in a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in
<PAGE> 13
full force and effect would not result in a Material Adverse Effect; and
neither the Company nor the Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a Material
Adverse Effect. To the knowledge of the Company, except as described in
the Offering Memorandum, there exists no reason or cause that could
justify the variation, suspension, cancellation or termination of any
such Governmental Licenses held by the Company or the Subsidiary with
respect to the construction or operation of its respective businesses,
which variation, suspension, cancellation or termination could reasonably
be expected to result in a Material Adverse Effect.
(xxiv) Title to Property. The Company and the Subsidiary have good
and marketable title to all real property owned by the Company and the
Subsidiary and good title to all other properties owned by it, in each
case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Offering Memorandum or (b) do not, singly or
in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or the Subsidiary; and all of the leases and subleases
material to the business of the Company or the Subsidiary, and under
which the Company or the Subsidiary holds properties described in the
Offering Memorandum, are in full force and effect, and neither the
Company nor the Subsidiary has any notice of any material claim of any
sort that has been asserted by anyone adverse to the rights of the
Company or the Subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or the
Subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease.
(xxv) Tax Returns. The Company and the Subsidiary have filed all
federal, state, local and foreign tax returns that are required to be
filed or have duly requested extensions thereof, except for any personal
property tax returns in the State of Missouri, and have paid all taxes
required to be paid by it and any related assessments, fines or
penalties, except for any such tax, assessment, fine or penalty that is
being contested in good faith and by appropriate proceedings; and
adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(iv) above in respect of
all federal, state, local and foreign taxes for all periods as to which
the tax liabilities of the Company and the Subsidiary have not been
finally determined or remains open to examination by applicable taxing
authorities.
(xxvi) Environmental Laws. Except as described in the Offering
Memorandum and except for such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor the Subsidiary is not in violation of any domestic or foreign statute,
law, rule, regulation, ordinance, code, policy or rule of common law or
any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations
9
<PAGE> 14
relating to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and the Subsidiary have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are in compliance with their requirements, (C)
there are no pending or, to the knowledge of the Company, threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
the Company or the Subsidiary and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or the Subsidiary relating to Hazardous Materials or
Environmental Laws.
(xxvii) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
(xxviii) Internal Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that (A) transactions are executed in accordance with management's
general or specific authorization; (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with GAAP and to maintain accountability for assets; (C) access to assets
is permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xxix) Rule 144A Eligibility. Solely with respect to matters
relating to the eligibility of the Securities for resale pursuant to Rule
144A which are under the Company's control, the Securities are eligible
for resale pursuant to Rule 144A and will not be, at the Closing Time, of
the same class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a U.S. automated
interdealer quotation system.
(xxx) No General Solicitation. None of the Company, its
Affiliates or any person acting on its or any of their behalf has engaged
or will engage, in connection with the offering of the Securities, in any
form of general solicitation or general advertising within the meaning of
Rule 502(c) under the 1933 Act.
(xxxi) No Registration Required. Assuming the representations
and warranties set forth in Section 2 are true and the Initial Purchasers
comply with the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers and to each Subsequent Purchaser in
the manner contemplated by this Agreement and the Offering Memorandum to
register the Securities
10
<PAGE> 15
under the 1933 Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended (the "1939 Act").
(xxxii) No Directed Selling Efforts. With respect to those Securities
being sold by the Initial Purchasers in reliance on Regulation S, (A) none
of the Company or its Affiliates or any person acting on their behalf
(excluding the Initial Purchasers) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S and (B) each of
the Company, its Affiliates and any person acting on its or their behalf
(excluding the Initial Purchasers) has complied and will comply with the
offering restrictions requirement of Regulation S.
(xxxiii) Solvency. The Company is, and immediately after the Closing
Time will be, Solvent. As used herein, "Solvent" means, on a particular
date, that on such date (A) the fair market value of the assets of the
Company is greater than the total amount of liabilities (including
contingent liabilities) of the Company, (B) the present fair salable
value of the assets of the Company is greater than the amount that will
be required to pay the probable liabilities of the Company on its debts
as they become absolute and matured, (C) the Company is able to realize
upon its assets and pay its debts and other liabilities, including
contingent obligations, as they mature and (D) the Company does not have
an unreasonably small capital. The Company is not contemplating either
the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidating of all or a substantial portion of its
property, and the Company does not have any knowledge of any person
contemplating the filing of any such petition against it.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company delivered to the Initial Purchasers or to counsel for the Initial
Purchasers shall be deemed a representation and warranty by the Company to the
Initial Purchasers as to the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Initial Purchasers and the Initial Purchasers agree to
purchase from the Company, at the price set forth in Schedule B, the aggregate
amount of Securities set forth in Schedule A opposite the name of such Initial
Purchaser.
(b) Payment. Payment of the purchase price for, and delivery of
certificates representing the Securities shall be made at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, or at such
other place as shall be agreed upon by the Initial Purchasers and the Company,
at 9:00 A.M. Eastern Time on the third business day after the date hereof, or
such other time not later than ten business days after such date as shall be
agreed upon by the Initial Purchasers and the Company (such time and date of
payment and delivery being herein called the "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery
to the Initial Purchasers for their account of certificates representing the
Securities to be purchased by them. The Securities, which may be in
11
<PAGE> 16
temporary form, will be made available for examination and packaging by the
Initial Purchasers in The City of New York not later than 5:00 P.M. on the last
business day prior to the Closing Time.
(c) Qualified Institutional Buyer. The Initial Purchasers represent and
warrant to, and agree with, the Company that each of the Initial Purchasers is
a "qualified institutional buyer" within the meaning of Rule 144A under the
1933 Act (a "Qualified Institutional Buyer") and an "accredited investor"
within the meaning of Rule 501(a) under the 1933 Act (an "Accredited
Investor").
(d) Denominations; Registration. Certificates for the Securities shall be
in such denominations and registered in such names as the Initial Purchasers
may request in writing at least one full business day before the Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with the
Initial Purchasers as follows:
(a) Offering Memorandum. The Company, as promptly as possible, will
furnish to the Initial Purchasers, without charge, such number of copies of the
Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as the Initial Purchasers may reasonably request.
(b) Notice and Effect of Material Events. The Company will immediately
notify the Initial Purchasers, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company which (i) make any statement in
the Offering Memorandum false or misleading or (ii) are not disclosed in the
Offering Memorandum. In such event or if during such time any event shall
occur as a result of which it is necessary, in the reasonable opinion of any of
the Company, its counsel, the Initial Purchasers or counsel for the Initial
Purchasers, to amend or supplement the Final Offering Memorandum in order that
the Final Offering Memorandum not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances then existing, the Company
will forthwith amend or supplement the Final Offering Memorandum by preparing
and furnishing to the Initial Purchasers an amendment or amendments of, or a
supplement or supplements to, the Final Offering Memorandum (in form and
substance satisfactory in the reasonable opinion of counsel for the Initial
Purchasers) so that, as so amended or supplemented, the Final Offering
Memorandum will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances existing at the time it is delivered to a Subsequent
Purchaser, not misleading.
12
<PAGE> 17
(c) Amendment to Offering Memorandum and Supplements. The Company will
not make any amendment or supplement to the Offering Memorandum of which the
Initial Purchasers shall not previously have been advised or to which they
shall reasonably object after being so advised. Neither the consent of the
Initial Purchasers, nor the Initial Purchasers' delivery of any such amendment
or supplement, shall constitute a waiver of any of the conditions set forth in
Section 5 hereof.
(d) Qualification of Securities for Offer and Sale. The Company will use
its best reasonable efforts, in cooperation with the Initial Purchasers, to
qualify the Securities for offering and sale under the applicable securities
laws of such jurisdictions as the Initial Purchasers may designate and will
maintain such qualifications in effect as long as required for the sale of the
Securities; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is not
so qualified or to subject itself to taxation in respect of doing business in
any jurisdiction in which it is not otherwise so subject.
(e) DTC. The Company will cooperate with the Initial Purchasers and use
its best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of DTC.
(f) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Securities in the manner described in the Offering
Memorandum under "Use of Proceeds."
(g) Restriction on Sale of Securities. During a period of 90 days from
the date of the Offering Memorandum, the Company will not, without the prior
written consent of the Initial Purchasers, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise dispose
of, any other debt or equity securities of the Company, other than (i) the
Notes, the Exchange Notes referred to in the Registration Rights Agreement and
the Warrants, (ii) capital stock issued to employees, directors, alternate
directors or officers of the Company or any subsidiary (or permitted
transferees of such employees, directors, alternate directors or officers),
pursuant to the terms of the DTI Holdings, Inc. 1997 Long-Term Incentive Award
Plan (or amendments thereto) approved by the Company's Board of Directors or
(iii) shares of Common Stock of the Company issued to holders of the Company's
Series A Preferred Stock pursuant to and in accordance with the Company's
Articles of Incorporation, as amended.
(h) PORTAL. The Company will use its best efforts to permit the
Securities, the Notes and the Warrants to be designated PORTAL securities in
accordance with the rules and regulations adopted by the National Association
of Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL Market.
13
<PAGE> 18
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits and any document
incorporated therein by reference) and of each amendment or supplement thereto,
(ii) the preparation, printing and delivery to the Initial Purchasers of this
Agreement, the Indenture and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates
representing the Securities to the Initial Purchasers, including any charges of
DTC in connection therewith, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the
Securities under securities laws in accordance with the provisions of Section
3(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Initial Purchasers in connection therewith and in connection
with the preparation of the Blue Sky Survey and any supplement thereto, (vi)
the fees and expenses of the Trustee, including the fees and disbursements of
counsel for the Trustee in connection with the Indenture and the Securities,
(vii) any fees payable in connection with the rating of the Securities, and
(viii) any fees and expenses payable in connection with the initial and
continued designation of the Securities as PORTAL securities under the PORTAL
Market Rules pursuant to NASD Rule 5322.
(b) Termination of Agreement. If this Agreement is terminated by the
Initial Purchasers in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchasers for all of
their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the Initial Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations. The
obligations of the Initial Purchasers hereunder are subject to the accuracy of
the representations and warranties of the Company contained in Section 1 hereof
and in certificates of any officer of the Company or the Subsidiaries delivered
pursuant to the provisions hereof, to the performance by the Company of its
covenants and other obligations hereunder, and to the following further
conditions:
(a) Opinion of Counsel for the Company. At the Closing Time, the Initial
Purchasers shall have received the favorable opinion, dated as of the Closing
Time, of Bryan Cave LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Initial Purchasers, to the effect set forth in
Exhibit D hereto.
(b) Opinion of FCC Counsel for the Company. At the Closing Time, the
Initial Purchasers shall have received the favorable opinion, dated as of the
Closing Time, of Lukas McGowan, Nice & Gutierrez, Chartered, special regulatory
counsel for the Company, in form and substance satisfactory to counsel for the
Initial Purchasers, to the effect set forth in Exhibit E hereto.
14
<PAGE> 19
(c) Opinion of State Regulatory Counsel for the Company for the State of
Missouri. At the Closing Time, the Initial Purchasers shall have received the
favorable opinion, dated as of the Closing Time, of Hendren & Andrae, LLC,
special state regulatory counsel for the Company for the State of Missouri, in
form and substance satisfactory to counsel for the Initial Purchasers, to the
effect set forth in Exhibit F hereto.
(d) Opinion of State Regulatory Counsel for the Company for the State of
Arkansas. At the Closing Time, the Initial Purchasers shall have received the
favorable opinion, dated as of the Closing Time, of Wright, Lindsey & Jennings,
LLP, special state regulatory counsel for the Company for the State of
Arkansas, in form and substance satisfactory to counsel for the Initial
Purchasers, to the effect set forth in Exhibit G hereto.
(e) Opinion of Special Counsel for the Company for Litigation Matters. At
the Closing Time, the Initial Purchasers shall have received the favorable
opinion, dated as of the Closing Time, of Evans & Dixon, special litigation
counsel for the Company, in form and substance satisfactory to counsel for the
Initial Purchasers, to the effect set forth in Exhibit H hereto.
(f) Opinion of Counsel for Initial Purchasers. At the Closing Time, the
Initial Purchasers shall have received the favorable opinion, dated as of the
Closing Time, of Shearman & Sterling, counsel for the Initial Purchasers, with
respect to the matters set forth in (i) (solely as to execution and delivery
and solely to the extent execution and delivery is a matter of New York law),
(ii) through (vi), inclusive, (vii) (solely as to the information in the
Offering Memorandum under "Description of the Units," "Description of the
Notes," "Description of the Warrants" and "Book-entry; Delivery and Form") and
the penultimate paragraph of Exhibit D hereto. In giving such opinion, such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York an the federal law of the United States,
upon the opinions of counsel satisfactory to the Initial Purchasers. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and certificates of public officials.
(g) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company considered as one enterprise, whether or not
arising in the ordinary course of business, and the Initial Purchasers shall
have received a certificate of the President or any vice president of the
Company and of the Chief Financial Officer or Chief Accounting Officer of the
Company, dated as of the Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, and (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Time.
15
<PAGE> 20
(h) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Initial Purchasers shall have received from Deloitte & Touche
LLP a letter dated such date, in form and substance satisfactory to the Initial
Purchasers containing statements and information of the type ordinarily
included in accountants' "comfort letters" to the Initial Purchasers with
respect to the financial statements and certain financial information contained
in the Offering Memorandum.
(i) Bring-down Comfort Letter. At the Closing Time, the Initial
Purchasers shall have received from Deloitte & Touche LLP a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (h) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(j) PORTAL. At the Closing Time, the Securities, the Notes and the
Warrants shall have been designated for trading on PORTAL.
(k) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Initial Purchasers and counsel for the Initial Purchasers.
(l) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchasers by notice to the Company
at any time at or prior to the Closing Time, and such termination shall be
without liability of any party to any other party except as provided in Section
4 and except that Sections 1, 7, 8 and 9 shall survive any such termination and
remain in full force and effect.
(m) Stock Spli. The Company will complete the Stock Split prior to the
Closing Time.
SECTION 6. Subsequent Offers and Resales of the Securities.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and the
Company hereby establishes and agrees to observe the following procedures in
connection with the offer and sale of the Securities:
16
<PAGE> 21
(i) Offers and Sales Only to Qualified Institutional Buyers. Offers
and sales of the Securities will be made only by the Initial Purchasers or
Affiliates thereof qualified to do so in the jurisdictions in which such
offers or sales are made. Each such offer or sale shall only be made (A)
in compliance with Rule 144A to persons whom the offeror or seller
reasonably believes to be qualified institutional buyers (as defined in
Rule 144A under the Securities Act) or (B) in compliance with Regulation S
to non-U.S. persons outside the United States (which shall include dealers
or other professional fiduciaries in the United States acting on a
discretionary basis for beneficial owners (other than an estate or trust)
that are non-U.S. persons) to whom the offeror or seller reasonably
believes offers and sales of the Securities may be made in reliance upon
Regulation S under the 1933 Act.
(ii) No General Solicitation. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the 1933 Act) will
be used in the United States in connection with the offering or sale of
the Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
Subsequent Purchaser of a Security acting as fiduciary for one or more
third parties, in connection with an offer and sale to such purchaser
pursuant to clause (i) above, each third party shall, in the judgment of
the Initial Purchasers, be a Qualified Institutional Buyer or a non-U.S.
Person outside the United States.
(iv) Subsequent Purchaser Notification. The Initial Purchasers will
take reasonable steps to inform, and cause each of its U.S. Affiliates to
take reasonable steps to inform, persons acquiring Securities from the
Initial Purchasers or affiliates, as the case may be, in the United
States that the Securities (A) have not been and will not be registered
under the 1933 Act, (B) are being sold to them without registration under
the 1933 Act in reliance on Rule 144A or in accordance with another
exemption from registration under the 1933 Act, as the case may be, and
(C) may not be offered, sold or otherwise transferred except (1) to the
Company, (2) outside the United States in accordance with Rule 904 of
Regulation S, or (3) inside the United States in accordance with (x) Rule
144A to a person whom the seller reasonably believes is a Qualified
Institutional Buyer that is purchasing such Securities for its own
account or for the account of a Qualified Institutional Buyer to whom
notice is given that the offer, sale or transfer is being made in
reliance on Rule 144A or (y) pursuant to another available exemption from
registration under the 1933 Act.
(v) Restrictions on Transfer. Each of the Securities will bear, to
the extent applicable, the legend contained under "Notice to Investors"
in the Offering Memorandum for the time period and upon the other terms
stated therein, except after the Securities are resold pursuant to a
registration statement effective under the 1933 Act. Following the sale
of the Securities by the Initial Purchasers to Subsequent Purchasers
pursuant to the terms hereof, the Initial Purchasers shall not be liable
or responsible to the Company for any losses, damages or liabilities
suffered or incurred by the Company, including any losses, damages or
liabilities under the 1933 Act, arising from or relating to any resale or
transfer of any Security.
17
<PAGE> 22
(b) Covenants of the Company. The Company covenants with the Initial
Purchasers as follows:
(i) Due Diligence. In connection with the original distribution of
the Securities, the Company agrees that, prior to any offer or resale of
the Securities by the Initial Purchasers, the Initial Purchasers and
counsel for the Initial Purchasers shall have the right to make
reasonable inquiries into the business of the Company. The Company so
agrees to provide answers to each prospective Subsequent Purchaser of
Securities who so requests concerning the Company (to the extent that
such information is available or can be acquired and made available to
prospective Subsequent Purchasers without unreasonable effort or expense
and to the extent the provision thereof is not prohibited by applicable
law or under the terms of any Agreements to which the Company is a party)
and the terms and conditions of the offering of the Securities, as
provided in the Offering Memorandum.
(ii) Integration. The Company agrees that it will not and will cause
its Affiliates not to solicit any offer to buy or make any offer or sale
of, or otherwise negotiate in respect of, securities of the Company of
any class if, as a result of the doctrine of "integration" referred to in
Rule 502 under the 1933 Act, such offer or sale would render invalid (for
the purpose of (i) the sale of the Securities by the Company to the
Initial Purchasers, (ii) the resale of the Securities by the Initial
Purchasers to Subsequent Purchasers or (iii) the resale of the Securities
by such Subsequent Purchasers to others) the exemption from the
registration requirements of the 1933 Act provided by Section 4(2)
thereof or by Rule 144A or by Regulation S thereunder or otherwise.
(iii) No Directed Selling Efforts. The Company agrees that, with
respect to those Securities sold in reliance on Regulation S, (A) none of
the Company or its Affiliates or any person acting on their behalf will
engage in any directed selling efforts within the meaning of Regulation S
and (B) each of the Company, its Affiliates and any person acting on its
or their behalf will comply with the offering restrictions requirement of
Regulation S.
(iv) Rule 144A Information. The Company agrees that, in order to
render the Securities eligible for resale pursuant to Rule 144A under the
1933 Act, while any of the Securities remain outstanding, it will make
available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Company furnishes information to the Commission pursuant to
Section 13 or 15(d) of the 1934 Act (such information, whether made
available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "Additional Information").
18
<PAGE> 23
(v) Restriction on Repurchases. Until the expiration of two years
after the original issuance of the Securities, the Company will not, and
will cause its Affiliates not to, purchase or agree to purchase or
otherwise acquire any Securities which are "restricted securities" (as
such term is defined under Rule 144(a)(3) under the 1933 Act), whether as
beneficial owner or otherwise (except as agent acting as a securities
broker on behalf of and for the account of customers in the ordinary
course of business in unsolicited broker's transactions) unless,
immediately upon any such purchase, the Company or any Affiliate thereof
shall submit such Securities to the Trustee for cancellation.
(c) Resale Pursuant to Rule 903 of Regulation S, Rule 144A or Other
Exemption. The Initial Purchasers understand that the Securities have not been
and will not be registered under the 1933 Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons
except pursuant to an exemption from the registration requirements of the 1933
Act. The Initial Purchasers represent and agree that, except as permitted by
Section 6(a), they have offered and sold Securities and will comply with all
applicable laws and regulations in each jurisdiction in which they acquire,
offer, sell or deliver Securities or have in their possession or distribute the
Offering Memorandum or other materials, in all cases at their own expense and
will offer and sell Securities (i) as part of their distribution at any time
and (ii) otherwise until 40 days after the later of the date upon which the
offering of the Securities commences and the Closing Time, only in accordance
with Rule 903 of Regulation S or Rule 144A under the 1933 Act. Accordingly,
neither the Initial Purchasers or their affiliates nor any persons acting on
their behalf have engaged or will engage in any directed selling efforts
(within the meaning of Regulation S) with respect to Securities, and the
Initial Purchasers, their affiliates and any person acting on their behalf have
complied and will comply with the offering restriction requirements of
Regulation S. The Initial Purchasers agree that, at or prior to confirmation
of a sale of Securities (other than a sale of Securities pursuant to Rule 144A
hereof), they will have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases Securities from
them or through them during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under the
United States Securities Act of 1933 (the "Securities Act") and may
not be offered or sold within the United States or to or for the
account or benefit of U.S. persons (i) as part of their distribution
at any time and (ii) otherwise until forty (40) days after the later
of the date upon which the offering of the Securities commenced and
the date of closing, except in either case in accordance with
Regulation S or another exemption from the registration requirements
of the Securities Act. Terms used above have the meaning given to
them by Regulation S."
Terms used in the above paragraph have the meanings given to them by
Regulation S.
The Initial Purchasers represent and agree that they have not entered and
will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with their affiliates or with the prior
written consent of the Company.
19
<PAGE> 24
(d) Offers and Sales in the United Kingdom. The Initial Purchasers hereby
represent, warrant and agree that (i) they have not offered or sold and prior
to the expiration of the period six months after the date of issue of the
Securities will not offer to sell by means of any document any Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) they have complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by them in relation to the Securities in, from or otherwise
involving the United Kingdom; and (iii) they have only issued or passed on, and
will only issue or pass on within six months of the date hereof, in the United
Kingdom any document received by them in connection with the issue of the
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.
(e) Offers and Sales in Japan. The Initial Purchasers understand that the
Securities have not been and will not be registered under the Securities and
Exchange Law of Japan, and represent that they have not offered or sold, and
agree that they will not offer or sell, any Securities, directly or indirectly,
in Japan or to any resident of Japan except (i) pursuant to an exemption from
the registration requirements of the Securities and Exchanges Law of Japan and
(ii) in compliance with any other applicable requirements of Japanese law.
SECTION 7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to
indemnify and hold harmless the Initial Purchasers and each person, if any, who
controls the Initial Purchasers within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the reasonable fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding
20
<PAGE> 25
by any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers expressly for use in the Offering Memorandum (or any
amendment thereto).
(b) Indemnification of Company and Directors. The Initial Purchasers
severally agree to indemnify and hold harmless the Company, its directors and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Offering Memorandum in reliance upon and in conformity with written information
furnished to the Company by the Initial Purchasers expressly for use in the
Offering Memorandum.
(c) Actions Against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
7(a) above, counsel to the indemnified parties shall be selected by the Initial
Purchasers, and, in the case of parties indemnified pursuant to Section 7(b)
above, counsel to the indemnified parties shall be selected by the Company;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence;
(ii) the indemnifying party does not promptly retain counsel satisfactory to
the indemnified party; or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs
and expenses of any settlement of such action effected by such indemnified
party without the
21
<PAGE> 26
consent of the indemnifying party. An indemnifying party may participate at
its own expense in the defense of any such action; provided, however, that
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 or Section 8 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 7(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 8. Contribution. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total initial purchaser's discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue
22
<PAGE> 27
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Initial
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section, the Initial Purchasers
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
the Initial Purchasers has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls the
Initial Purchasers within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Initial
Purchasers, and each director of the Company, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, shall have the same rights to contribution as the
Company.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or the Subsidiary
submitted pursuant hereto shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Initial Purchasers
or any controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities to the Initial Purchasers.
SECTION 10. Termination of Agreement.
23
<PAGE> 28
(a) Termination; General. The Initial Purchasers may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and the Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or any
outbreak of hostilities or escalation thereof or other calamity or crisis, the
effect of which is such as to make it, in the judgment of the Initial
Purchasers, impracticable to market the Securities or to enforce contracts for
the sale of the Securities, or (iii) if trading of any securities of the
Company has been suspended or materially limited by the Commission or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market System has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such
system or by order of the Commission, the National Association of Securities
Dealers, Inc. or any other governmental authority, or (iv) if a banking
moratorium has been declared by Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof; and provided further that
Sections 1, 7, 8 and 9 shall survive such termination and remain in full force
and effect.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to the Initial Purchasers at North Tower, World
Financial Center, New York, New York 10281, attention of Edmond N. Moriarty
III; notices to the Company shall be directed to the Company at 11111 Dorsett
Road, St. Louis, Missouri 63043, attention of Richard D. Weinstein.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchasers, the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers, the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Initial Purchasers,
the Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from the Initial Purchasers shall be deemed to be a successor by reason merely
of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
24
<PAGE> 29
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Initial Purchasers and the Company in accordance with its
terms.
Very truly yours,
DTI HOLDINGS, INC.
By: /s/ Richard D. Weinstein
------------------------------
Name: Richard D. Weinstein
Title: President and Chief Executive
Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
TD SECURITIES (USA), INC.
By: Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
/s/ Marcey Becker
--------------------
Authorized Signatory
Marcey Becker
Vice President
25
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Underwriter Units
- -------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................... 397,716
TD Securities (USA) Inc.............. 108,284
---------
Total................................ 506,000
---------
</TABLE>
Sch A-1
<PAGE> 31
SCHEDULE B
DTI HOLDINGS, INC.
506,000 Units, each Unit consisting of one $1,000 aggregate principal
amount at maturity of 12 1/2% Senior Discount Notes due 2008 and five Warrants,
entitling the holder thereof to purchase 3,926,560 shares of Common Stock.
1. The initial public offering of the Units shall be $543.92 per Unit,
plus accreted amortization of original issue discount on the Notes, if any,
from February 23, 1998.
2. The purchase price to be paid by the Initial Purchasers for the Units
shall be $508.92 per Unit, plus accreted amortization of original issue discount
on the Notes, if any, from February 23, 1998.
3. The interest rate on the Notes shall be 12 1/2% per annum; interest
will be payable semiannually on March 1 and September 1, commencing September
1, 2003.
4. The Notes will mature on March 1, 2008 and will be issued in
denominations of $1,000 principal amount at maturity or integral multiples
thereof.
5. The redemption price supplied on page 70 of the Offering Memorandum
(and correspondingly in the Indenture) with respect to redemptions of Notes
from the proceeds of Public Equity Offerings shall be 112.5% of the principal
amount thereof.
6. The redemption prices supplied on page 69 of the Offering Memorandum
(and correspondingly in the Indenture) relating to the Notes shall be:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003 106.25%
2004 104.17
2005 102.08
2006 and thereafter 100.00
</TABLE>
Sch B-1
<PAGE> 32
SCHEDULE C
SCHEDULE OF FOREIGN JURISDICTIONS
DTI Holdings, Inc.
None
Digital Teleport, Inc.
Illinois
Sch A-1
<PAGE> 33
Exhibit A
FORM OF
REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
Exh-A-1
<PAGE> 34
Exhibit B
FORM OF
WARRANT AGREEMENT
[Separately Attached]
Exh-B-1
<PAGE> 35
Exhibit C
FORM OF
WARRANT REGISTRATION RIGHTS AGREEMENT
[Separately Attached]
Exh-C-1
<PAGE> 36
Exhibit D
FORM OF OPINION OF BRYAN CAVE LLP
TO BE DELIVERED PURSUANT TO
SECTION 5(a)
This opinion is furnished to you pursuant to Section 5(a) of the Purchase
Agreement dated February 13, 1998 ("Purchase Agreement") between DTI Holdings,
Inc., a Missouri corporation (the "Company") and you as the Initial Purchaser
of the respective number of the Company's Units (the "Units" or the
"Securities"), each Unit consisting of $1,000 aggregate principal amount at
maturity of the Company's Senior Discount Notes due 2008 (the "Notes") and five
warrants (each, a "Warrant"), each Warrant entitling the holder thereof to
purchase 1.552 shares of common stock, par value $0.01 per share (after giving
effect to a 1000 to 1 stock split (the "Stock Split") to be completed prior to
the Closing Time referred to in Section 2(b) hereof, the "Common Stock") of the
Company. Defined terms used herein and not otherwise defined herein have the
respective meanings assigned to such terms in the Purchase Agreement.
In connection herewith, we have examined and relied without independent
investigation as to matters of fact upon originals or copies, certified or
otherwise identified to the Company, including, without limitation, [that
certain certificate of even date herewith executed by Richard D. Weinstein,
President of the Company (the "Officer's Certificate"),] and such other
documents, corporate records, opinions and instruments as we have deemed
necessary or appropriate to enable us to render the opinions expressed below.
In rendering this opinion, we have assumed (i) the genuineness of all
signatures appearing on the documents examined, (ii) the legal capacity of all
persons executing such documents, (iii) the authenticity of documents submitted
to us for our examination, whether or not they have been submitted to us as
originals, (iv) the conformity to authentic original documents of all documents
submitted to us as certified, conformed, facsimile or photostatic copies, (v)
the due authorization of the execution, delivery and performance of the
Purchase Agreement, the Indenture, the Warrant Agreement, the Registration
Rights Agreement and the Warrant Registration Rights Agreement (collectively,
the "Transaction Agreements") by parties other than the Company and (vi) the
validity and binding effect of the Transaction Agreements upon the parties
thereto other than the Company.
Based upon the foregoing, and subject to the qualifications and
limitations set forth elsewhere in this letter, we are of the opinion that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Missouri.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under
the Purchase Agreement.
Exh-D-1
<PAGE> 37
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each of the jurisdictions
set forth on Schedule A hereto, which include all of the jurisdictions in
which the Company is required to be so qualified and in good standing,
other than those where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(iv) Digital Teleport, Inc. has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Missouri, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
is duly qualified as a foreign corporation to transact business and is in
good standing in each of the jurisdictions listed on Schedule A hereto,
which include all of the jurisdictions in which Digital Teleport, Inc. is
required to be so qualified and in good standing, other than those where
the failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the Offering
Memorandum, all of the issued and outstanding capital stock of Digital
Teleport, Inc. has been duly authorized and validly issued, is fully paid
and non-assessable and, to the best of our knowledge, is owned by the
Company, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity other than as described in the Offering
Memorandum; none of the outstanding shares of capital stock of Digital
Teleport, Inc. was issued in violation of the preemptive or similar
rights of any security holder of such subsidiary.
(v) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum in the column entitled
"Actual" under the caption "Capitalization" (except for the subsequent
issuances, if any, pursuant to the Purchase Agreement or pursuant to the
reservations, agreements or employee benefit plans referred to in the
Offering Memorandum or pursuant to the exercise of options referred to in
the Offering Memorandum); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; and none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive or
other similar rights of any security holder of the Company.
(vi) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The Indenture has been duly authorized, executed and delivered
by the Company and constitutes a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, including,
without limitation, concepts of materiality, reasonableness, good faith
and fair dealing, and the possible unavailability of specific
performance, injunctive relief or other equitable
Exh-D-2
<PAGE> 38
remedies, regardless of whether enforceability is considered in a
proceeding in equity or at law.
(viii) The Registration Rights Agreement constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with
its terms, subject, as to enforcement, to (i) bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, including,
without limitation, concepts of materiality, reasonableness, good faith
and fair dealing, and the possible unavailability of specific
performance, injunctive relief or other equitable remedies, regardless of
whether enforceability is considered in a proceeding in equity or at law
and subject, as to enforcement of the rights to indemnity and
contribution thereunder, to limitations under applicable federal and
state securities laws or public policy considerations.
(ix) The Warrant Agreement constitutes a valid and legally binding
obligation of the Company, enforceable against the Company in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, including,
without limitation, concepts of materiality, reasonableness, good faith
and fair dealing, and the possible unavailability of specific
performance, injunctive relief or other equitable remedies, regardless of
whether enforceability is considered in a proceeding in equity or at law.
(x) The Warrant Registration Rights Agreement constitutes a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance, injunctive relief or other
equitable remedies, regardless of whether enforceability is considered in
a proceeding in equity or at law and subject, as to enforcement of the
rights to indemnity and contribution thereunder, to limitations under
applicable federal and state securities laws or public policy
considerations..
(xi) The Notes are in the form contemplated by the Indenture, have
been duly authorized by the Company and, when executed by the Company and
authenticated by the Trustee in the manner provided in the Indenture and
delivered against payment of the purchase price therefor, will constitute
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and the
possible unavailability of specific performance, injunctive relief or
other equitable remedies, regardless of whether enforceability is
considered in a proceeding in
Exh-D-3
<PAGE> 39
equity or at law, and will be entitled to the benefits of the
Registration Rights Agreement and the Indenture.
(xii) The Warrants are in the form contemplated by the Warrant
Agreement, have been duly authorized by the Company and, when executed by
the Company and authenticated by the Trustee in the manner provided in
the Warrant Agreement and delivered against payment of the purchase price
therefor, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights
and to general equity principles, including, without limitation, concepts
of materiality, reasonableness, good faith and fair dealing, and the
possible unavailability of specific performance, injunctive relief or
other equitable remedies, regardless of whether enforceability is
considered in a proceeding in equity or at law, and will be entitled to
the benefits of the Warrant Registration Rights Agreement and the Warrant
Agreement.
(xiii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to
which the Company is a party or to which the property of the Company is
subject, before or brought by any court or governmental agency or body,
domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in the Purchase Agreement or
the performance by the Company of its obligations thereunder or the
transactions contemplated by the Offering Memorandum.
(xiv) The information in the Offering Memorandum under the captions
"Certain Relationships and Transactions with Related Parties,"
"Description of Existing Indebtedness," "Description of Units,"
"Description of the Notes," "Description of the Warrants" are correct in
all material respects and fairly summarize the matter discussed therein;
and the information in the Offering Memorandum under the caption "Income
Tax Considerations -- U.S. Holder," to the extent that it constitutes
matters of law, summaries of legal matters or legal proceedings, or legal
conclusions, are accurate and fairly summarize the matters discussed
therein.
(xv) To the best of our knowledge, the Company is not in violation
of its charter or by-laws.
(xvi) To the best of our knowledge, except as otherwise disclosed in
the Offering Memorandum, no default by the Company exists in the due
performance or observance of any material obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument that is listed on
Schedule B hereto.
Exh-D-4
<PAGE> 40
(xvii) Assuming the accuracy of the representations, warranties and
covenants of the Initial Purchaser in Section 6(c) of the Purchase
Agreement, no authorization, approval, consent or order of any court or
governmental authority or agency (other than such as may be required
under the applicable securities or Blue Sky laws of the various
jurisdictions in which the Units will be offered or sold, as to which we
need express no opinion) is required in connection with the due
authorization, execution and delivery of the Purchase Agreement or the
due execution, delivery or performance of the Indenture by the Company or
for the offering, issuance, sale or delivery of the Units to the Initial
Purchasers or the resale by the Initial Purchasers in accordance with the
Purchase Agreement.
(xviii) Assuming the accuracy of the representations, warranties and
covenants of the Initial Purchaser, it is not necessary in connection
with the offer, sale and delivery of the Units to the Initial Purchasers
and to each Subsequent Purchaser in the manner contemplated by the
Purchase Agreement and the Offering Memorandum to register the Units
under the 1933 Act or to qualify the Indenture under the Trust Indenture
Act.
(xix) The execution, delivery and performance of the Purchase
Agreement, the Registration Rights Agreement, the Warrants, the Warrant
Agreement, the Warrant Registration Rights Agreement, the Indenture and
the Warrants and the Notes and the consummation of the transactions
contemplated in the Purchase Agreement and in the Offering Memorandum
(including the use of the proceeds from the sale of the Units as
described in the Offering Memorandum under the caption "Use of Proceeds")
and compliance by the Company with its obligations under the Purchase
Agreement, the Warrant Agreement, the Registration Rights Agreement, the
Warrant Registration Rights Agreement, the Indenture, Warrants and the
Notes will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default under
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, known to us, to which
the Company is a party or by which it may be bound, or to which any of
the property or assets of the Company is subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not reasonably be expected to have a Material Adverse Effect), nor
will such action result in any violation of the provisions of the charter
or by-laws of the Company, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company's properties, assets or operations.
(xx) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
During the course of the preparation by the Company of the Offering
Memorandum, we have participated in conferences with your representatives and
counsel and with officers and
Exh-D-5
<PAGE> 41
representatives of the Company, at which conferences the contents of the
Offering Memorandum were discussed, reviewed and revised, and, although we are
not passing upon, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements made in the Offering Memorandum
(except to the extent set forth in paragraph (xi) above), [on the basis of the
information which was developed in the course thereof,] considered in the light
of our understanding of applicable law and the experience we have gained
through our practice thereunder, we have no reason to believe that Offering
Memorandum, as of the date thereof, contained, or, as of the date hereof,
contains, any untrue statement of a material fact or omitted or, as of the date
hereof, omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made
when such documents were issued, not misleading; we do not express any opinion
or belief as to the financial statements and related notes and the other
financial data contained in the Offering Memorandum.
Whenever the phrase "to our knowledge" or a similar phrase is used herein
in connection with any matter, such phrase means that, with respect to such
matter, (i) we have made inquiry of executive officers of the Company and (ii)
we have inquired of those attorneys in our office who have spent significant
time representing the Company in connection with this transaction as to their
present knowledge of such matter. These attorneys include all of the attorneys
at Bryan Cave LLP who regularly represent the Company. Unless otherwise
specifically indicated, we have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our
knowledge of the existence of such facts should be drawn from the fact of our
representation of the Company in this or other instances.
We express no opinion as to (a) whether any provisions of the Purchase
Agreement, the Securities, the Registration Rights Agreement and the Indenture
regarding waivers of rights or the effects of oral modifications are
enforceable or (b) the accuracy or completeness of the financial statements and
other financial and statistical data contained in the Offering Memorandum.
On the basis of the information which was developed in the course thereof,
to the best of our Knowledge, we have no reason to believe that there are
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments or statutes or regulations that would be required to be
described in the Offering Memorandum that are not described or referred to in
the Offering Memorandum other than those described or referred to therein and
such references are accurate in all material respects.
This opinion is not rendered with respect to any laws other than the
federal laws of the United States and the laws of the State of New York and The
General and Business Corporation Law of the State of Missouri.
Notwithstanding any other provision herein, and without limiting the
generality of the preceding paragraph, no opinion is made herein, express or
implied, regarding the effect of provisions of any federal, Missouri or other
states' laws or regulations relating to utilities or
Exh-D-6
<PAGE> 42
telephone companies or any other law or regulation applicable to the
Company as a company establishing and providing telecommunications services.
This opinion is delivered to you solely in connection with the Purchase
Agreement and by your acceptance of this opinion you agree that it may not be
used or relied upon by any person or entity other than the addressee hereof for
any purpose whatsoever, and may not be distributed to or relied upon by any
other person, without prior written consent.
Very truly yours,
BRYAN CAVE LLP
Exh-D-7
<PAGE> 43
SCHEDULE A TO EXHIBIT D
Missouri Highway Contracts: Agreement regarding Fiber Optic Cable on Freeways in
Missouri, between Missouri Highway Transportation
Commission and Digital Teleport, Inc., dated July
29, 1994 as amended July 29, 1994, November 7,
1994, and October 9, 1996.
Arkansas Highway Contracts: Fiber Optic Cable Agreement, between Arkansas State
Highway and Transportation Department and Digital
Teleport, Inc., dated May 28, 1997.
Contracts with Major Customers:
ATT Agreement for the Provision of Telecommunications
Services and Facilities, between AT&T Corporation and
Digital Teleport, Inc., dated September 9, 1997.
Sprint IRU Agreement, between United Telephone Company of
Missouri and Digital Teleport, Inc., dated September 20,
1996.
MCI (1) IRU Agreement, between Digital Teleport Inc. and
MCIMetro Access Transmission Services, Inc., dated
October 3, 1995.
(2) Master Capacity Agreement Between MCIMetro
Access Transmission Services, Inc. and Digital
Teleport Inc., dated March 11, 1996.
(3) Master Service Agreement, Between Digital
Teleport Inc., and MCI Telecommunications
Corporation, dated September 6, 1996.
(4) Fiber Optic Communication Services Agreement
between Digital Teleport Inc., and MCIMetro
Access Transmission Services, Inc., dated October 3, 1995.
IXC Carrier (1) Installation Agreement
(Joplin/Anderson), between Digital Teleport Inc. and IXC
Carrier, Inc., dated October 31, 1996.
(2) Installation and IRU Agreement (Kansas
City/Joplin), between Digital Teleport Inc. and
IXC Carrier, Inc., dated October 7, 1996.
(3) Optical Fiber Maintenance Agreement, between
Digital Teleport, Inc. and IXC Carrier, Inc.,
dated October 7, 1996.
KCPL (1) Agreement of Merger, between KCDT L.L.C.
and Digital Teleport, Inc., dated September 23, 1997.
(2) Stock Purchase Agreement, between KLT
Telecom, Inc. and Digital Teleport, Inc., dated
December 31, 1996.
Exh-D-8
<PAGE> 44
(3) Shareholders' Agreement, Richard Weinstein
and KLT Telecom, Inc., dated March 12, 1997.
(4) Guaranty Agreement, between Richard
Weinstein and KLT Telecom, Inc., dated December 31, 1996.
Union Electric (1) Agreement for the Provision of
Digital Transport Services, between Union Electric Co. and
Digital Teleport, Inc., dated July 29, 1994, as amended on
February 20, 1996.
(2) Network Services Agreement, between Union
Electric Company, and Digital Teleport, Inc.,
dated October 6, 1994, as amended on February 20,
1996 and November 18, 1996.
Principal Supplier Contracts:
Nortel (1) Network Products Purchase Agreement, between Northern
Telecom, Inc. and Digital Teleport, Inc., dated
October 15, 1997.
(2) Product Attachment, Carrier Networks
Products Agreement between Northern Telecom, Inc.
and Digital Teleport, Inc., dated October 15, 1997.
Ciena (1) Services and IRU Agreement, dated as of
March 12, 1997.
(2) Escrow Agreement, dated as of June 9, 1997.
Fujitsu Purchase Order No. A012794, between Fujitsu Network
Transmission Systems, Inc. and Digital Teleport, Inc.,
dated December 2, 1994.
Exh-D-9
<PAGE> 45
Exhibit E
FORM OF OPINION OF
LUCAS MCGOWAN, NACE & GUTIERREZ, CHARTERED
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
We have acted as special communications counsel to the Company in
connection with the transaction set forth in the Agreement. The Company may
have employed separate counsel for other purposes. As special communications
counsel, unless otherwise stated, we address only matters within the
jurisdiction of the Federal Communications Commission ("FCC"). Unless
otherwise stated, the following opinions are based upon and concern only the
effect of the Communications Act of 1934, as amended (which amendments include,
but are not limited to, the Telecommunications Act of 1996), and the rules,
regulations and published policies of the FCC ("Communications Law").
In rendering this opinion we have examined and relied upon without
independent investigation as to matters of fact the following documents:
1. The Purchase Agreement;
2. The Indenture;
3. The Notes Registration Rights Agreement;
4. The Warrant Agreement;
5. The Warrant Registration Rights Agreement;
6. The Units;
7. The Notes;
8. The Warrants; and
9. Offering Memorandum
(Collectively, the "Transaction Agreements.") In addition, we have relied upon
a certificate of the Company that it has no FCC licenses, permits or
authorizations, and that the Company neither owns nor controls any facilities
for the transmission of energy or communications by radio or wire, nor does the
Company currently operate as an interstate common carrier pursuant to 47 U.S.C.
Section 201 et. seq. Collectively, our investigation referred to in this
paragraph is "Our Inquiry."
Exh-E-1
<PAGE> 46
In making Our Inquiry, we have assumed, without independent verification,
(i) the genuineness of all signatures (whether original or photostatic) and the
authenticity of all documents submitted to us as originals; (ii) the conformity
to authentic original documents of all documents submitted to us as certified
or photostatic copies; (iii) that the signatures on all documents examined by
us are genuine; (iv) that where any such signature purports to have been made
in a corporate, governmental, fiduciary or other capacity, the person who
affixed such signature to such documents had authority to do so; and (v) the
correctness of public files, records and certificates furnished by,
governmental or regulatory agencies or authorities, except where we have
specific knowledge to the contrary. As to all questions of fact material to
this opinion, we have relied upon the representations and warranties of the
Company contained in the Transaction Agreements referred to above. We have
assumed, without independent verification, the accuracy of the relevant facts
stated therein.
When used in this opinion, the term "Our Knowledge" refers to the actual
current knowledge of the attorneys currently in this firm who have been
actively involved in the Company's representation. Whenever our opinion with
respect to the existence or nonexistence of facts is qualified by the phrase
"To Our Knowledge," or some similar phrase, it is intended to indicate that no
information has come to the attention of those attorneys in the course of our
representation that would give them actual knowledge that our opinion with
respect to the existence or nonexistence of such facts is inaccurate. We have
not, however, undertaken any independent investigation of the Company or its
facilities to determine the existence or nonexistence of such facts, other than
our review of those documents identified above. No inference as to our
knowledge of the existence or nonexistence of facts, other than facts of which
we have obtained actual knowledge as a result of our representation, should be
drawn from the fact of our representation of the Company as special
communications counsel. Our opinion, therefore, does not encompass any matter
which would be apparent, inter alia, only as a result of such investigation.
Whenever our opinion is qualified by the phrase "after Our Inquiry" or some
similar phrase, it is intended to indicate that we undertook Our Inquiry as
described herein, but did not undertake any independent investigation or
evaluation to confirm the accuracy or completeness of the responses of the
Company or FCC to Our Inquiry.
This opinion is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord of the ABA Section of Business law (1991). As a
consequence, it is subject to a number of qualifications, exceptions,
definitions, limitations on coverage and other limitations, all as more
particularly described in the Accord, and this opinion should be read in
conjunction therewith.
Subject to the qualifications, assumptions and limitations set forth
herein, we are of the opinion that:
(i) To Our Knowledge, after Our Inquiry, the statements in the Offering
Memorandum under the captions "Risk Factors -- Regulatory Risks," "Risk Factors
- -- Competition" and "Business -- Regulatory Matters, General Regulatory
Environment and Federal Regulation," to the extent that they constitute
matters of law, summaries of legal matters or
Exh-E-2
<PAGE> 47
proceedings, or legal conclusions in connection with Communications Law, are
accurate and fair summaries of the matters discussed therein.
(ii) The execution, delivery and performance of the Company of its
obligations under the Transaction Agreements will not contravene, violate or
conflict with the Communications Law; and no consent, approval, authorization
or order or qualification with the FCC is required for performance by the
Company of its obligations thereunder.
(iii) To our Knowledge, after Our Inquiry, the Company has made all
material reports and filings, and paid all fees, required by the FCC applicable
to the Company or its existing operations as they are described in the Offering
Memorandum, and has all such licenses, certificates, orders, permits,
authorizations, consents and approvals of and from the FCC as are necessary to
own, lease, license and use its properties and assets and for the operation of
its business as it we understand currently exists.
(iv) To Our Knowledge, after Our Inquiry, no proceeding has been
instituted or is threatened in writing by the FCC against the Company which if
decided adversely with respect to the company would have a materially adverse
affect on the company's operations in the aggregate; and
(v) We have not been retained to devote substantial attention to any
matter or claim which, if true, would constitute a material violation of the
Communications Law by the Company.
This opinion is being provided to you only for your use in connection with
the Agreement and may not be quoted to, copied, delivered to, or relied upon by
anyone other than you in connection with the Agreement, and for no other
purpose, without our prior written consent. This opinion is effective only as
of the date hereof and we undertake no professional responsibility to advise
you as to any subsequent event either in the nature of a change of fact or law,
as to which we may become aware. This opinion should not be assumed to state
general principles of law applicable to transactions of this kind.
Lukas, McGowan, Nace & Gutierrez, Chartered
Exh-E-3
<PAGE> 48
Exhibit F
FORM OF OPINION OF HENDREN & ANDRAE, LLC,
SPECIAL MISSOURI REGULATORY COUNSEL TO THE COMPANY,
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
(1) The information in the Offering Memorandum under the captions "Risk
Factors - General Regulatory Framework," "Risk Factors - Competition" and
"Business - Telecommunications Regulations," to the extent that it constitutes
matters of law, summaries of legal matters or proceedings, or legal
conclusions, are accurate and fairly summarize the matters discussed therein.
(2) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Purchase Agreement, the Indenture,
the Notes Registration Rights Agreement, the Warrant Agreement, the Warrant
Registration Rights Agreement, the Warrants and the Securities will not
contravene, violate or conflict with any Missouri State telecommunications law,
rules or regulations ("State Law") or applicable to the Company or result in
termination or revocation of any of the Company's Missouri State authority
overseeing telecommunications matters ("State Authority"). Further, the
Company is not in violation of, or in default under, any other Missouri State
telecommunications law.
(3) The Company has made all reports and filings, and paid all fees,
required by the Missouri State authorities, and has all such licenses,
certificates, orders, permits, authorizations, consents and approvals of and
from and has made all filings and registrations with, the Missouri State
authorities as is necessary to own, lease , license and use its properties and
assets and for the lawful operation of its business in the manner and to the
full extent now operated or proposed to be operated as described in the Final
Memorandum. The Company's Missouri State Telecommunications Licenses are in
full force and effect and, to the best of such counsel's knowledge, no
proceeding has been instituted or is threatened, pending or contemplated, which
in any manner affects or draws into question the validity or effectiveness
thereof; such Missouri State Telecommunications Licenses contain no materially
burdensome restrictions not customarily imposed by the Missouri State
authorities on telecommunication companies of the same class and type.
Exh-F-1
<PAGE> 49
Exhibit G
FORM OF OPINION OF WRIGHT, LINDSEY & JENNINGS, LLP,
SPECIAL ARKANSAS REGULATORY COUNSEL TO THE COMPANY,
TO BE DELIVERED PURSUANT TO
SECTION 5(d)
(1) The information in the Offering Memorandum under "Risk Factors -
General Regulatory Framework," "Risk Factors -- Competition" and "Business --
Telecommunications Regulations," to the extent that it constitutes matters of
law, summaries of legal matters or proceedings, or legal conclusions, are
accurate and fairly summarize the matters discussed therein.
(2) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Purchase Agreement, the Indenture,
the Notes Registration Rights Agreement, the Warrant Agreement, the Warrant
Registration Rights Agreement, the Warrants and the Securities will not
contravene, violate or conflict with any Arkansas State telecommunications law,
rules or regulations ("State Law") or applicable to the Company or result in
termination or revocation of any of the Company's Arkansas State authority
overseeing telecommunications matters ("State Authority"). Further, the
Company is not in violation of, or in default under, any other Arkansas State
telecommunications law.
(3) The Company has made all reports and filings, and paid all fees,
required by the Arkansas State authorities, and has all such licenses,
certificates, orders, permits, authorizations, consents and approvals of and
from and has made all filings and registrations with, the Arkansas State
authorities as is necessary to own, lease , license and use its properties and
assets and for the lawful operation of its business in the manner and to the
full extent now operated or proposed to be operated as described in the Final
Memorandum. The Company's Arkansas State Telecommunications Licenses are in
full force and effect and, to the best of such counsel's knowledge, no
proceeding has been instituted or is threatened, pending or contemplated, which
in any manner affects or draws into question the validity or effectiveness
thereof; such Arkansas State Telecommunications Licenses contain no materially
burdensome restrictions not customarily imposed by the Arkansas State
authorities on telecommunication companies of the same class and type.
<PAGE> 50
FORM OF OPINION OF EVANS & DIXON
TO BE DELIVERED PURSUANT TO
SECTION 5(e)
(1) The information set forth in the Offering Memorandum in the first
paragraph under "Business -- Litigation," in each case insofar as such
statements constitute a summary of legal matters, documents or proceedings
referred to therein, fairly summarizes the matters referred to therein in all
material respects.
<PAGE> 1
DTI Holdings, Inc.
Computation of Ratio of Earnings to Fixed Charges
Exhibit 12.1
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended June 30, December 31,
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
SELECTED HISTORICAL DATA
Earnings were calculated as follows:
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes (286,732) (786,375) (1,851,764) (1,399,977) (1,699,531)
Add: Fixed charges 204,784 1,672,114 1,454,130 1,264,941 25,811
Deduct: Capitalized Interest (9,516) (1,227,149) (562,750) (355,783) 0
--------- ---------- ---------- ---------- ----------
Earnings................................... (91,464) (341,410) (960,384) (490,819) (1,673,720)
========= ========== ========== ========== ==========
Fixed charges were calculated as follows:
Interest expense 162,777 384,859 51,023 96,729 0
Portion of rentals attributable to interest 32,491 60,106 55,857 27,929 25,811
Loan commitment fees 0 0 784,500 784,500 0
Capitalized interest 9,516 1,227,149 562,750 355,783 0
--------- ---------- ---------- ---------- ----------
Fixed charges.............................. 204,784 1,672,114 1,454,130 1,264,941 25,811
========= ========== ========== ========== ==========
Ratio fixed earnings to fixed charges n/a n/a n/a n/a
Deficiency 296,248 2,013,524 2,414,514 1,755,760 1,699,531
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
Digital Teleport, Inc., a Missouri corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of DTI Holdings, Inc.
on Form S-4 of our report dated September 10, 1997 (April 10, 1998 as to Notes
13 and 14) appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Summary Consolidated
Financial and Operating Data", "Selected Consolidated Financial and Operating
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
April 10, 1998
<PAGE> 1
EXHIBIT 25.1
CONFORMED COPY
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
DTI HOLDINGS, INC
(Exact name of obligor as specified in its charter)
Missouri 43-1674259
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
11111 Dorsett Road
St. Louis, Missouri 63043
(Address of principal executive offices) (Zip code)
----------------------
12-1/2% Series B Senior Discount Notes
due 2008
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY
TO WHICH IT IS SUBJECT.
---------------------------------------------------
Name Address
---------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
<PAGE> 3
CONFORMED COPY
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 13th day of April, 1998.
THE BANK OF NEW YORK
By: /s/THOMAS B. ZAKRZEWSKI
--------------------------------
Name: THOMAS B. ZAKRZEWSKI
Title: ASSISTANT VICE PRESIDENT
