<PAGE>
As filed with the Securities and Exchange Commission on April 10, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
the Securities Act of 1933
---------------
FOCAL COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
4813 36-4167094
Delaware (Primary Standard (I.R.S. Employer
(State or Other Industrial Identification Number)
Jurisdiction of Classification Code
Incorporation or Number)
Organization)
200 North LaSalle Street, Suite 1100, Chicago, Illinois 60601
(312) 895-8400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JOSEPH A. BEATTY
Executive Vice President and Chief Financial Officer
Focal Communications Corporation
200 North LaSalle Street, Suite 1100
Chicago, Illinois 60601
(312) 895-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Elizabeth C. Kitslaar, Esq.
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Suite 3500
Chicago, Illinois 60601-1692
(312) 782-3939
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<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 offering price fee
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<S> <C> <C> <C> <C>
11 7/8% senior notes due 2010............. $275,000,000(1) 100%(2) $275,000,000(2) $72,600
</TABLE>
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(1) Represents the maximum principal amount at maturity of 11 7/8% senior notes
due 2010 that may be issued pursuant to the exchange offer described in
this registration statement.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
---------------
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 this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. Focal +
+may not consummate the exchange offer until the registration statement filed +
+with the Securities and Exchange Commission is effective. This prospectus is +
+not an offer to sell these securities and Focal is not soliciting an offer to +
+buy these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 10, 2000
PROSPECTUS
$275,000,000
Focal Communications Corporation
Offer to Exchange all Outstanding
11 7/8% Senior Notes due 2010, Series A for
11 7/8% Senior Notes due 2010, Series B
Interest Payable July 15 and January 15,
Commencing July 15, 2000
This Exchange Offer Will Expire at 5:00 p.m.,
New York City time, on , 2000, unless extended.
-----------
Material Terms of the Exchange Offer
. We are offering to exchange all outstanding notes that are validly tendered
and not validly withdrawn for an equal principal amount of notes which are
registered under the Securities Act of 1933.
. The exchange offer is subject to conditions, including that the exchange
offer not violate any law or applicable interpretation of any law by the
Staff of the Securities and Exchange Commission.
. You may withdraw your tender of your outstanding notes at any time before the
expiration of the exchange offer.
. The exchange of notes will not be a taxable exchange for United States
federal income tax purposes.
. Focal will not receive any cash proceeds from the exchange offer.
. Affiliates of Focal may not participate in the exchange offer.
The Registered Notes
. The terms of the notes to be issued are substantially identical to the
outstanding notes that Focal issued on January 12, 2000, except that transfer
restrictions and registration rights provisions relating to the outstanding
notes will not apply to the registered notes.
. Interest on the notes accrues at the rate of 11 7/8% per year, payable in
cash every six months on July 15 and January 15, with the first payment on
July 15, 2000.
. The notes are senior, unsecured obligations of Focal and will rank equally
with all other unsecured and unsubordinated obligations of Focal.
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 resales of
exchange notes received in exchange for outstanding notes where such exchange
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Focal has agreed that, starting on the
expiration date and ending on the close of business 90 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."
-----------
Investing in the notes to be issued in the exchange offer involves risks.
Please consider carefully the "Risk Factors" beginning on page 12 of this
prospectus.
This prospectus and the accompanying letter of transmittal are first being
mailed to holders of outstanding notes on or about , 2000.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the notes to be distributed in the
exchange offer, nor have any of these organizations determined that this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
-----------
The date of this prospectus is , 2000.
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
This prospectus incorporates important business and financial information
about Focal that is not included in or delivered with this prospectus. This
information is available without charge to you upon written or oral request to
the office of the Secretary, Focal Communications Corporation, 200 North
LaSalle Street, Suite 1100, Chicago, Illinois 60601. Our telephone number is
(312) 895-8400. To obtain timely delivery, you must request the information no
later than five business days before the date you require it.
We are not asking you for a proxy and you are requested not to send us a
proxy.
We have not taken nor will we take any action in any jurisdiction to permit
a public offering of the exchange notes offered by this prospectus or the
possession or distribution of this prospectus other than in the United States.
----------------
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Information Regarding Forward-Looking Statements.......................... 1
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 12
The Exchange Offer........................................................ 25
Use of Proceeds........................................................... 33
Capitalization............................................................ 34
Selected Consolidated Financial and Operating Data........................ 35
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 37
Business.................................................................. 44
Management................................................................ 66
Security Ownership of Certain Beneficial Owners and Management............ 70
Certain Transactions...................................................... 72
Description of the 1998 Notes............................................. 74
Description of the Exchange Notes......................................... 77
Material United States Federal Tax Considerations......................... 110
Plan of Distribution...................................................... 113
Legal Matters............................................................. 113
Experts................................................................... 113
Where You Can Find More Information....................................... 114
Glossary.................................................................. 116
</TABLE>
----------------
This prospectus contains summaries which we believe to be accurate with
respect to the key terms of some documents but for complete information
regarding the documents, you may obtain copies of the actual documents upon
request to us.
The market data included in this prospectus, including information relating
to our position in the industry, is based on independent industry publications,
other publicly available information or our management's good faith beliefs.
Although we believe that these independent sources are reliable, the accuracy
and completeness of this information is not guaranteed and has not been
independently verified.
This prospectus contains trademarks of Focal and its subsidiaries, and may
contain trademarks, trade names and service marks of other parties.
Unless we indicate otherwise, references to "Focal" or to "we," "us" or
"our" are to Focal Communications Corporation and all of its subsidiaries.
Information contained on Focal's Internet site is not a part of this
prospectus.
Unless otherwise indicated, the information in this prospectus gives effect
to a recapitalization pursuant to which our Class A common stock, Class B
common stock and Class C common stock were converted into a single class of
common stock and a 500-for-1 stock split. Both the recapitalization and the
stock split were completed on July 30, 1999.
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
We make statements in this prospectus that are not historical facts. These
"forward-looking statements" can be identified by the use of terminology such
as "believes," "expects," "may," "will," "should" or "anticipates" or
comparable terminology. These forward-looking statements include, among others,
statements concerning:
. Our business strategy and competitive advantages
. Our anticipation of potential revenues from designated markets or
customers
. Statements regarding the growth of the communications services industry
and our business
. The markets for our services and products
. Forecasts of when we will enter particular markets or begin offering
particular services
. Our anticipated capital expenditures and funding requirements
. Anticipated regulatory developments
These statements are only predictions. You should be aware that these
forward-looking statements are subject to risks and uncertainties, including
financial and regulatory developments and industry growth and trend
projections, 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 us from achieving our stated goals include, but are not
limited to, our failure to:
. Successfully expand our operations into new geographic markets on a
timely and cost-effective basis
. Successfully introduce and expand our data and voice service offerings
on a timely and cost-effective basis
. Design and install our Internet services infrastructure
. Respond to competitors in our existing and planned markets
. Execute and renew interconnection agreements with incumbent carriers on
terms satisfactory to us
. Enter into and maintain agreements for transport facilities and
services, including Internet transit services
. Maintain acceptance of our services by new and existing customers
. Attract and retain talented employees
. Prevail in legal and regulatory proceedings regarding reciprocal
compensation for Internet-related calls
. Obtain and maintain any required governmental authorizations, franchises
and permits, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions
. Respond effectively to regulatory, legislative and judicial
developments, including developments relating to reciprocal compensation
. Manage administrative, technical and operational issues presented by our
expansion plans
. Raise sufficient capital on acceptable terms and on a timely basis
. Successfully provision digital subscriber line, or DSL, services
For a discussion of some of these factors, see "Risk Factors" beginning on
page 12.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that we believe is especially important
concerning our business and the exchange offering. As a summary, it is
necessarily incomplete and does not contain all the information that is
important to you. You should carefully read the entire prospectus and the other
documents to which this prospectus refers you, including the Letter of
Transmittal. For a description of some of the industry terminology used in this
prospectus, you should refer to the "Glossary." You should also read and
consider the information in the "Risk Factors" section of this prospectus.
BUSINESS
Focal is a rapidly growing competitive provider of integrated communications
services. We provide data, voice and colocation services to large,
communications-intensive users in major cities. Our target customers include
large corporations, Internet service providers, or ISPs, and value-added
resellers, or VARs. We offer our customers an attractive alternative to
incumbent local exchange carriers, or ILECs. Because other competitive carriers
generally have chosen to compete in smaller cities or target smaller customers,
we believe our strategy is unique.
Currently, we offer service in 18 large metropolitan markets nationwide. We
plan to provide service in two additional markets in 2000 and expand into four
more markets in 2001. When we complete this expansion, we will provide service
in 24 markets, encompassing 56 metropolitan statistical areas. As of February
29, 2000, we had sold 270,000 access lines, of which 215,565 were installed and
in service. As of February 29, 2000, our customers had, on average,
approximately 279 access lines in service.
In response to market demand for faster, more reliable solutions to Internet
connectivity, we have launched a new data services business. We have hired an
Internet industry veteran to lead a dedicated team of employees to build this
business. Our new suite of data services, which we expect to roll-out during
the third quarter of 2000, will include:
. Managed High-Speed Internet Access--We intend to provide our customers
with reliable, direct access to multiple Tier-1 Internet backbones with
private peering relationships that avoid highly-congested public access
points. We believe this service will alleviate many of the latency,
packet-loss and reliability problems associated with the Internet.
. Colocation Services--We intend to leverage our existing and planned
colocation facilities by leasing space to those customers that need to
reach a high concentration of Internet end-users.
. Private Peering Services--We intend to offer private peering services to
enable ISPs, content providers and application service providers to
exchange traffic at our peering points, thereby avoiding the congestion
at public interconnection points.
We will offer these data services by creating Focal Internet eXchanges, or
FIXs, in each of our existing and planned switching and colocation sites in 24
major U.S. markets. Our FIXs, based on a redundant switch and router platform,
will be Internet Protocol, or IP, enabled meeting points for both Internet
users and content and application service providers. We believe content and
application service providers will value our proximity to end-users, which
results from our substantial role as a provider of Internet dial-up facilities.
We currently provide dial-up access services to approximately 200 ISPs that
use the Focal network to bring traffic to the Internet. We believe that we have
been successful at achieving significant penetration in our key markets. For
example, we estimate that more than one-third of all dial-up Internet traffic
in the Chicago metropolitan area passes through a Focal switching center. End-
user dial-up traffic travels through our switching centers, all of which
contain colocation space in which many of our customers house their
2
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equipment. We believe that this colocation space is of unique value because of
its proximity to the end-user. By colocating at a Focal facility, our content
and application service provider customers will be at a point closest to the
edge of the Internet, resulting in improved connections and faster download
speeds. As of March 31, 2000, we had over 110,000 square feet of secure and
environmentally-conditioned colocation space available to our customers or
under development. As part of our new data services strategy, we plan to expand
our colocation space to approximately 500,000 square feet across 36 FIX centers
located in our 24 target markets.
We believe we will have a competitive advantage over other carriers and
Internet infrastructure companies due to our:
. Established relationships with some of the largest corporate, ISP and VAR
customers in the nation
. Network infrastructure, which has been designed with colocation space
adjacent to our switching centers
. Highly reliable network
. Reputation for quality service and customer care
. Ability to package switched local service and high-speed data and
Internet connections
In addition to these new data services, we continue to deploy digital
subscriber line, or DSL, services and a nationwide network based on
asynchronous transfer mode, or ATM, technology. We believe that by providing a
full portfolio of data services, we will better serve the needs of our
customers and appeal to a broader market.
We believe we were the first competitive communications provider to employ
the "smart-build" approach to network design. As such, we own and operate our
switches, initially lease, rather than own, transport capacity, and acquire
fiber transport capacity when and where the volume of customer traffic
warrants. Because of increased customer traffic volume in some of our markets,
we began acquiring our own fiber transport capacity in 1999. By combining
leased fiber with owned fiber capacity, we expect to better control these
assets and generate stronger operating results. We also expect to apply this
approach to the design of our Internet services infrastructure.
We believe that our management and operations team has been critical to our
initial success and will continue to differentiate us from our competitors. We
have built a skilled and experienced management team with extensive prior work
experience at major communications companies, such as MFS Communications,
PSINet, MCI WorldCom, AT&T, Sprint and Ameritech.
STRATEGY
Our objective is to become the provider of choice for data, voice and
colocation services to large, communications-intensive customers in our target
markets. We are responding to the evolving demands of our customers and
positioning ourselves to provide the high-quality voice and data services they
require. To achieve this objective we intend to:
. Leverage the strong relationships we have built with our communications-
intensive customer base to increase our share of their total
communications expenditures.
. Expand our suite of service offerings to include a wider array of data
services. Our new data service offerings will include managed, high-speed
Internet access, colocation and peering services.
. Utilize the smart-build approach to design and install a highly capital-
efficient communications network.
. Expand our geographic coverage to additional markets with high
concentrations of communications-intensive customers.
3
<PAGE>
. Supplement our direct sales efforts with indirect sales to maximize the
utilization of our network assets and systems infrastructure.
Our principal executive offices are located at 200 North LaSalle Street,
Suite 1100, Chicago, Illinois 60601. Our phone number is (312) 895-8400.
THE EXCHANGE OFFER
The Exchange Offer............... We are offering to exchange $1,000
principal amount of our 11 7/8% Senior
Notes due 2010, Series B, which have
been registered under the Securities Act
of 1933 and which we refer to in this
prospectus as the "exchange notes," for
each $1,000 principal amount of our
outstanding unregistered 11 7/8% Senior
Notes due 2010, Series A, which were
issued by us on January 12, 2000 in a
private offering and which we refer to
in this prospectus as the "outstanding
notes." We refer to the exchange notes
and the outstanding notes together as
the "2000 senior notes."
In order for your outstanding notes to
be exchanged, you must properly tender
them before the exchange offer expires.
All outstanding notes that are validly
tendered and not validly withdrawn will
be exchanged. We will issue the exchange
notes promptly after the exchange offer
expires.
You may tender your outstanding notes
for exchange in whole or in part in
integral multiples of $1,000 principal
amount.
Exchange and Registration We sold the outstanding notes on January
Agreement....................... 12, 2000 to Salomon Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities
Corporation, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc.
and Banc of America Securities LLC,
which we refer to collectively as the
"initial purchasers." Simultaneously
with that sale we signed an exchange and
registration agreement with the initial
purchasers which requires us to conduct
this exchange offer.
You have the right under the exchange
and registration agreement to exchange
your outstanding notes for exchange
notes with substantially identical
terms. This exchange offer is intended
to satisfy these rights. After the
exchange offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your
outstanding notes.
For a description of the procedures for
tendering outstanding notes, see "The
Exchange Offer--Procedures for Tendering
Outstanding Notes."
Consequences of Failure to
Exchange Your Outstanding
Notes...........................
If you do not exchange your outstanding
notes for exchange notes in the exchange
offer, you will continue to be subject
to the restrictions on transfer provided
in the outstanding notes and the
indenture governing the 2000 senior
notes. In
4
<PAGE>
general, the outstanding notes may not
be offered or sold, unless registered
under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the
Securities Act and applicable state
securities laws. We do not plan to
register the outstanding notes under the
Securities Act.
Expiration Date.................. The exchange offer will expire at 5:00
p.m., New York City time, on
, 2000 unless extended by us, in which
case the term expiration date will mean
the latest date and time to which the
exchange offer is extended.
Conditions to the Exchange The exchange offer is subject to certain
Offer........................... conditions, including that the exchange
offer not violate any law or applicable
interpretation of any law by the Staff
of the Securities and Exchange
Commission. The exchange offer is not
conditioned upon any minimum principal
amount of outstanding notes being
tendered for exchange. See "The Exchange
Offer--Conditions to the Exchange
Offer."
We reserve the right, in our sole and
absolute discretion, subject to
applicable law, at any time and from
time to time:
. To delay the acceptance of the
outstanding notes
. To terminate the exchange offer if
specified conditions have not been
satisfied
. To extend the expiration date of the
exchange offer and retain all
tendered outstanding notes subject,
however, to the right of tendering
holders to withdraw their tender of
outstanding notes
. To waive any condition or otherwise
amend the terms of the exchange offer
in any respect
See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Procedures for Tendering If you wish to tender your outstanding
Outstanding Notes............... notes for exchange, you must:
. Complete and sign a Letter of
Transmittal according to the
instructions contained in the Letter
of Transmittal
. Forward the Letter of Transmittal by
mail or hand delivery, together with
any other required documents, to the
exchange agent, either with the
outstanding notes that you tender or
in compliance with the specified
procedures for guaranteed delivery of
your outstanding notes.
Some brokers, dealers, commercial banks,
trust companies and other nominees may
also effect tenders by book-entry
transfer.
5
<PAGE>
Please do not send your Letter of
Transmittal or certificates representing
your outstanding notes to us. You should
send those documents only to the
exchange agent. You should direct any
information requests or questions
regarding how to tender your outstanding
notes to the exchange agent.
Special Procedures for If your outstanding notes are registered
Beneficial Owners............... in the name of a broker, dealer,
commercial bank, trust company or other
nominee, we urge you to contact such
person promptly if you wish to tender
your outstanding notes pursuant to the
exchange offer.
Withdrawal Rights................ You may withdraw the tender of your
outstanding notes at any time before the
expiration date by delivering a written
notice of your withdrawal to the
exchange agent according to the
withdrawal procedures described under
the heading "The Exchange Offer--
Withdrawal Rights."
Resales of Exchange Notes........ We believe that you will be able to
offer for resale, resell or otherwise
transfer exchange notes issued in the
exchange offer without compliance with
the registration and prospectus delivery
provisions of the Securities Act,
provided that:
. You are acquiring the exchange notes
in the ordinary course of your
business
. You are not participating, and have
no arrangement or understanding with
any person to participate, in the
distribution of the exchange notes
. You are not an "affiliate" of Focal
within the meaning of Rule 405 under
the Securities Act
. You are not a broker-dealer that
acquired the outstanding notes
directly from us
Our belief is based on interpretations
by the Staff of the Securities and
Exchange Commission, as set forth in no-
action letters issued to third parties
unrelated to us. The Staff of the
Securities and Exchange Commission has
not considered the exchange offer in the
context of a no-action letter, and we
cannot assure you that the Staff of the
Securities and Exchange Commission would
make a similar determination with
respect to this exchange offer.
If our belief is not accurate and you
transfer an exchange note without
delivering a prospectus meeting the
requirements of the Securities Act or
without an exemption from those
requirements, you may incur liability
under the Securities Act. We do not and
will not assume or indemnify you against
liability of this type.
6
<PAGE>
Exchange Agent................... The exchange agent for the exchange
offer is Harris Trust and Savings Bank.
The address, telephone number and
facsimile number of the exchange agent
are set forth in "The Exchange Offer--
Exchange Agent" and in the Letter of
Transmittal.
Use of Proceeds.................. We will not receive any cash proceeds
from the issuance of the exchange notes
offered by this prospectus.
United States Federal Income Tax
Consequences....................
Your acceptance of the exchange offer
and the related exchange of your
outstanding notes for exchange notes
will not be a taxable exchange for
United States federal income tax
purposes. You should not recognize any
taxable gain or loss as a result of the
exchange. You will include in gross
income interest on the exchange notes in
the same manner and to the same extent
as you would on the outstanding notes.
Appraisal or Dissenters' You will have no appraisal or
Rights.......................... dissenters' rights in connection with
the exchange offer.
THE EXCHANGE NOTES
The exchange offer relates to the exchange of up to $275,000,000 principal
amount of exchange notes for up to an equal principal amount of outstanding
notes.
Exchange Notes................... $275,000,000 aggregate principal amount
of our 11 7/8% Senior Notes due 2010,
Series B.
The form and terms of the exchange notes
are substantially identical to the form
and terms of the outstanding notes,
except the exchange notes will be
registered under the Securities Act.
Therefore, the exchange notes will not
bear legends restricting their transfer
and will not be entitled to registration
under the Securities Act. The exchange
notes will evidence the same debt as the
outstanding notes, which they replace.
Both the outstanding notes and the
exchange notes are governed by the same
indenture, which we refer to as the
"January 2000 indenture."
Maturity......................... January 15, 2010
Interest Payment Dates........... July 15 and January 15, commencing July
15, 2000
Ranking.......................... The exchange notes will be general
senior unsecured obligations of Focal.
The exchange notes will rank equally
with all of our existing and future
unsecured and unsubordinated
indebtedness, including the outstanding
notes and our previously issued 1998
notes, and be senior to all of our
existing and future subordinated
indebtedness. The exchange notes will be
effectively subordinated to all of our
secured indebtedness to the extent of
the value of the assets securing that
indebtedness and structurally
subordinated to all indebtedness of our
subsidiaries.
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<PAGE>
Each broker-dealer that receives
exchange notes for its own account in
exchange for outstanding notes which
were acquired by the broker-dealer as a
result of market-making or other trading
activities must acknowledge that it will
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of these
exchange notes. A broker-dealer may use
this prospectus for an offer to sell,
resale or other transfer of exchange
notes.
Optional Redemption.............. On or after January 15, 2005, we may
redeem the exchange notes, in whole or
in part, at the redemption prices set
forth in this prospectus, plus accrued
interest to the date of redemption. In
addition, prior to January 15, 2003, we
may use the net proceeds from specific
issuances of capital stock to redeem up
to 35% of the originally issued
principal amount of 2000 senior notes at
a redemption price of 111.875% of their
principal amount, plus accrued interest
so long as at least 65% of the aggregate
principal amount of 2000 senior notes is
outstanding following that redemption.
Change of Control................ Following a "Change of Control," as
defined under the section entitled
"Description of the Exchange Notes,"
each holder of 2000 senior notes will
have the right to require us to
repurchase all or any part of the
holder's 2000 senior notes at a purchase
price equal to 101% of their principal
amount plus accrued interest to but
excluding the repurchase date. We may
not have available sufficient funds or
the financial resources necessary to
satisfy our obligations to repurchase
the 2000 senior notes and other debt
that may become repayable upon a Change
of Control. If following a Change in
Control at least 95% of the aggregate
original principal amount of the 2000
senior notes has been redeemed or
repurchased, we may redeem the balance
of the 2000 senior notes at a purchase
price of 101% of their principal amount,
plus accrued interest.
Covenants........................ The January 2000 indenture under which
the exchange notes will be issued
contains covenants, including, among
others, covenants with respect to the
following matters:
. The incurrence of additional
indebtedness or the issuance of
preferred stock by us and our
subsidiaries
. The payment of dividends on, and
repurchase or redemption of, our
capital stock and our subsidiaries'
capital stock, the repurchase or
redemption of our subordinated
obligations, and the making of other
restricted payments
. Selling our assets or stock of our
subsidiaries
. Sale and leaseback transactions
. Transactions with our affiliates
. The incurrence of additional liens
8
<PAGE>
. Our ability to restrict the ability
of our subsidiaries to pay dividends
or make payments to us
. Our ability to engage in
consolidations, mergers and transfers
of substantially all of our assets
All of these limitations and
prohibitions are subject to a number of
important qualifications and exceptions.
Prospectus Delivery Requirement.. Each broker-dealer that receives
exchange notes for its own account in
exchange for outstanding notes, where
such outstanding notes were acquired by
such broker-dealer as a result of
market-making activities or other
trading activities, must acknowledge
that it will deliver a prospectus in
connection with any resale of such
exchange notes. See "Plan of
Distribution."
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The information in the following table is based on historical financial
information included in our prior filings with the Securities and Exchange
Commission, including our annual report on Form 10-K for the fiscal year ended
December 31, 1999. The following summary financial information should be read
in connection with this historical financial information, including the notes
that accompany such financial information. This historical financial
information is considered a part of this document. See "Where You Can Find More
Information." Our audited historical financial statements as of December 31,
1999 and 1998, and for each of the three years ended December 31, 1999 were
audited by Arthur Andersen LLP, independent public accountants. You should not
assume that the results of operations below are indicative of the financial
results we can achieve in the future.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
(Dollars in thousands, except
per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues................................... $ 4,024 $ 43,532 $ 126,861
Expenses:
Customer service and network operations.. 2,155 15,284 70,910
Selling, general and administrative...... 2,887 12,210 32,486
Depreciation and amortization............ 616 6,671 23,763
Non-cash compensation expense............ 1,300 3,070 7,186
---------- ---------- ----------
Operating income (loss).................... (2,934) 6,297 (7,484)
Other income (expense), net................ 68 (9,606) (14,302)
Provision for income taxes................. -- (4,660) (600)
Accretion to redemption value of Class A
common stock.............................. (104) -- --
---------- ---------- ----------
Net loss applicable to common stockholders. $ (2,970) $ (7,969) $ (22,386)
========== ========== ==========
Basic net loss per share................... $ (0.07) $ (0.18) $ (0.45)
========== ========== ==========
Diluted net loss per share................. $ (0.07) $ (0.18) $ (0.45)
========== ========== ==========
Basic weighted average common stock
outstanding............................... 42,186,500 43,763,000 50,066,315
========== ========== ==========
Diluted weighted average common stock
outstanding............................... 42,186,500 43,763,000 50,066,315
========== ========== ==========
Other Financial Data:
EBITDA..................................... $ (1,018) $ 16,038 $ 23,465
Capital expenditures....................... 11,655 64,229 128,550
Ratio of earnings to fixed charges......... -- -- --
Summary Cash Flow Data:
Net cash provided by (used in) operating
activities................................ $ (1,634) $ 22,507 $ 18,549
Net cash used in investing activities...... (11,655) (72,189) (130,590)
Net cash provided by financing activities.. 11,756 173,466 164,142
Operating Data:
Access lines in service.................... 7,394 52,011 181,103
Minutes of use (millions).................. 282 3,568 13,362
</TABLE>
<TABLE>
<CAPTION>
As of December
31, 1999
-----------------
As
Actual Adjusted
-------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments........ $188,142 $453,886
Current assets................. 219,932 485,676
Long-term debt, including
current portion............... 253,786 526,806
Total stockholders' equity..... 142,487 142,487
</TABLE>
10
<PAGE>
You should keep the following matters in mind when you read the information
in the tables above:
. Non-cash compensation expense consists of:
--charges totaling $1.3 million for each of 1997 and 1998, and $2.5
million for 1999, which resulted from the vesting over time of
shares of common stock issued to some of our executive officers in
November 1996
--charges of $1.8 million and $0.3 million for 1998 and 1999,
respectively, which resulted from the vesting and cancellation of
shares of common stock in connection with the September 30, 1998
amendment of vesting agreements with some of our executive officers
--charges of $4.4 million for 1999, which resulted from our 1999
stock option grants to employees, directors and an outside
consultant, and common stock issued to a director
. EBITDA represents earnings before interest, income taxes, depreciation
and amortization and other non-cash charges, including non-cash
compensation expense. EBITDA is not a measurement of financial
performance under generally accepted accounting principles. EBITDA is
not intended to represent cash flow from operations and should not be
considered as an alternative to net loss applicable to common
stockholders as an indicator of our operating performance or to cash
flows as a measure of liquidity. We believe that EBITDA is widely used
by analysts, investors and other interested parties in the
telecommunications industry. EBITDA is not necessarily comparable to
similarly titled measures for other companies.
. For the seven month period ended December 31, 1996 and for the years
ended December 31, 1997, 1998, and 1999, earnings were insufficient to
cover combined fixed charges by $0.5 million, $2.9 million, $3.3 million
and $21.8 million, respectively.
. We count access lines as of the end of the period indicated and on a
one-for-one basis using DS-0 equivalents.
. The "As Adjusted" column in the balance sheet data table reflects the
sale of the outstanding notes and our receipt of net proceeds of $265.7
million, as if consummated on December 31, 1999.
11
<PAGE>
RISK FACTORS
In addition to the other information in this prospectus, you should consider
carefully the following risk factors in evaluating our company and our business
before tendering your outstanding notes for exchange notes. You should also
consider the additional information set forth in our Securities and Exchange
Commission reports on Forms 10-K and 10-Q and in the other documents
incorporated by reference in this prospectus.
Limited Operating History--We have a limited history of operations and you
therefore have limited information on which to base your investment decision.
We were incorporated in April 1996 and began providing service in our first
market, Chicago, in May 1997. Therefore, you have limited historical financial
and operating information with which to evaluate our performance. In addition,
the revenues and income potential of our new data services business is
unproven. You should consider and evaluate our prospects in light of the risks
and difficulties frequently encountered by companies in the rapidly-evolving
data services market.
Probable Future Losses--We expect negative operating cash flows and substantial
operating losses for the foreseeable future.
The development of our business requires significant capital and operational
expenditures to expand our networks, services and customer base. Many of these
expenditures must be completed before any revenue can be realized in a
particular market. These expenditures are expected to increase as we grow our
customer base in existing markets, expand into new markets and diversify our
service offerings.
Reciprocal compensation has historically represented a substantial portion
of our revenues. Reciprocal compensation payments are amounts we receive when
we complete local calls from another local exchange carrier's network. These
payments represented approximately 81%, 75%, 55% and 36% of our total revenues
for 1997, 1998, 1999 and December of 1999, respectively. Since July 1, 1999,
effective rates for reciprocal compensation have decreased substantially. As a
result, revenues from reciprocal compensation, as a percentage of total
revenues, have decreased substantially and are expected to continue to
decrease.
We expect negative operating cash flow and substantial operating losses
until these trends stabilize, our newer markets and service offerings are
established and mature, and we establish an adequate revenue base. Although we
had operating income in 1998 of $6.3 million, we had an operating loss of $7.5
million in 1999 and we expect substantial operating losses for the foreseeable
future. We may continue to sustain negative operating cash flow and operating
losses as a result of low prices, including reduced rates attributable to
reciprocal compensation, and/or higher costs, including cash interest costs.
Significant Capital Requirements--Our future growth will require significant
capital.
Our business plan requires us to:
. Expand our existing networks and services
. Acquire and develop new networks and services in additional markets
. Deploy our own fiber capacity in a majority of our markets
. Design and install Focal Internet eXchanges in each of our switching and
colocation sites
. Fund our operating losses
These activities will require significant capital for the foreseeable
future. Capital expenditures for our current business plan are estimated to be
approximately $300 million in 2000 and $305 million in 2001. We currently plan
to fund these requirements with the net proceeds of the offering of the
outstanding notes, together with our existing cash balances, cash equivalents
and short-term investments.
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<PAGE>
Our expectations of our future capital requirements and cash flows from
operations are based on current estimates. Our actual capital expenditures and
cash flows could differ significantly from these estimates. If we require
additional capital to complete our planned expansion or if customer demand
significantly differs from our current expectations, our funding needs may
increase. In addition, we may be unable to produce sufficient cash flows from
ongoing operations to fund our business plan and future growth. This would
require us to alter our business plan, including delaying or abandoning our
expansion or spending plans, which could have a material adverse effect on our
business. In addition, we may elect to pursue other attractive business
opportunities that could require additional capital investments in our
networks. If any of these events were to happen, we could be required to borrow
more money, issue additional debt or equity securities or enter into joint
ventures.
Substantial Debt--We have a substantial amount of debt that could impact our
future prospects and we may not have sufficient cash flow to service our debt.
We currently have a substantial amount of debt in relation to our
stockholders' equity. At February 29, 2000, we had total debt outstanding of
$530.1 million, representing approximately 80% of our total capitalization, and
total stockholders' equity of $128.7 million. Non-cash interest on our 2000
senior notes and on our $270 million 12.125% Senior Discount Notes due 2008
issued in February 1998, which we refer to in this prospectus as the 1998
notes, will increase this debt by an additional $2.0 million by January 15,
2010 and $79.5 million by February 15, 2003, respectively. The January 2000
indenture and the indenture related to the 1998 notes, which we refer to as the
"February 1998 indenture," also permit us to incur additional debt, which we
plan to do.
Our high level of debt could affect our future prospects adversely by:
. Impairing our ability to borrow additional money.
. Requiring us to use a substantial portion of our cash flows from
operations to pay interest or repay debt which will reduce the funds
available to us for our operations, capital expenditures and acquisition
opportunities. Of the $18.5 million net cash flows provided by our
operations in 1999, $25.3 million was charged as interest expense on our
debt. Of this amount, 82% was used for interest on the 1998 notes and
18% was used for interest on our term loan facility, capital leases and
other obligations. A portion of this interest expense, totaling $3.6
million, relating to construction in progress was capitalized during
1999. Cash generated from our operating activities may not be sufficient
to meet our debt service obligations for the foreseeable future.
. Placing us at a competitive disadvantage with companies that are less
restricted by their debt agreements. Our debt agreements limit our
ability to pursue our business strategy, borrow additional funds to grow
our business, acquire and dispose of assets, and make capital
expenditures.
. Making us more vulnerable in the event of a downturn in general economic
conditions.
We cannot assure you that we will be able to meet our debt obligations. If
we are unable to generate sufficient cash to meet our obligations or if we fail
to satisfy the requirements of our debt agreements, we will be in default. A
default would permit the debtholders to require payment before the scheduled
due date of the debt, resulting in further financial strain on us and causing
additional defaults under our other indebtedness.
Our ability to meet our debt and other obligations and to reduce our total
debt depends on our future operating performance and on economic, financial,
competitive, regulatory and other factors. In addition, we may need to incur
additional indebtedness in the future. Many of these factors are beyond our
control. Although we believe that our existing current assets combined with
working capital from our operations, capital lease financings and proceeds of
future equity or debt financings will be adequate to meet our existing
financial obligations, we cannot assure you that our business will generate
sufficient cash flow or that future financings will be available to provide
sufficient proceeds to meet these obligations.
13
<PAGE>
In order to repay our debt and fund our capital expenditures, we must
successfully implement our business strategy. If we are unable to do so, we may
have to reduce or delay our planned capital expenditures, sell assets, sell
additional equity or debt securities or refinance or restructure our debt. Any
delay in our planned capital expenditures could materially and adversely affect
our future revenue prospects. Any sale of assets to raise money to meet our
financial obligations could also occur on unfavorable terms.
Subordination--The exchange notes are effectively subordinated to all of our
secured indebtedness and the liabilities of our subsidiaries.
The exchange notes are general senior unsecured obligations, ranking equally
with all of our existing and future unsecured and unsubordinated indebtedness,
including the outstanding notes and the 1998 notes, and senior to all of our
existing and future subordinated indebtedness. The exchange notes are
effectively subordinated to all of our secured indebtedness to the extent of
the value of the assets securing such indebtedness, and structurally
subordinated to all indebtedness of our subsidiaries. At December 31, 1999, we
had approximately $44.2 million of secured indebtedness outstanding to which
holders of exchange notes would have been effectively subordinated in right of
payment.
Focal Communications Corporation is a holding company that conducts
substantially all of our revenue producing operations through our operating
subsidiaries. Claims of holders of the exchange notes are effectively
subordinated to the indebtedness and other liabilities and commitments of our
subsidiaries, and claims by Focal as an equity holder in our non-wholly owned
subsidiaries and minority interests will be limited to the extent of our direct
or indirect investment in such entities. The ability of creditors, including
the holders of the exchange notes, to participate in the assets of any of our
subsidiaries upon any liquidation or bankruptcy of any such entity will be
subject to the prior claims of that entity's creditors, including trade
creditors, and any prior or equal claim of any other equity holder. In
addition, the ability of our creditors, including the holders of exchange
notes, to participate in distributions of assets of our subsidiaries will be
limited to the extent that the outstanding shares of any of our subsidiaries
are either pledged to secure other creditors or are not owned by Focal. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
Subsidiary Cash Flows--We depend upon the cash flows of our subsidiaries to
repay the exchange notes.
The exchange notes are obligations solely of Focal. Our ability to pay
interest on the exchange notes or to repay the exchange notes at maturity or
otherwise is dependent upon the cash flows of our operating subsidiaries and
the payment of funds by those subsidiaries to us in the form of repayment of
loans, dividends, management fees or otherwise. Our operating subsidiaries have
no obligation, contingent or other, to pay amounts pursuant to the exchange
notes or to make funds available therefor, whether in the form of loans,
dividends or other distributions. In addition, to the extent we make minority
investments and investments in joint ventures as a part of our strategy, we may
not have access to the cash flows of such entities. Accordingly, our ability to
repay the exchange notes at maturity or otherwise may be dependent upon our
ability to refinance the exchange notes, which will in turn depend, in large
part, upon factors beyond our control. While at the present time there are no
material agreements in place which prohibit or restrict our subsidiaries' right
or ability to make such payments, future agreements may contain covenants
prohibiting them from distributing or advancing funds to Focal under certain
circumstances, including to fund interest payments in respect of the exchange
notes.
Financing a Change of Control Offer--We may not have the ability to raise the
funds necessary to finance the change in control offers required by the January
2000 indenture and the February 1998 indenture.
Upon the occurrence of specific kinds of change in control events, each
holder of 2000 senior notes and 1998 notes will have the right to require us to
repurchase all or a portion of the holder's notes. If this occurs, we may not
have sufficient funds to pay the repurchase price for all notes tendered by the
holders. In addition, our repurchase of notes as a result of these events may
be prohibited or limited by, or create a default under, the agreements related
to our borrowings, including senior indebtedness.
14
<PAGE>
Restrictive Covenants--We are subject to restrictive covenants that limit our
flexibility.
Our equipment term loan facility and other debt instruments contain
customary covenants limiting our flexibility, including covenants limiting our
ability to incur additional debt, make liens, make investments, consolidate,
merge or acquire other businesses, sell assets, pay dividends and other
distributions, make capital expenditures and enter into transactions with
affiliates. These covenants may make it difficult for us to pursue our business
strategies. Failure to comply with the terms of the equipment term loan
facility would entitle the secured lenders to foreclose on the assets acquired
with the proceeds of these loans, principally telecommunications equipment and
related software licenses. The secured lenders would be repaid from the
proceeds of the liquidation of these assets before the assets would be
available for distribution to other creditors and, lastly, to the holders of
Focal's capital stock. Our ability to satisfy the financial and other
restrictive covenants may be affected by events beyond our control.
Network Expansion--Difficulties in expanding our networks could increase our
estimated costs and delay scheduled completion.
The expansion of our existing networks and the construction of networks in
new markets is a significant undertaking. This will require that we install and
operate additional facilities, switches and related equipment, design and
install Focal Internet eXchanges in each of our switch and colocation sites and
develop, introduce and market new products and services, including data
services. In addition, the deployment of additional data services, such as
high-speed LAN and Internet access and peering, will require modifications to
our network architecture. The development and expansion of some of our data
services offerings will also require us to obtain and install our equipment in
the ILECs' central office colocation space. Administrative, technical,
operational, regulatory and other problems that could arise may be more
difficult to address and solve due to the scope and complexity of our planned
expansion. We are also dependent on timely performance by third-party suppliers
and contractors, including suppliers of network equipment. Many of these
factors and problems are beyond our control. As a result, our network build-out
may not be completed as planned or for the costs and in the time frame that we
currently estimate. We may be materially adversely affected as a result of any
significant increase in the estimated cost of the network build-out or any
significant delay in its anticipated completion.
Management of Growth--An inability to effectively manage our planned rapid
growth could adversely affect our operations.
Our business plan contemplates rapid expansion for the foreseeable future.
This growth will increase our operating complexity and require that, among
other things, we:
. Accurately assess our markets
. Expand our employee base with highly-skilled personnel
. Develop and institute adequate financial and management controls,
reporting systems and procedures
. Control expenses related to our business plan
. Integrate any acquired operations and joint ventures
. Obtain and maintain necessary regulatory approvals
. Lease additional real estate
Our inability to manage growth effectively would seriously hinder our plans
to deploy our new data services offerings. The difficulties associated with
deploying additional data services and installing and implementing equipment,
systems, procedures and controls for these services may place an additional
burden on our management and our internal resources. Our plans to rapidly
deploy these services could place a significant strain on our management's time
and resources. A failure to satisfy any of these requirements or manage our
growth effectively could have a material adverse effect on us.
15
<PAGE>
New Data Services--Our data services business is new and may be unsuccessful.
We have only recently created our new data services business. We believe
that offering a broader portfolio of services is the best method for gaining
market share among our corporate, ISP and VAR customers and increasing customer
satisfaction. In order to implement our data services business plan, we will be
required to make operating and capital investments and must address operating
complexities associated with providing these new services. These operating
complexities are in addition to those we otherwise face in operating and
expanding our existing business and may include:
. Designing and installing an Internet services infrastructure and network
. Hiring, training and managing a dedicated team of employees to run this
business
. Obtaining Internet transit services from backbone providers
. Selecting new equipment and software and integrating these into our
existing networks
. Developing billing, back-office and information systems to accommodate
data services
In providing our new data services, we will also depend upon additional vendors
for assistance in the planning and deployment of our service offerings as well
as ongoing training and support. We may not be successful with respect to these
matters. If we are not successful with respect to these matters, there may be a
material adverse effect on our business and the price of our common stock.
We face significant competition in the market for data services. Our
competitors may mount a significant competitive response to new entrants in
their market, such as Focal. We expect to face intense competitive product and
pricing pressures in our markets.
In addition, we face the risk that the market for high performance data
services might fail to develop, or develop more slowly than expected, or that
our data service offerings may not achieve widespread market acceptance. This
market has only recently begun to develop, is evolving rapidly and likely will
be characterized by an increasing number of entrants. There is significant
uncertainty as to whether this market ultimately will prove to be viable or, if
it becomes viable, that it will grow. Furthermore, we may be unable to market
and sell our services successfully and cost-effectively to a sufficiently large
number of customers.
Network Failure--A failure in our network operations center, switch facilities
or computer systems could cause a significant disruption in the provision of
our services.
Although we have taken precautions against systems failure, interruptions
could result from natural disasters as well as power loss, telecommunications
failure and similar events. Our business depends on the efficient and
uninterrupted operation of our network operations center, our switch facilities
and our computer and communications hardware systems and infrastructure. We
currently have one network operations center, and we have 14 switching
facilities that serve our 18 markets. If we experience a problem at our network
operations center or switching facilities, we may be unable to provide services
to our customers, provide customer service and support, or monitor our network
infrastructure and switch facilities, any of which would seriously harm our
business.
Network Vulnerability--Our network and software are vulnerable to security
breaches and similar threats that could result in our liability for damages and
harm our reputation.
Despite the implementation of network security measures, the core of our
network infrastructure is vulnerable to computer viruses, break-ins, network
attacks and similar disruptive problems. If any of these events occurred, we
could be liable for damages and our reputation could suffer, thereby deterring
potential customers from working with us. Security problems caused by third
parties could lead to interruptions and delays or to the cessation of service
to our customers. Furthermore, inappropriate use of the network by third
parties could also jeopardize the security of confidential information stored
in our computer systems and in those of our customers.
16
<PAGE>
Although we intend to continue to implement industry-accepted security
measures, some of these industry-standard measures have been circumvented by
third parties, although not in our system. The measures we implement could be
circumvented. The costs and resources required to eliminate computer viruses
and alleviate other security problems could result in interruptions, delays or
cessation of service to our customers, which could hurt our business.
Internet-Related Reciprocal Compensation--Our entitlement to reciprocal
compensation for Internet traffic is subject to uncertainties that could
adversely affect us.
Several of the ILECs continue to challenge, through legal proceedings, the
CLECs' entitlement to reciprocal compensation payments under existing
interconnection agreements for calls made to ISPs on the grounds that these
calls should be considered interstate in nature, and that interstate calls are
not subject to reciprocal compensation. Several of these legal challenges seek
a refund of reciprocal compensation previously paid by the ILECs. Some ILECs
have refused to pay or have indicated they will escrow reciprocal compensation
for inbound ISP traffic.
In addition, other ILECs have claimed that reciprocal compensation should be
paid at rates lower than those previously used to calculate amounts owed to the
CLECs. On July 1, 1999, we began to exclude certain reciprocal compensation
revenues generated from our operations in states where recent regulatory
developments have impacted the potential level of collection of reciprocal
compensation. There is also a risk that courts and regulatory authorities that
previously ordered payment for certain reciprocal compensation, for which we
have established no reserves, will revisit this issue and revise their prior
decisions, including possibly permitting the ILECs to recoup our previously
recorded revenues from reciprocal compensation.
A number of states have initiated proceedings to determine whether it is
appropriate to establish separate reciprocal compensation rates for Internet-
bound calls. A judicial or regulatory determination that we are not entitled to
the reciprocal compensation we have recognized, an order that we refund
reciprocal compensation paid to date or a decision that reciprocal compensation
for Internet-bound calls should be lower could have a material adverse effect
on us and our results of operations.
Information Support Systems--Any failure to develop and enhance effective
information support systems could have a material adverse effect on us.
Our business plan depends on our ability to develop and enhance
sophisticated information support systems. This is a complicated undertaking
requiring significant resources and expertise, and support from third-party
vendors. Since our business plan provides for growth in the volume and types of
services we offer, we need to develop and enhance these information support
systems on a schedule sufficient to meet our proposed service roll-out dates.
In addition, we will require these information support systems to expand and
adapt with our rapid growth. The failure to develop and timely enhance
effective information support systems could have a material adverse effect on
us and our ability to implement our growth strategy.
Regulation--We are subject to significant regulation that could change in a
manner adverse to us.
Communications services are subject to significant regulation at the
federal, state and local levels. The following factors may have a material
adverse effect on us:
. Delays in receiving required regulatory approvals or onerous conditions
imposed on these approvals
. Difficulties completing interconnection agreements with ILECs
. The enactment of new and adverse legislation or regulatory requirements
or changes in the interpretation of existing legislation and/or changes
in regulatory requirements
Recent federal legislation governing the U.S. telecommunications industry
remains subject to judicial review and additional FCC rule-making. As a result,
we cannot predict the legislation's effect on our future operations or results.
Many regulatory actions regarding important items that impact us are underway
or are
17
<PAGE>
being contemplated by federal and state authorities. Changes in current or
future regulations adopted by federal, state or local regulators, or other
legislative or judicial initiatives relating to the telecommunications
industry, could have a material adverse effect on us.
Unlike some of our competitors, particularly the ILECs, we are not currently
subject to some of the burdensome regulations imposed by federal legislation.
Our ability to compete in the local exchange market will depend upon a
continued favorable, pro-competitive regulatory environment, and could be
adversely affected by new regulations or legislation affording greater
flexibility and regulatory relief to our competitors.
In August 1998, the FCC requested comments on new rules that would allow
ILECs to provide their own DSL services free from ILEC regulation through a
separate affiliate. The provision of DSL services by an affiliate of an ILEC
not subject to ILEC regulation could have a material adverse effect on us.
Congress has introduced bills that would grant Regional Bell Operating
Companies, or RBOCs, permission to provide data services in areas where they
are currently restricted from doing so. Although we cannot predict the outcome
of any proposed or pending legislation, the ability of RBOCs to provide data
services on a broader basis could have a material adverse effect on us. In
addition, the FCC recently acted to enable Internet service providers to buy
DSL services in bulk from ILECs, which could result in additional competition
for Internet service provider business.
We are currently required to publicly file with governmental authorities our
tariffs describing the prices we charge our customers and the terms and
conditions for some intrastate, interstate and international services.
Challenges to these tariffs by regulators or third parties could cause us to
incur substantial legal and administrative expenses.
Federal and state regulatory agencies also have the right to impose
sanctions and forfeitures, mandate refunds or impose other penalties for
regulatory non-compliance and may require prior approval of transfers of
control and the issuance of debt and equity.
Some interexchange carriers, including AT&T and Sprint, have challenged the
switched access rates of Focal and other CLECs and have withheld some or all
payments for the switched access services that they continue to receive.
Although no formal complaints have been filed against us, AT&T and other
interexchange carriers have asserted that our charges for switched access
services are higher than those of the ILEC serving the same territory and are
therefore unjust and unreasonable. AT&T has refused to pay us any originating
access charges at our tariffed rate, and Sprint is paying us less than our
tariffed rates.
There is currently only a small body of laws and regulations applicable to
access to or commerce on the Internet. As the significance of the Internet
expands, federal, state and local governments may adopt rules and regulations
that affect the Internet. We cannot predict the nature of these regulations or
their impact on our business. The adoption of future laws or regulations or the
application of existing laws and regulation could slow the growth of the
Internet, decrease demand for our data services, impose taxes, otherwise
increase the cost of doing business on the Internet or otherwise adversely
affect us or our customers.
Reliance on Transport Facilities and Services of Third Parties--Our reliance on
leased transport facilities and services of third parties could materially and
adversely affect our business.
Our network design strategy contemplates us owning and operating our own
switches but initially leasing a substantial portion of our transport
facilities, or network lines, from third parties. During 1999, we used leased
facilities for 100% of our transport requirements. Although we have begun to
selectively acquire and activate our own fiber transport capacity in some of
our markets, we expect, for the foreseeable future, to continue to lease a
substantial portion of our transport capacity from other carriers, some of
which are competitors in our service territories.
We are also dependent on third-party suppliers for substantial amounts of
fiber, conduit, computers, software, switches, routers and related components
that we use to expand and upgrade our network. If any of
18
<PAGE>
these relationships is terminated or a supplier fails to provide reliable
services or equipment, and we are unable to reach suitable alternative
arrangements quickly or on favorable terms, we may experience significant
delays and additional costs. If that happens, it could have a material adverse
effect on us.
We currently lease a substantial portion of our transport facilities from
one carrier. Although we believe that adequate alternative sources of transport
facilities exist, if this carrier's facilities become unavailable, our business
could be disrupted. In addition, although we believe we have protection against
unexpected increases in the costs of our leased transport facilities, an
unexpected material increase in these costs could have a material adverse
effect on our results.
We have entered into multi-year agreements to lease fiber transport capacity
in several markets and expect to enter into additional agreements for Internet
transit services from Internet backbone providers. Our current agreements
require us to make minimum, fixed installment payments, whether or not we need
transport capacity or this capacity becomes otherwise available at lower
prices. When we negotiate these agreements, we estimate future supply and
demand for transmission capacity, as well as calling patterns and traffic
levels of our customers. We also set the price terms of these agreements on the
basis of the supply of, and the then prevailing prices for, transport capacity
which are expected to fluctuate over time. If we do not meet our minimum volume
commitments, we may be obligated to pay underutilization charges. If we
underestimate our need for transmission capacity, we may be required to obtain
capacity through other, possibly more expensive, means. If we overestimated our
need for transmission capacity or prevailing prices for transport capacity or
Internet transit services fall, it could have a material adverse effect on our
results of operations.
In order to offer our new data services, we will rely on multiple Tier-1
Internet backbone providers. To provide optimal routing to our customers
through our facilities, we must contract for Internet transit services from
several Internet backbone providers. We may be unable to establish
relationships with, or obtain necessary services from, backbone providers.
Furthermore, we may be unable to establish and maintain relationships with
other backbone providers that may emerge or that are significant in geographic
areas in which our facilities are or will be located. We cannot assure you that
these Internet backbone providers will provide service to us on a cost-
effective basis, if at all, or that these providers will provide us with the
necessary capacity to adequately meet customer demand or avoid service delays
or interruptions.
Relationship with ILECs--Our reliance on ILEC interconnection agreements and
changes to our agreements with the ILECs could have a material adverse effect
on us.
In addition to agreements with transport and Internet transit service
providers, we are dependent upon our agreements with the ILECs operating in our
existing and targeted markets. These agreements, called interconnection
agreements, specify how we connect our networks with the network of the ILEC in
each of our markets. Federal legislation regulating the telecommunications
industry has enhanced competition in the local service market by requiring the
ILECs to provide access to their networks through interconnection agreements
and to offer unbundled elements of their network and retail services at
prescribed rates to other telecommunications carriers. A failure to negotiate
required interconnection agreements or renew existing interconnection
agreements on favorable terms could have a material adverse effect on our
business.
Our interconnection agreements also require the ILECs to provide sufficient
transmission capacity to keep blocked calls between our networks within
industry limits. Accordingly, we are partially dependent on the ILECs in our
efforts to provide our customers with superior service and avoid blocked calls.
The failure by the ILECs to comply with their obligations under our
interconnection agreements could result in customer dissatisfaction and the
loss of existing and potential customers. In addition, the rates charged to us
under the interconnection agreements may be too high to permit us to offer
usage rates that are low enough to attract a sufficient number of customers and
permit us to operate profitably.
The pace at which we are able to add new customers and services could be
adversely affected if the ILECs do not provide us with necessary network
elements, colocation space, intercompany network connections and the means to
share information about customer accounts, service orders and repairs on a
timely basis. Because
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the rules governing colocation remain subject to additional FCC rulemaking,
disputes concerning the types of equipment we may be allowed to colocate could
cause delays and added expense. In addition, our ability to provide some high-
speed data services will be dependent on our obtaining space from the various
ILECs for physical colocation of our equipment in the ILECs' central offices
and elsewhere. In many instances the ILECs do not timely or fully comply with
these requirements. Also, the rules governing which elements the ILECs must
provide and the cost methodology for providing these elements are currently
under FCC and judicial review.
Interconnection agreements are subject to review and approval by various
federal and state regulators. In addition, parties to the agreements may seek
to have the agreements modified based upon the outcome of regulatory or
judicial rulings occurring after the dates of the agreements. The outcome of
these rulings, or any modified agreements, could have a material adverse effect
on us. In addition, certain aspects of interconnection agreements, including
the price and economic terms of these agreements, have been subject to
litigation and regulatory action.
Competition--We compete in the communications services industry with
participants that have greater resources, more established networks and a
broader customer base than we do.
Portions of the communications services industry are highly competitive.
Many of our existing and potential competitors, including the ILECs and some
CLECs, have financial, personnel, marketing and other resources significantly
greater than ours. Many of these competitors have the added competitive
advantage of an established network and an existing customer base.
Our principal competitor in each of our markets is the ILEC. Although recent
federal legislation and rule-making have afforded us increased opportunities,
they also provide the ILECs with some advantages which could adversely affect
our business. In addition, current competitive advantages afforded to CLECs may
also be adversely affected by changes in existing regulation of
telecommunications services. These changes may include permitting ILECs to:
. Reduce their prices because of fewer regulatory restrictions
. Offer selective discount pricing to their customers
. Provide advanced data services through less-regulated separate
subsidiaries that may be used for voice traffic
. Eliminate the mandatory resale of advanced services
. Provide in-region long distance service
. Limit the network elements required to be provided on an unbundled basis
In addition, significant new competitors in the local exchange market could
arise as a result of:
. Consolidation and strategic alliances in the industry
. Foreign carriers being allowed to compete in the U.S. market
. Further technological advances
. Further deregulation and other regulatory initiatives
Other competitors and potential market entrants include long distance
companies, cable television companies, value added resellers, electric
utilities, microwave carriers, wireless telephone system operators, data
service companies and operators of private networks.
In addition, the data services market, which we are entering, is extremely
competitive, and there are few barriers to entry. We expect intense competition
in the future, and we may not have the financial resources, technical
expertise, sales and marketing resources or support capabilities to compete
successfully in this market.
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Some of our existing competitors have greater market presence, engineering and
marketing capabilities, and financial, technological and personnel resources
than we do. As a result, our competitors may have several advantages over us as
we seek to develop a presence in this new market.
Our competitors in the data services segment of the communications services
industry currently include RBOCs that offer Internet access, and global,
national and regional Internet service providers, some of which we expect will
provide us with connectivity services. We also believe that new competitors
will enter the data services market. These new competitors could include
computer hardware, software, media and other technology and telecommunications
companies. A number of communications companies and online service providers
have announced plans to offer or expand their network services. Further, the
ability of some of these potential competitors to bundle other services and
products with their network services could place us at a competitive
disadvantage.
Technological Changes--Our business could be adversely affected if we do not
keep pace with rapid technological changes.
The communications services industry is subject to rapid and significant
changes in technology. We cannot predict the effect of technological changes on
our business. The introduction of new products or technologies may reduce the
cost or increase the supply of services similar to those that we plan to
provide. As a result, our most significant competitors in the future may be new
entrants to the communications services industry. These new entrants may not be
burdened by an installed base of outdated equipment. Technological changes and
the resulting competition could have a material adverse effect on us.
The data services segment of our industry is also characterized by rapidly-
changing technology, industry standards, customer needs and competition, as
well as by frequent new product and service introductions. We may be unable to
successfully use or develop applicable technologies, adapt our network
infrastructure to changing customer requirements and industry standards,
introduce new services or enhance our existing services on a timely basis.
Our ability to compete successfully is dependent, in part, upon the
continued compatibility and interoperability of our services with products and
architectures offered by various other industry participants. If our services
do not continue to be compatible and interoperable with products and
architectures offered by other industry members, our ability to compete could
be impaired. Although we intend to support emerging standards in the market for
communications services, we cannot assure you that we will be able to conform
to new standards in a timely fashion, if at all, or maintain a competitive
position in the market.
Vulnerability to Communications Industry Developments--A slowing of
communications industry growth, including Internet use, could adversely affect
us.
We currently derive a majority of our revenues from selling switched data
services to large, communications-intensive users in major cities. Our business
plan and growth has been based in large part on increasing market demand for
sophisticated communications services. These services include dial-up Internet
access, managed high-speed Internet access, colocation services, private
peering services, DSL service and nationwide networking. Our customers use
these services predominately to download and transmit large amounts of
information over the public telephone network.
The growth in data that is transmitted over the public network, or data
traffic, is driven by a number of factors, including the rapidly increasing
number of computer applications that can be managed, accessed or distributed
over the Internet, the growing number of personal computers linked to the
Internet, and improvements in equipment that manage data traffic over the
public networks. Revenues derived from providing data services may also
fluctuate because of other factors, including the continued growth of the
information technology, software and computer industries, and corporate cash
flows and spending patterns. There can be no assurance that current or future
economic or industry trends will not adversely affect our business.
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Critical issues concerning the commercial use of the Internet remain
unresolved and may hinder or slow the growth of Internet use and the demand
for data services. Despite growing interest in varied commercial uses of the
Internet, many businesses have been deterred from purchasing sophisticated
data services for a number of reasons, including systemic problems that
continue to plague the exchange of data traffic over the public networks.
These problems include capacity restraints, transmission errors, service
problems and the inability of the public networks to transmit rapidly
increasing volumes of data over the Internet.
Uncertainties associated with the growth in the use of the public networks
to transmit data traffic may, if left unresolved, impede further development
of this market. The inability of the telecommunications industry to resolve
systemic network and infrastructure problems, or the failure of the market for
business-related Internet solutions to further develop, could have a material
adverse effect on us.
Quarterly Operating Results--Our quarterly operating results may vary
significantly.
We anticipate that our operating results could vary greatly from quarter to
quarter due to factors such as:
. The timing of significant expenses associated with the expansion and
development of our networks and services
. The variability of the level of revenues generated through sales of our
services
Any significant unanticipated shortfall of revenues or increase in expenses
could negatively impact our expected quarterly results of operations.
Furthermore, a failure on our part to estimate accurately the timing or
magnitude of particular anticipated revenues or expenses could also negatively
impact our quarterly results of operations. This type of variability could
have a material adverse effect on us.
Because our quarterly results of operations have fluctuated in the past and
will continue to fluctuate in the future, you should not rely on the results
of any past quarter or quarters as an indication of future performance in our
business operations or stock price.
Reliance on Key Personnel--We may be unable to hire and retain sufficient
qualified personnel; the loss of some of our key executive officers could
materially adversely affect us.
We believe that our future success will depend in large part on our ability
to attract and retain highly skilled, knowledgeable, sophisticated and
qualified managerial, professional and technical personnel. To implement our
business plan, including our offering of expanded data services, and manage
our planned growth successfully, we will need to add a substantial number of
additional employees. We have experienced significant competition in
attracting and retaining personnel who possess the skills that we are seeking.
As a result of this competition, we may experience a shortage of qualified
personnel.
Our business is managed by a relatively small number of senior management
and operating personnel. Losing some members of the senior management team or
key operating personnel could have a material adverse effect on us. We may be
unable to retain our senior management or other key employees, or retain other
skilled personnel in the future.
Limited Number of Stockholders--Three stockholders control us and their
interests may be different from the interests of holders of exchange notes.
Madison Dearborn Capital Partners, L.P., Frontenac VI, L.P. and Battery
Ventures III, L.P., our three principal institutional investors, control
approximately 60.4% of our total voting power (based on the number of shares
outstanding as of February 29, 2000). As a result, these institutional
investors and our management have the ability to control our future operations
and strategy. Conflicts of interest between these institutional investors and
holders of the exchange notes may arise with respect to sales of shares of
common stock owned by these institutional investors or other matters. For
example, sales of shares by these institutional investors could result in a
"Change of Control" under the January 2000 indenture or the February 1998
indenture, which
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would require us to offer to repurchase the 2000 senior notes, including the
exchange notes, and the 1998 notes. In addition, if we encounter financial
difficulties or are unable to pay our debts as they mature, the interests of
our stockholders may conflict with those of the holders of the exchange notes.
These investors may have an interest in pursuing acquisitions, divestitures,
financings or other transactions that, in their judgment could enhance their
equity investment in Focal, even though transactions of this type might involve
increased risk to the holders of the exchange notes.
Potential Conflicts of Interest--Our institutional investors invest in other
telecommunications companies and conflicts of interest may arise from these
investments.
Madison Dearborn, Frontenac and Battery Ventures or their affiliates
currently have significant investments in communications services companies
other than Focal. These institutional investors may in the future invest in
other entities that compete with us. In addition, four of our directors, each
of whom is a principal of one of these institutional investors, serve as
directors of other public communications services companies. As a result, these
four directors may be subject to conflicts of interest during their tenure as
directors of Focal. Because of these potential conflicts, these four directors
may be required to periodically disclose financial or business opportunities to
us and to the other companies to which they owe fiduciary duties. Conflict of
interest issues are reviewed by the audit committee of our board of directors.
A majority of the members of the audit committee currently are independent
directors.
Franchises and Rights-of-Way--Our ability to develop networks will be adversely
affected if we cannot obtain necessary permits and rights-of-way.
We plan to selectively develop our own fiber transport facilities where it
makes economic sense to do so. To do this, we may need to obtain local rights
to utilize underground conduit and pole space, franchises, permits and other
rights-of-way from various public and private entities. The process of
obtaining these franchises, permits and rights-of-way is time consuming and
burdensome. The failure to enter into and maintain these arrangements for a
particular network on acceptable terms and on a timely basis may adversely
affect our ability to develop that network. In addition, the cancellation or
non-renewal of the rights, franchises or permits we do obtain could have a
material adverse affect on us.
Investment Company Act--We may be required to register as an investment
company, which would adversely affect us.
We now have and after the offering will continue to have substantial cash
balances and short-term investments. As a result, we may be considered an
"investment company" under the Investment Company Act of 1940. The Investment
Company Act requires companies that are engaged primarily in the business of
investing, reinvesting, owning, holding or trading in securities, or that fail
numerical tests regarding composition of assets and sources of income and that
are not primarily engaged in a business other than investing, reinvesting,
owning, holding or trading in securities, to register as "investment
companies." Various substantive restrictions are imposed on these "investment
companies" by the Investment Company Act.
Because we are primarily engaged in a business other than investing,
reinvesting, owning, holding or trading securities, we do not believe that we
are an investment company within the meaning of the Investment Company Act. If
we are required to register as an investment company under the Investment
Company Act, we would become subject to substantial regulation with respect to
our capital structure, management, operations, transactions with "affiliated
persons," as defined in the Investment Company Act, and other matters. To avoid
having to register as an investment company, we may have to hold a portion of
our liquid assets as cash or government securities instead of as investment
securities. Having to register as an investment company would have a material
adverse effect on us.
Transfer Restrictions--If you participate in the exchange offer for the purpose
of participating in a distribution of the exchange notes or are an "affiliate"
of Focal, you may still be subject to various transfer restrictions.
If you exchange your outstanding notes in the exchange offer for the purpose
of participating in a distribution of the exchange notes, you may be deemed an
underwriter under the Securities Act. If so, you will
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be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the
exchange notes.
"Affiliates" of Focal may sell exchange notes only in compliance with the
provisions of Rule 144 under the Securities Act or another available exemption.
The broker-dealers described above must deliver a prospectus in connection with
any resale of exchange notes.
No Established Trading Market--There is no established trading market for the
exchange notes, which could make it more difficult for you to sell exchange
notes and could adversely affect their price.
The exchange notes constitute a new issue of securities for which no
established trading market exists. Consequently, it may be more difficult for
you to sell exchange notes. If the exchange notes are traded after their
initial issuance, they may trade at a discount, depending upon:
. Our financial condition
. Prevailing interest rates
. The market for similar securities
. Other factors beyond our control, including general economic conditions
We do not intend to apply for a listing or quotation of the exchange notes
on any securities exchange. The initial purchasers have informed us that they
intend to make a market in the exchange notes. However, the initial purchasers
have no obligation to do so, and may discontinue any market-making activities
at any time without notice. We cannot assure you of the development or
liquidity of any trading market for the exchange notes following the exchange
offer.
Diminished Liquidity--Holders of outstanding notes who fail to tender may
experience diminished liquidity after the exchange offer.
We have not registered nor do we intend to register the outstanding notes
under the Securities Act. Consequently, outstanding notes that remain
outstanding after consummation of the exchange offer will remain subject to
transfer restrictions under applicable securities laws. Unexchanged outstanding
notes will continue to bear a legend reflecting these restrictions on transfer.
Furthermore, we have not conditioned the exchange offer on receipt of any
minimum or maximum principal amount of outstanding notes. As outstanding notes
are tendered and accepted in the exchange offer, the principal amount of
remaining outstanding notes will decrease. This decrease will reduce the
liquidity of the trading market for the outstanding notes which will make it
more difficult for you to sell them. We cannot assure you of the liquidity, or
even the continuation, of the trading market for the outstanding notes
following the exchange offer.
Compliance With Exchange Offer Procedures--Holders of outstanding notes must
ensure compliance with exchange offer procedures.
You are responsible for complying with all exchange offer procedures. You
will receive exchange notes in exchange for your outstanding notes only if,
before the expiration date, you deliver all of the following to the exchange
agent:
. certificates for the outstanding notes or a book-entry confirmation of a
book-entry transfer of the outstanding notes into the exchange agent's
account at the Depository Trust Company, or DTC
. the Letter of Transmittal, properly completed and duly executed by you,
together with any required signature guarantees
. any other documents required by the Letter of Transmittal
You should allow sufficient time to ensure that the exchange agent receives
all required documents before the exchange offer expires. Neither we nor the
exchange agent has any duty to inform you of defects or irregularities with
respect to the tender of your outstanding notes for exchange.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
In connection with the sale of the outstanding notes, we entered into the
exchange and registration agreement with the initial purchasers in which we
agreed to file and to use our reasonable best efforts to cause to become
effective with the Securities and Exchange Commission a registration statement
with respect to the exchange of the outstanding notes for exchange notes with
terms identical in all material respects to the terms of the outstanding notes.
A copy of the exchange and registration agreement has been filed as an exhibit
to the registration statement of which this prospectus is a part. We are making
the exchange offer to satisfy our contractual obligations under the exchange
and registration agreement.
If you tender your outstanding notes in exchange for exchange notes, you
will represent to us that:
. Any exchange notes you receive are being acquired in the ordinary course
of your business
. You have no arrangement or understanding with any person to participate
in a distribution, within the meaning of the Securities Act, of exchange
notes
. You are not an "affiliate" of Focal within the meaning of Rule 405 under
the Securities Act or, if you are an affiliate, you will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable
. You have full power and authority to tender, exchange, sell, assign and
transfer the tendered outstanding notes
. Focal will acquire good, marketable and unencumbered title to the
outstanding notes you tender, free and clear of all liens, restrictions,
charges and encumbrances
. The outstanding notes you tender for exchange are not subject to any
adverse claims or proxies
You also will warrant and agree that you will, upon request, execute and
deliver any additional documents deemed by us or the exchange agent to be
necessary or desirable to complete the exchange, sale, assignment, and transfer
of the outstanding notes you tender in the exchange offer. Each broker-dealer
that receives exchange notes for its own account in exchange for outstanding
notes in the exchange offer, where the outstanding notes were acquired by the
broker-dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the exchange notes. See "Plan of Distribution."
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of that jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
exchange offer means any person in whose name the outstanding notes are
registered on our books or any other person who has obtained a properly
completed bond power from the registered holder, or any participant in DTC
whose name appears on a security position listing as a holder of outstanding
notes, which, for purposes of the exchange offer, include beneficial interests
in the outstanding notes held by direct or indirect participants in DTC and
outstanding notes held in definitive form.
Terms of the Exchange Offer
We hereby offer, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying Letter of Transmittal, to exchange
$1,000 principal amount of exchange notes for each $1,000 principal amount of
outstanding notes properly tendered prior to the expiration date and not
properly withdrawn according to the procedures described below. Holders may
tender their outstanding notes in whole or in part in integral multiples of
$1,000 principal amount.
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The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that:
. The exchange notes have been registered under the Securities Act and
therefore will not be subject to some restrictions on transfer
applicable to the outstanding notes
. Holders of the exchange notes will not be entitled to the rights of
holders of the outstanding notes under the exchange and registration
agreement
The exchange notes evidence the same indebtedness as the outstanding notes,
which they replace, and will be issued pursuant to, and entitled to the
benefits of, the January 2000 indenture.
The exchange offer is not conditioned upon any minimum principal amount of
outstanding notes being tendered for exchange. We reserve the right in our sole
discretion to purchase or make offers for any outstanding notes that remain
outstanding after the expiration date or, as set forth under "--Conditions to
the Exchange Offer," to terminate the exchange offer and, to the extent
permitted by applicable law, purchase outstanding notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers could differ from the terms of the exchange offer. As of the date of
this prospectus, $275 million principal amount of outstanding notes is
outstanding.
Holders of outstanding notes do not have any appraisal or dissenters' rights
in connection with the exchange offer. Outstanding notes which are not tendered
for, or are tendered but not accepted in connection with, the exchange offer
will remain outstanding. For a description of the consequences of not tendering
outstanding notes for exchange, see "Risk Factors--Diminished Liquidity."
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of other events set forth in this prospectus
or otherwise, certificates for the unaccepted outstanding notes will be
returned, without expense, to the tendering holder of those notes promptly
after the expiration date.
Holders who tender outstanding notes in connection with 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 outstanding notes in connection with the exchange offer. We will
pay all charges and expenses, other than applicable taxes described below, in
connection with the exchange offer.
Our board of directors makes no recommendation to holders of outstanding
notes as to whether to tender or refrain from tendering all or any portion of
their outstanding notes in the exchange offer. In addition, no one has been
authorized to make any similar recommendation. Holders of outstanding notes
must make their own decision whether to tender in the exchange offer and, if
so, the aggregate amount of outstanding notes to tender after reading this
prospectus and the Letter of Transmittal and consulting with their advisers, if
any, based on their financial position and requirements.
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., New York City time, on ,
2000, unless we extend the exchange offer, in which case the term "expiration
date" will mean the latest date and time to which the exchange offer is
extended.
We expressly reserve the right in our sole and absolute discretion, subject
to applicable law, at any time and from time to time,
. To delay the acceptance of the outstanding notes for exchange
. To terminate the exchange offer, whether or not any outstanding notes
have been accepted for exchange, if we determine, in our sole and
absolute discretion, that any of the events or conditions referred to
under "--Conditions to the Exchange Offer" has occurred or exists or has
not been satisfied
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. To extend the expiration date of the exchange offer and retain all
outstanding notes tendered in the exchange offer, subject, however, to
the right of holders of outstanding notes to withdraw their tendered
outstanding notes as described under "--Withdrawal Rights"
. To waive any condition or otherwise amend the terms of the exchange
offer in any respect
If the exchange offer is amended in a manner that we determine to constitute
a material change, or if we waive a material condition of the exchange offer,
we will promptly disclose the amendment by means of a prospectus supplement
that will be distributed to the registered holders of the outstanding notes,
and we will extend the exchange offer to the extent required by Rule 14e-1
under the Securities Exchange Act.
Any delay in acceptance, termination, extension or amendment will be
followed promptly by:
. Oral or written notice of the change to the exchange agent, with any
such oral notice to be promptly confirmed in writing
. A public announcement of the change, which announcement, in the case of
an extension, will be made no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date
Without limiting the manner in which we may choose to make any public
announcement, and subject to applicable laws, we will have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to an appropriate news agency.
Acceptance for Exchange and Issuance of Exchange Notes
Upon the terms and subject to the conditions of the exchange offer, promptly
after the expiration date we will exchange, and will issue to the exchange
agent, exchange notes for outstanding notes validly tendered and not withdrawn
as described under "--Withdrawal Rights."
In all cases, delivery of exchange notes in exchange for outstanding notes
tendered and accepted for exchange in the exchange offer will be made only
after timely receipt by the exchange agent of:
. Outstanding notes or a book-entry confirmation of a book-entry transfer
of outstanding notes into the exchange agent's account at DTC
. The Letter of Transmittal, properly completed and duly executed, with
any required signature guarantees
. Any other documents required by the Letter of Transmittal
Accordingly, the delivery of exchange notes might not be made to all
tendering holders at the same time, and will depend upon when outstanding
notes, book-entry confirmations with respect to outstanding notes and other
required documents are received by the exchange agent.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of outstanding notes into the exchange agent's account at DTC.
Subject to the terms and conditions of the exchange offer, we will be deemed
to have accepted for exchange, and thereby exchanged, outstanding notes validly
tendered and not withdrawn as, if and when we give oral or written notice to
the exchange agent of our acceptance of those outstanding notes for exchange in
the exchange offer. Any oral notice will be promptly confirmed in writing. Our
acceptance for exchange of outstanding notes tendered through any of the
procedures described above will constitute a binding agreement between the
tendering holder and Focal upon the terms and subject to the conditions of the
exchange offer. The exchange agent will act as agent for Focal for the purpose
of receiving tenders of outstanding notes, Letters of Transmittal and related
documents, and as agent for tendering holders for the purpose of receiving
outstanding notes, Letters of Transmittal and related documents and
transmitting exchange notes to holders who validly
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tendered outstanding notes. The exchange will be made promptly after the
expiration date. If for any reason whatsoever the acceptance for exchange or
the exchange of any outstanding notes tendered in the exchange offer is
delayed, whether before or after our acceptance for exchange of outstanding
notes, or we extend the exchange offer or are unable to accept for exchange or
exchange outstanding notes tendered in the exchange offer, then, without
prejudice to our rights set forth in this prospectus, the exchange agent may,
nevertheless, on our behalf and subject to Rule 14e-1(c) under the Securities
Exchange Act, retain tendered outstanding notes and such outstanding notes may
not be withdrawn except to the extent tendering holders are entitled to
withdrawal rights as described under "--Withdrawal Rights."
Procedures for Tendering Outstanding Notes
Valid Tender. Except as set forth below, in order for outstanding notes to
be validly tendered in the exchange offer, either:
1. Before the expiration date,
. A properly completed and duly executed Letter of Transmittal with
any required signature guarantees and any other required
documents, must be received by the exchange agent at the address
set forth under "--Exchange Agent," and
. Tendered outstanding notes must be received by the exchange
agent, or outstanding notes must be tendered according to the
procedures for book-entry transfer described below and a book-
entry confirmation must be received by the exchange agent, or
2. The guaranteed delivery procedures set forth below must be complied
with.
If less than all of the outstanding notes are tendered, a tendering holder
should fill in the amount of outstanding notes being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of outstanding
notes delivered to the exchange agent will be deemed to have been tendered
unless otherwise indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person should so indicate when signing, and unless waived by us, evidence
satisfactory to us, in our sole discretion, of the person's authority to so act
must be submitted.
Any beneficial owner of outstanding notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial owner
wishes to participate in the exchange offer.
The method of delivery of outstanding notes, the Letter of Transmittal and
all other required documents is at the option and sole risk of the tendering
holder, and delivery will be deemed made only when actually received by the
exchange agent. Instead of delivery by mail, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure timely delivery and should obtain proper insurance.
No Letter of Transmittal or outstanding notes should be sent to Focal. Holders
may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect these transactions for them.
Book-Entry Transfer. The exchange agent will make a request to establish an
account with respect to the outstanding notes at DTC for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the outstanding notes by
causing DTC to transfer those outstanding notes into the exchange agent's
account at DTC according to DTC's procedures for transfers. However, although
delivery of outstanding notes may be effected through book-entry transfer into
the exchange agent's account at DTC, the
28
<PAGE>
Letter of Transmittal, properly completed and duly executed, with any required
signature guarantees and any other required documents, must in any case be
delivered to and received by the exchange agent at its address set forth under
"--Exchange Agent" before the expiration date, or the guaranteed delivery
procedure set forth below must be complied with.
Delivery of documents to DTC does not constitute delivery to the exchange
agent.
Signature Guarantees. Tendering holders do not need to endorse their
certificates for outstanding notes and signature guarantees on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are unnecessary
unless:
1. A certificate for outstanding notes is registered in a name other
than that of the person surrendering the certificate, or
2. A registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of
Transmittal
In either of these cases, the certificates for outstanding notes must be
duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal or
the notice of withdrawal, as the case may be, guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Securities Exchange Act as an
"eligible guarantor institution," including, as such terms are defined in that
rule:
. A bank
. A broker, dealer, municipal securities broker or dealer or government
securities broker or dealer
. A credit union
. A national securities exchange, registered securities association or
clearing agency
. A savings association
unless surrendered on behalf of such eligible institution. Please read
carefully Instruction 1 to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender outstanding notes in the
exchange offer and the certificates for the outstanding notes are not
immediately available or time will not permit all required documents to reach
the exchange agent before the expiration date, or the procedures for book-entry
transfer cannot be completed on a timely basis, the outstanding notes may
nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with:
. The tenders are made by or through an eligible institution
. Before the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter
of Transmittal, stating the name and address of the holder of
outstanding notes and the amount of outstanding notes tendered, stating
that the tender is being made by the notice and guaranteeing that within
three New York Stock Exchange trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all
physically tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the eligible
institution with the exchange agent. The Notice of Guaranteed Delivery
may be delivered by hand, or transmitted by facsimile or mail to the
exchange agent and must include a guarantee by an eligible institution
in the form set forth in the Notice of Guaranteed Delivery
. The certificates (or book-entry confirmation) representing all tendered
outstanding notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal, with any required
signature guarantees and any other documents required by the Letter of
Transmittal, are received by the exchange agent within three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery
29
<PAGE>
Determination of Validity. All questions as to the form of documents,
validity, eligibility, including time of receipt, and acceptance for exchange
of any tendered outstanding notes will be determined by us, in our sole
discretion, and that determination will be final and binding on all parties. We
reserve the absolute right, in our sole and absolute discretion, to reject any
and all tenders that we determine are not in proper form or the acceptance for
exchange of which may, in the view of our counsel, be unlawful. We also reserve
the absolute right, subject to applicable law, to waive any of the conditions
of the exchange offer as set forth under "--Conditions to the Exchange Offer"
or any defect or irregularity in any tender of outstanding notes of any
particular holder whether or not we waive similar defects or irregularities in
the case of other holders.
Our interpretation of the terms and conditions of the exchange offer,
including the Letter of Transmittal and its instructions, will be final and
binding on all parties. No tender of outstanding notes will be deemed to
have been validly made until all defects or irregularities with respect to such
tender have been cured or waived. Neither Focal, any affiliates of Focal, the
exchange agent or any other person will be under any duty to give any
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
Resales of Exchange Notes
Based on interpretations by the Staff of the Securities and Exchange
Commission, as set forth in no-action letters issued to third parties unrelated
to us, we believe that holders of outstanding notes, other than any holder that
is:
(1) A broker-dealer that acquired outstanding notes as a result of
market-making activities or other trading activities or
(2) A broker-dealer that acquired outstanding notes directly from us for
resale under Rule 144A or another available exemption under the Securities
Act,
who exchange their outstanding notes for exchange notes in the exchange offer
may offer for resale, resell and otherwise transfer the exchange notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that:
. The exchange notes are acquired in the ordinary course of the holders'
business
. The holders have no arrangement or understanding with any person to
participate in the distribution of the exchange notes
. The holders are not "affiliates" of Focal within the meaning of Rule 405
under the Securities Act
However, the Staff of the Securities and Exchange Commission has not
considered the exchange offer in the context of a no-action letter, and we
cannot assure you that it would make a similar determination with respect to
the exchange offer. Each broker-dealer that receives exchange notes for its own
account in exchange for outstanding notes in the exchange offer, where the
outstanding notes were acquired by the broker-dealer as a result of market-
making or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
Withdrawal Rights
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time before the expiration date.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission of the notice of withdrawal must be timely received by
the exchange agent at its address set forth under "--Exchange Agent" before the
expiration date. Any notice of withdrawal must specify the name of the person
who tendered the outstanding notes to be withdrawn, the principal amount of
outstanding notes to be withdrawn and, if certificates for the outstanding
notes have been tendered, the name of the registered holder of the outstanding
notes as set forth on the outstanding notes, if different from that of the
person who tendered the outstanding notes.
30
<PAGE>
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, the notice of withdrawal must specify the
serial numbers on the particular certificates for the outstanding notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by
an eligible institution, except in the case of outstanding notes tendered for
the account of an eligible institution.
If outstanding notes have been tendered by the procedures for book-entry
transfer set forth in "--Procedures for Tendering Outstanding Notes," the
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of outstanding notes and must otherwise comply
with the procedures of DTC. Withdrawals of tenders of outstanding notes may not
be rescinded. Outstanding notes
properly withdrawn will not be deemed validly tendered for purposes of the
exchange offer, but may be retendered at any subsequent time before the
expiration date by following any of the procedures described above under "--
Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility, including time of
receipt, of withdrawal notices will be determined by us, in our sole
discretion, which determination will be final and binding on all parties.
Neither Focal, any affiliates of Focal, the exchange agent or any other person
will be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any notification. Any outstanding notes which have been tendered but
which are withdrawn will be returned to the holder of those notes promptly
after withdrawal.
Interest on the Exchange Notes
Interest on the outstanding notes and the exchange notes will be payable
semi-annually in arrears on July 15 and January 15 of each year at a rate of 11
7/8% per annum, commencing July 15, 2000.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer or any extension
of the exchange offer, we will not be required to accept for exchange, or to
exchange, any outstanding notes for any exchange notes and will not be required
to issue exchange notes in exchange for any outstanding notes and, as described
below, may, at any time and from time to time, terminate or amend the exchange
offer, whether or not any outstanding notes have been accepted for exchange, or
may waive any conditions to or amend the exchange offer, if any of the
following conditions has occurred or exists or has not been satisfied before
the expiration date:
. There occurs a change in the current interpretation by the Staff of the
Securities and Exchange Commission which permits the exchange notes
issued in exchange for outstanding notes in the exchange offer to be
offered for resale, resold and otherwise transferred by their holders,
other than broker-dealers that acquired outstanding notes as a result of
market-making or other trading activities or broker-dealers that
acquired outstanding notes directly from Focal for resale under Rule
144A or another available exemption under the Securities Act, without
compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that the exchange notes are acquired in the
ordinary course of the holders' business, the holders have no
arrangement or understanding with any person to participate in the
distribution of the exchange notes and the holders are not "affiliates"
of Focal within the meaning of Rule 405 under the Securities Act
. Any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency or body with respect to the
exchange offer which, in our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer
. Any law, statute, rule or regulation has been adopted or enacted which,
in our judgment, would reasonably be expected to impair our ability to
proceed with the exchange offer
. A stop order has been issued by the Securities and Exchange Commission
or any state securities authority suspending the effectiveness of the
registration statement, or proceedings have been initiated or, to our
knowledge, threatened for that purpose
31
<PAGE>
. Any governmental approval has not been obtained, which approval we, in
our sole discretion, deem necessary for the consummation of the exchange
offer as contemplated hereby
. Any change, or any development involving a prospective change, in our
business or financial affairs has occurred which, in our sole judgment,
might materially impair our ability to proceed with the exchange offer
If we determine in our sole and absolute discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied
at any time prior to the expiration date, we may, subject to applicable law,
terminate the exchange offer, whether or not any outstanding notes have been
accepted for exchange, or may waive any such condition or otherwise amend the
terms of the exchange offer in any respect. If a waiver or amendment
constitutes a material change to the exchange offer, we will promptly disclose
the waiver or amendment by means of a prospectus supplement that will be
distributed to the registered holders of the outstanding notes, and we will
extend the exchange offer to the extent required by Rule 14e-1 under the
Securities Exchange Act.
Exchange Agent
We have appointed Harris Trust and Savings Bank as exchange agent for the
exchange offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this prospectus or of the Letter of Transmittal should be directed to
the exchange agent as follows:
By mail:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
Wall Street Station
P.O. Box 1010
New York, New York 10268-1010
Attention: Reorganization Department
By hand before 4:30 p.m.:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
Wall Street Station
P.O. Box 1010
New York, New York 10268-1010
Attention: Reorganization Department
By overnight courier and by hand after 4:30 p.m.:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
Wall Street Station
P.O. Box 1010
New York, New York 10268-1010
Delivery to other than the above addresses will not constitute a valid
delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail. Additional solicitation may be made personally or by
telephone or other means by officers, directors or employees of Focal.
We have not retained any dealer-manager or similar agent in connection with
the exchange offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the exchange offer. We have agreed to pay the
exchange agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this prospectus
and related documents to the beneficial owners of outstanding notes, and in
handling or tendering for their customers.
32
<PAGE>
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection with the tender, except that
if exchange notes are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the outstanding notes tendered,
or if a transfer tax is imposed for any reason other than the exchange of
outstanding notes in connection with the exchange offer, then the amount of any
such transfer tax, whether imposed on the registered holder or any other
persons, will be payable by the tendering holder. If satisfactory evidence of
payment of such transfer tax or exemption therefrom is not submitted with the
Letter of Transmittal, the amount of such transfer tax will be billed directly
to the tendering holder.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the exchange
and registration agreement that we entered into in connection with our issuance
and sale of the outstanding notes. We will not receive any cash proceeds from
the issuance of the exchange notes offered by this prospectus. In consideration
for issuing the exchange notes as contemplated in this prospectus, we will
receive, in exchange, an equal number of outstanding notes in like principal
amount. The form and terms of the exchange notes are identical in all material
respects to the form and terms of the outstanding notes, except as otherwise
described in this prospectus under "The Exchange Offer--Terms of the Exchange
Offer." The outstanding notes surrendered in exchange for exchange notes will
be retired and canceled by us and cannot be reissued.
33
<PAGE>
CAPITALIZATION
The following table sets forth our total cash, cash equivalents and short-
term investments and capitalization as of December 31, 1999 on a historical
basis and on an as adjusted basis to reflect the net proceeds received from the
sale of our 2000 senior notes, as if it had been consummated on December 31,
1999. You should read the information in this table in conjunction with our
Consolidated Financial Statements and the accompanying notes incorporated by
reference in this prospectus. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Where You Can Find More Information."
<TABLE>
<CAPTION>
As of
December 31, 1999
------------------
As
Actual Adjusted
-------- --------
(Dollars in
thousands, except
share amounts)
<S> <C> <C>
Total cash, cash equivalents and short-term investments.... $188,142 $453,886
======== ========
Long-term debt, including current portion:
12.125% Senior Discount Notes due 2008, net of
unamortized discount of $83,184 at December 31, 1999.... $186,816 $186,816
11.875% Senior Notes due 2010, net of unamortized
discount of $1,980 at December 31, 1999................. -- 273,020
Secured equipment term loan.............................. 44,214 44,214
Obligation under capital lease........................... 21,994 21,994
Other.................................................... 762 762
-------- --------
Total long-term debt................................... 253,786 526,806
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized and no shares issued and outstanding......... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized and 60,748,981 shares issued and outstanding. 607 607
Additional paid-in capital............................... 177,535 177,535
Deferred compensation.................................... (1,919) (1,919)
Accumulated deficit...................................... (33,736) (33,736)
-------- --------
Total stockholders' equity............................. 142,487 142,487
-------- --------
Total capitalization................................. $396,273 $669,293
======== ========
</TABLE>
34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The information in the following table is based on historical financial
information included in our prior filings with the Securities and Exchange
Commission, including our annual report on Form 10-K for the fiscal year ended
December 31, 1999. The following selected consolidated financial and operating
data should be read in connection with this historical financial information,
including the notes that accompany the financial information. This historical
financial information is considered a part of this document. See "Where You Can
Find More Information." Our audited historical financial statements as of
December 31, 1999 and 1998, and for each of the three years ended December 31,
1999 were audited by Arthur Andersen LLP, independent public accountants. You
should not assume that the results of operations below are indicative of the
financial results we can achieve in the future. You should also read the
information in this table in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and the other financial data appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period From
Commencement of
Operations Years Ended December 31,
(May 31, 1996) to ----------------------------------
December 31, 1996 1997 1998 1999
----------------- ---------- ---------- ----------
(Dollars in thousands, except share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................. $ -- $ 4,024 $ 43,532 $ 126,861
Expenses:
Customer service and
network operations.... -- 2,155 15,284 70,910
Selling, general and
administrative........ 422 2,887 12,210 32,486
Depreciation and
amortization.......... 1 616 6,671 23,763
Non-cash compensation
expense............... 108 1,300 3,070 7,186
--------- ---------- ---------- ----------
Operating income (loss).. (531) (2,934) 6,297 (7,484)
Other income (expense),
net..................... 17 68 (9,606) (14,302)
Provision for income
taxes................... -- -- (4,660) (600)
Accretion to redemption
value of Class A common
stock................... -- (104) -- --
--------- ---------- ---------- ----------
Net loss applicable to
common stockholders..... $ (514) $ (2,970) $ (7,969) $ (22,386)
========= ========== ========== ==========
Basic net loss per share. $ (0.06) $ (0.07) $ (0.18) $ (0.45)
========= ========== ========== ==========
Diluted net loss per
share................... $ (0.06) $ (0.07) $ (0.18) $ (0.45)
========= ========== ========== ==========
Basic weighted average
common stock
outstanding............. 8,498,000 42,186,500 43,763,000 50,066,315
========= ========== ========== ==========
Diluted weighted average
common stock
outstanding............. 8,498,000 42,186,500 43,763,000 50,066,315
========= ========== ========== ==========
Other Financial Data:
EBITDA................... $ (422) $ (1,018) $ 16,038 $ 23,465
Capital expenditures..... 82 11,655 64,229 128,550
Ratio of earnings to
fixed charges........... -- -- -- --
Summary Cash Flow Data:
Net cash provided by
(used in) operating
activities.............. $ (153) $ (1,634) $ 22,507 $ 18,549
Net cash used in
investing activities.... (82) (11,655) (72,189) (130,590)
Net cash provided by
financing activities.... 4,025 11,756 173,466 164,142
Operating Data:
Access lines in service.. -- 7,394 52,011 181,103
Minutes of use
(millions).............. -- 282 3,568 13,362
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------
1999
1996 1997 1998 1999 (As adjusted)
------ ------- -------- -------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments....... $3,790 $ 2,257 $134,001 $188,142 $453,886
Current assets................ 3,807 4,738 144,637 219,932 485,676
Fixed assets, net............. 81 11,177 69,973 196,301 196,301
Total assets.................. 3,888 15,915 219,574 420,986 694,006
Long-term debt, including
current portion.............. -- 3,537 185,296 253,786 526,806
Total stockholders' equity
(deficit).................... (405) (2,075) 19,328 142,487 142,487
</TABLE>
You should not assume that the results of operations above are indicative of
the financial results we can achieve in the future. You should also keep the
following matters in mind when you read this information:
. Non-cash compensation expense consists of:
--charges totaling $0.1 million for 1996, $1.3 million for each of 1997
and 1998, and $2.5 million for 1999, which resulted from the vesting
over time of shares of common stock issued to some of our executive
officers in November 1996
--charges of $1.8 million and $0.3 million for 1998 and 1999,
respectively, which resulted from the vesting and cancellation of
shares of common stock in connection with the September 30, 1998
amendment of vesting agreements with some of our executive officers
--charges of $4.4 million for 1999, which resulted from our 1999 stock
option grants to employees, directors and an outside consultant, and
common stock issued to a director
. EBITDA represents earnings before interest, income taxes, depreciation
and amortization and other non-cash charges, including non-cash
compensation expense. EBITDA is not a measurement of financial
performance under generally accepted accounting principles, is not
intended to represent cash flow from operations, and should not be
considered as an alternative to net loss applicable to common
stockholders as an indicator of our operating performance or to cash
flows as a measure of liquidity. We believe that EBITDA is widely used
by analysts, investors and other interested parties in the
telecommunications industry. EBITDA is not necessarily comparable to
similarly titled measures for other companies.
. For the seven month period ended December 31, 1996 and for the years
ended December 31, 1997, 1998 and 1999, earnings were insufficient to
cover combined fixed charges by $0.5 million, $2.9 million, $3.3 million
and $21.8 million, respectively.
. We count access lines as of the end of the period indicated and on a
one-for-one basis using DS-0 equivalents.
. The "As Adjusted" column in the balance sheet data table reflects the
sale of the outstanding notes and our receipt of net proceeds of $265.7
million, as if consummated on December 31, 1999.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
General. We provide data, voice and colocation services to large,
communications-intensive users in major cities. We began operations in 1996 and
initiated service first in May 1997. As of December 31, 1999, we offered
service in a total of 16 markets, which encompass a total of 40 metropolitan
statistical areas, or MSAs, and plan to serve 24 markets, or 56 MSAs, by the
end of 2001. As of February 29, 2000, we had sold 270,000 access lines, of
which 215,565 were installed and in service. During 2000, we estimate that we
will install over 225,000 additional access lines as our existing markets
continue to mature and as we launch service in additional new markets. We also
intend to launch our DSL and managed high-speed Internet access, colocation and
peering services during 2000.
Our operating results are expected to change during 2000 as a result of
several trends in our business and in the regulatory environment. First, we
anticipate that the mix of lines we sell will shift from being dominated by ISP
customer lines to being more evenly balanced among ISP, corporate and VAR
customer lines due to expanded marketing efforts. Second, we expect our
revenues from, and margin on, ISP lines to decline due to the impact of
regulatory developments on the potential collection of reciprocal compensation
in certain markets and the renegotiation of our interconnection agreements in
each state in which we operate, as described below. In connection with these
trends, we intend to emphasize the sale of new products that leverage our
network to maximize revenues per line and operating margins. We expect these
products to include high-speed access to the Internet and LANs connected via
DSL technology, as well as managed high-speed Internet access, colocation and
peering services, which will be made possible by our planned Focal Internet
eXchanges, or FIXs. Third, we expect our continued expansion to result in
continued negative operating cash flows and operating losses for a period of
time. We expect to again produce positive operating cash flows during the
second half of 2001 once these trends stabilize and operating activities in our
newer markets are established and mature. If, however, these trends do not
stabilize or our operating activities are not established or do not mature as
expected, we may continue to sustain negative operating cash flows and net
losses.
Revenues. Our revenues are comprised of monthly recurring charges, usage
charges and initial, non-recurring charges. Monthly recurring charges include
the fees paid by our customers for lines in service, additional features on
those lines, and colocation space. Monthly recurring charges are derived only
from end user customers. Usage charges consist of fees paid by end-users for
each call made, fees paid by the ILEC and other CLECs as reciprocal
compensation, and access charges paid by the IXCs for long distance traffic
that we originate and terminate. Non-recurring revenues are typically derived
from fees charged to install new customer lines.
We earn reciprocal compensation revenues for calls made by customers of
another local exchange carrier to our customers. Conversely, we incur
reciprocal compensation expense to other local exchange carriers for calls by
our customers to their customers. Reciprocal compensation has historically been
a significant component of our total revenue due to the preponderance of
inbound applications utilized by our customers. On July 1, 1999, we began
excluding certain reciprocal compensation revenues generated from our
operations in a number of states where recent regulatory developments have
impeded the potential collection of reciprocal compensation receivables in
those states. Reciprocal compensation represented approximately 81%, 75%, 55%
and 36% of total revenues for 1997, 1998, 1999 and December of 1999,
respectively.
We expect the proportion of revenues represented by reciprocal compensation
to modestly decrease in the future as a result of the expiration and subsequent
renegotiation of our existing interconnection agreements with the ILECs and the
impact of recent and future regulatory developments. The most significant
impact of the reduction in reciprocal compensation occurred on October 28,
1999, when our existing interconnection agreement with Ameritech Illinois
expired. As of December 31, 1999, revenues from reciprocal compensation are
being recognized at an average rate of $.0025 per minute of use on a company-
wide basis. While per minute of use rates may decline further, we believe that
any decline will be modest. See "Business--
37
<PAGE>
Regulation." We expect to generate additional revenues from other services that
will offset this anticipated decrease in reciprocal compensation revenues. A
reduction in or elimination of reciprocal compensation revenues that are not
offset by increases in other revenues generated by us could have a material
adverse effect on us and our results of operations. See "Business--Regulation."
Operating Expenses. Our operating expenses are categorized as customer
service and network operations, selling, general and administrative,
depreciation and amortization, and non-cash compensation expense. Settlement
costs are a significant portion of customer service and network operations
expense and are comprised of leased transport charges and reciprocal
compensation payments. Leased transport charges are the lease payments we make
for the use of fiber transport facilities connecting our customers to our
switches and for our connection to the ILECs' and other CLECs' networks. Our
strategy of initially leasing rather than building our own fiber transport
facilities has resulted in our cost of service being a significant component of
total costs. To date, we have been successful in negotiating lease agreements
that match the duration of our customer contracts, thereby allowing us to avoid
the risk of incurring expenses associated with transport facilities that are
not being used by revenue generating customers.
Historically, leasing rather than building our transport network has
resulted in capital expenditures which we believe are lower than those of CLECs
of similar size that own their fiber networks. Our capital expenditures have
been driven by customer service demands and projected near-term revenue streams
from our established markets. In addition, we believe that the percentage of
these "success-based" capital expenditures is higher than those of fiber-based
CLECs. In contrast, we incur operating expenses for leased facilities that are
proportionately higher than those incurred by fiber-based CLECs.
In the second quarter of 1999, we entered into a number of agreements to own
fiber transport capacity as well as lease transport facilities for combined
minimum commitments of $98.6 million through December 2004 and $42.6 million
from January 2005 through June 2019. These commitments will result in increased
operating expenses for future periods, which we believe should be more than
offset by future revenues associated with new services made possible, in part,
by these agreements. We activated our own Chicago transport network in
February 2000 and expect to activate our remaining transport networks in other
markets by the end of 2000.
Other customer service and network operations expense consists of the costs
of operating our network and the costs of providing customer care activities.
Major components include wages, rent, power, equipment maintenance, supplies
and contract employees.
Selling, general and administrative expense ("SG&A") consists of sales force
compensation and promotional expenses as well as the cost of corporate
activities related to regulatory, finance, human resources, legal, executive,
and other administrative activities. We expect our SG&A to be lower as a
percentage of revenue than that of our competitors because we have relatively
high sales productivity associated with our strategy of serving communications-
intensive customers. These customers generally utilize a large number of
switched access lines relative to the average business customer, resulting in
more revenue per sale. Further, fewer sales representatives are required to
service the relatively smaller number of communications-intensive customers in
a given region.
We record monthly non-cash compensation expense related to shares issued to
some of our executive officers in November 1996, in connection with the
September 30, 1998 amendments to vesting agreements with some of our executive
officers, in connection with stock options granted to employees, an outside
consultant, and directors during 1999 and shares issued to a director during
the first quarter of 1999. We will continue to record non-cash compensation
expense in future periods relating to these events through the third quarter of
2003. See the notes to our Consolidated Financial Statements that are
incorporated by reference in this prospectus.
Quarterly Results
The following table sets forth unaudited financial, operating and
statistical data for each of the specified quarters of 1999 and 1998. The
unaudited quarterly financial information has been prepared on the same basis
38
<PAGE>
as our Consolidated Financial Statements, which are incorporated by reference
in this prospectus, and, in our opinion, contains all normal recurring
adjustments necessary to fairly state this information. The operating results
for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
1998 1999
------- -------------------------------------
Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues....................... $17,596 $26,004 $30,327 $34,484 $36,046
EBITDA......................... $6,393 $9,968 $8,422 $5,783 $(708)
Lines Sold to Date............. 68,184 85,329 133,536 169,122 237,167
Lines Installed to Date........ 52,011 70,572 106,749 137,033 181,103
Estimated ISP Lines (% of
installed lines).............. 71% 71% 72% 72% 72%
Lines on Switch (%)............ 100% 100% 100% 100% 100%
ILEC Central Offices
Interconnected................ 340 443 771 948 1,209
ILEC Central Office Colocations
in Service or Under
Development................... -- 23 58 201 221
Average Monthly Revenue Per
Line.......................... $138 $141 $114 $94 $76
Quarterly Minutes of use
switched (in millions)........ 1,444 2,033 2,657 3,514 5,158
Markets in Operation........... 10 12 13 14 16
MSAs Served.................... 29 31 34 38 40
Switches Operational........... 6 7 9 10 12
Focal Customer Colocation Space
in Service (Sq. Ft.).......... 23,302 29,282 41,081 53,478 70,105
Capital Expenditures ($ in
millions)..................... $21 $24 $57(1) $34 $34
Employees...................... 233 312 418 478 592
Sales Force (2)................ 47 65 93 105 116
</TABLE>
- --------
(1) Includes approximately $21 million of assets acquired under a capital lease
during the second quarter of 1999.
(2) Quota bearing sales professionals. Does not include sales engineers or
customers support personnel.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Our total revenues for the year ended 1999 were $126.9 million compared to
$43.5 million for the year ended 1998. This increase of 192% is primarily due
to the generation of revenues from numerous markets during 1999 compared to
revenues from primarily two markets, Chicago and New York, in the comparable
period of 1998. We installed approximately 129,000 access lines during 1999,
which exceeded the lines installed in the comparable period of 1998 by
approximately 187% or 84,000 lines. Customer service and network operations
expense was $70.9 million for 1999 and $15.3 million for 1998. This $55.6
million increase resulted primarily from our rapid expansion into an additional
six new markets during 1999 and the related increase in operational costs
associated with the growth of our existing markets. SG&A expense increased by
$20.3 million to $32.5 million for 1999 as a result of our planned expansion.
In addition, our overall customer service, network operations, and SG&A
expenses increased from 1998 to 1999 due to a corresponding increase in our
employee base by 359 employees, to 592 employees, as of December 31, 1999.
Depreciation and amortization increased from $6.7 million to $23.8 million
in the comparative year to year periods. This increase of $17.1 million is a
result of our 1999 expansion into six new markets and due to our fixed asset
base increase for our existing markets. Our 1999 capital expenditures of
approximately $128.6 million (excluding $21.0 million of assets acquired under
capital lease) were $64.4 million greater than that of the comparable period of
1998. Non-cash compensation expense was $7.2 million for the year ended
December 31, 1999 compared to $3.1 million for comparable period in 1998. This
$4.1 million increase in non-cash compensation expense is the result of
September 30, 1998 amendments of vesting agreements with some of our executive
officers, stock options granted to employees, an outside consultant and
directors during 1999, and stock issued to a director during the first quarter
of 1999.
Interest income was $7.9 million and $6.5 million for the years ended 1999
and 1998, respectively. This increase of $1.4 million is primarily due to our
cash, cash equivalents, and short-term investments increasing from $134.0
million at the end of 1998 to $188.1 million at the end of 1999. This increase
is the result of our net proceeds of approximately $137 million raised in our
August 1999 initial public offering. Interest expense increased from $16.1
million during 1998 to $21.6 million for 1999. This net increase of $5.5
million is due to
39
<PAGE>
an additional $4.6 million of amortization of our 1998 notes, $3.4 million of
interest expense on our secured equipment term loan, and $1.1 million of non-
cash interest expense relating to our capital lease obligation for dark fiber
transport capacity. This increase of $9.1 million was partially offset by
approximately $3.6 million of interest capitalized during 1999 in connection
with the construction of our major facilities and networks.
We incurred U.S. income tax expense of $0.6 million for the year ended 1999
compared to $4.7 million in the same period of 1998. This decrease of $4.1
million in our tax expense between years is primarily due to the $18.5 million
of additional pre-tax losses incurred during 1999 and the realization of a net
operating loss at the end of 1999. We are obligated to pay federal and state
income taxes due to the application of the alternative minimum tax.
We had a net loss of $22.4 million for 1999 compared to a net loss of $8.0
million in 1998. This $14.4 million of additional losses in 1999 is a direct
result of an increase in costs related to our planned expansion to 16 markets
at the end of 1999, an additional $5.5 million of net interest expense, and an
additional $4.1 million in non-cash compensation expense.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenues for 1998 were $43.5 million compared to $4.0 million for
1997. The significant increase is due to the rapid growth in our Chicago and
New York markets during 1998 and the fact that service was first initiated in
Chicago in May 1997. Customer service and network operations expense was $15.3
million in 1998 compared to $2.2 million during 1997. The increase resulted
from our rapid expansion and the related costs of leased facilities, usage
settlements, customer care and operations personnel, equipment maintenance and
other operating expenses. Selling, general and administrative expense also
increased from $2.9 million for 1997 to $12.2 million for 1998 due to our
expansion. Similarly, depreciation and amortization increased from $0.6 million
in 1997 to $6.7 million in 1998 as a result of a significant increase in the
level of fixed assets put into service. Non-cash compensation expense
associated with the vesting over time of shares of common stock issued to some
of our executive officers in November 1996, and the vesting and cancellation of
shares of common stock in connection with the September 30, 1998 amendments to
vesting agreements with some of our executive officers, was $3.1 million for
1998 compared to $1.3 million for 1997. The increase of $1.8 million is due to
the September 30, 1998 amendment to these vesting agreements.
Interest income increased from $0.2 million in 1997 to $6.5 million for 1998
due primarily to the investment of the proceeds received in February 1998 from
the sale of the 1998 notes. Interest expense for 1998 was $16.1 million
compared to $0.1 million for 1997. The increase is primarily due to the
amortization of the discount on the 1998 notes.
Year Ended December 31, 1997 Compared to Seven-Month Period Ended December 31,
1996
We had total revenues of $4.0 million in 1997. We had no revenues in 1996.
The increase was due to the recording of our first revenue during May 1997.
Prior to May 1997, we incurred start-up and operating expenses in advance of
revenue as we prepared to launch our network services in the Chicago market.
Customer service and network operations expense increased from zero in 1996 to
$2.2 million in 1997. There were no customer service or network activities
during 1996. Such activities began as we initiated construction of our first
network in January 1997 and as we began to provide service in May 1997.
Selling, general and administrative expense increased from $0.4 million in 1996
to $2.9 million in 1997, largely due to a rapid increase in sales and
administrative personnel in 1997. Depreciation and amortization increased from
near zero in 1996 to $0.6 million in 1997 due to the increase in assets put
into service during 1997. Non-cash compensation expense associated with certain
shares issued to some of our executive officers in November 1996 increased from
$0.1 million in 1996 to $1.3 million in 1997 based on a full year's impact of
this expense during 1997 as compared to one month of non-cash compensation
expense during 1996.
Interest income increased from $0.02 million in 1996 to $0.2 million in 1997
as a result of significantly greater cash balances we maintained after
receiving additional equity contributions during 1997. Interest expense was
$0.1 million in 1997 due to debt financing incurred by one of our subsidiaries.
We did not have any interest expense during 1996.
40
<PAGE>
Liquidity and Capital Resources
We intend to continue to increase our coverage of major U.S. cities by
expanding our services to two additional markets in 2000 and four additional
markets in 2001. Our business plan will require that we expand our existing
networks and services, deploy our own fiber capacity in a majority of our
markets, construct our Focal Internet eXchange sites and expanded colocation
centers, and fund our initial operating losses. We will require significant
capital to fund the purchase and installation of voice and data switches,
routers, equipment, infrastructure and fiber facilities and/or long-term rights
to use fiber transport capacity. The implementation of this plan requires
significant capital expenditures, a substantial portion of which will be
incurred before significant related revenues from our new markets and new
services are expected to be realized. These expenditures, together with
associated early operating expenses, may result in our having substantial
negative operating cash flow and substantial net operating losses for the
foreseeable future, including 2000 and 2001. Although we believe that our cost
estimates and the scope and timing of our build-out are reasonable, we cannot
assure you that actual costs or the timing of the expenditures, or that the
scope and timing of our build-out, will be consistent with current estimates.
Our capital expenditures were approximately $128.6 million (excluding $21.0
million of assets acquired under capital lease) in 1999 compared to $64.2
million in 1998, primarily reflecting capital spending for the build-out of our
markets. We estimate that our capital expenditures in connection with our
current business plan will be approximately $300 million for 2000 and
approximately $305 million for 2001. The 2000 capital expenditures are expected
to be made primarily for the build-out of additional markets, the expansion of
our existing markets, the roll-out of new services, including managed high-
speed Internet access, colocation and peering services, and the purchase of
local dark fiber transport capacity in a majority of our markets.
Our expectations of our future capital requirements and cash flows from
operations are based on current estimates. If our plans or assumptions change
or prove to be inaccurate, we may be required to seek additional sources of
capital or seek additional capital sooner than currently anticipated. We may
also choose to raise additional capital to take advantage of favorable
conditions in the capital markets. See "Risk Factors--Significant Capital
Requirements" and "--Substantial Debt."
Net cash provided by operating activities for 1999 was $18.5 million, a
decrease of $4.0 million from the same period in 1998. This decrease is
primarily the result of a $17.1 million increase in depreciation and
amortization, a $4.1 million increase in non-cash compensation expense, and an
additional $4.6 million of amortization of our 1998 notes, which was offset by
additional net losses of $14.4 million and the increase in our 1999 accounts
receivable, which exceeded 1998 by approximately $16.4 million. Net cash used
in operating activities was $1.6 million for 1997 and net cash provided by
operations was $22.5 million in 1998, an increase of $24.1 million from 1997.
This increase was primarily due to an increase in non-cash reconciling items
for depreciation and amortization, non-cash compensation expense, amortization
of discount on the 1998 Notes and an increase in accounts payable and accrued
liabilities.
Net cash used in investing activities was $130.6 million for 1999 compared
to $72.2 million in 1998. This increase of $58.4 million is primarily the
result of our 1999 expansion into six new markets and the continued expansion
of our existing markets. Our capital expenditures of $128.6 million in 1999
exceeded 1998 by $64.4 million. Short-term investments primarily consist of
debt securities, which typically mature between three months and one year. Net
cash used in investing activities was $72.2 million for 1998 and $11.7 million
for 1997. The increase of $60.5 million from 1997 represents a $52.6 million
increase in capital expenditures due to our 1998 expansion into new markets and
the purchase of short-term investments of $8.0 million. Short-term investments
primarily consist of debt securities, which typically mature between three
months and one year.
Net cash provided by financing activities for 1999 was $164.1 million, a
decrease of $9.3 million from 1998. This decrease is primarily the net result
of our debt and equity proceeds between comparable periods. Net cash provided
by financing activities consisted of $173.5 million in 1998 and $11.8 million
in 1997. The increase of $161.7 million from 1997 to 1998 was mainly the result
of net proceeds from our 1998 notes offering of $143.9 million after $6.1
million in issuance costs and $19.2 million in borrowings under a secured
equipment term loan facility (the "Credit Agreement") during 1998.
41
<PAGE>
The Credit Agreement provides that NTFC Capital Corporation will make term
loans to us solely for the purchase of telecommunications equipment and related
software licenses. To secure the loans, we have granted NTFC a security
interest in the assets acquired with the loans. Loans must be repaid over a
five-year period from the date of the borrowing. Principal and interest
payments are due monthly, and interest accrues based on the five-year swap
rate, plus additional basis points. Interest will accrue at a lower rate if we
meet specified financial tests. As of December 31, 1999, there were no
borrowings available to us under this facility and we had $44.2 million
outstanding under this term loan facility.
We have historically incurred net losses and have an accumulated deficit of
$33.7 million and $11.3 million as of December 31, 1999 and 1998, respectively.
We funded a large portion of our future operating losses and capital
expenditures through the offering of our 1998 notes, the August 1999 equity
offering, the January 2000 offering of our outstanding notes and other
financings. On February 18, 1998, we received $150 million in gross proceeds
from the sale of the 1998 notes. The 1998 notes will accrete to an aggregate
stated principal amount of $270 million by February 15, 2003. As of December
31, 1999, the principal amount of the 1998 notes had accreted to approximately
$186.8 million. No interest is payable on the 1998 notes prior to August 15,
2003. Thereafter, cash interest will be payable semiannually on August 15 and
February 15 of each year. During August 1999, we raised net proceeds of
approximately $137 million in our initial public offering in which we sold
11,442,500 shares of our common stock at a price of $13 per share, which
includes the underwriters' exercise of their over-allotment option to purchase
1,492,500 common shares at $13 per share.
On January 12, 2000, we received approximately $265.7 million in net
proceeds from the issue of the outstanding notes. The outstanding notes
interest payment dates are July 15 and January 15, commencing July 15, 2000.
The net proceeds from the sale of the outstanding notes, together with amounts
available from our existing cash balances and future cash flow from ongoing
operations, will be used to finance the cost to acquire equipment and network
assets, to fund operating losses, for working capital and potential
acquisitions and for general corporate purposes. In addition, we may choose to
obtain future debt or equity financing to fund additional new products and
services.
Prior to these financings, a substantial portion of our funding needs was
met through the private sale of equity securities. In November 1996, we entered
into a stock purchase agreement that provided for the contribution over time of
approximately $26.1 million of equity funding by a group of investors. As of
February 13, 1998, we had received the entire $26.1 million. In addition, in
1997, our Illinois subsidiary borrowed approximately $3.5 million under a bank
credit facility. We used a portion of the net proceeds from the issuance of the
1998 notes to repay this indebtedness and cancel this facility.
Year 2000 Compliance
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to
our on-going business as a result of the "Year 2000 issue." However, it is
possible that the full impact of the date change, which was of concern due to
computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with billing,
payroll or financial closings at month, quarterly or year end. We believe that
any such problems are likely to be minor and correctable. In addition, we could
still be negatively impacted if our customers or suppliers are adversely
affected by the Year 2000 or similar issues. We are not currently aware of any
significant Year 2000 or similar problems that have arisen for our customers
and suppliers. We spent a total of $0.3 million on Year 2000 readiness efforts
in 1998 and 1999. All of these costs were expensed as they were incurred.
The discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements. Our
future performance is subject to a number of risks and uncertainties that could
cause actual results to differ substantially from those discussed in these
forward-looking statements. Factors that could impact the variability of future
results include those described under "Information Regarding Forward-Looking
Statements."
42
<PAGE>
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to minimal market risks. We manage sensitivity of our results
of operations to these risks by maintaining a conservative investment
portfolio, which primarily consists of debt securities, typically maturing
within one year, and entering into long-term debt obligations with appropriate
pricing and terms. We do not hold or issue derivative, derivative commodity or
other financial instruments for trading purposes. Financial instruments held
for other than trading purposes do not impose a material market risk on us.
We are exposed to interest rate risk, as additional debt financing is
periodically needed due to the large operating losses and capital expenditures
associated with establishing and expanding our network coverage. The interest
rate that we will be able to obtain on debt financing will depend on market
conditions at that time, and may differ from the rates we have secured on our
current debt.
While all of our long-term debt bears fixed interest rates, the fair market
value of our fixed rate long-term debt is sensitive to changes in interest
rates. We have no cash flow or earnings exposure due to market interest rate
changes for our fixed long-term debt obligations. The table below provides
additional information about our 1998 notes. For additional information about
our long-term debt obligations, see our Consolidated Financial Statements and
accompanying notes incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
----------------------------------
Average
Expected Fixed Interest
Maturity Debt Rate
---------------- -------- --------
<S> <C> <C>
1999 $ -- --
2000 -- --
2001 -- --
2002 -- --
2003 -- --
Thereafter 270,000 12.125%
-------- ------
$270,000 12.125%
======== ======
Fair Market
Value $176,850
========
</TABLE>
43
<PAGE>
BUSINESS
Introduction
We are a rapidly growing competitive provider of integrated communications
services. We provide data, voice and colocation services to large,
communications-intensive users in major cities. Our target customers include
large corporations, ISPs and VARs. We began operations in 1996, initiated
service first in May 1997 and currently offer service in the following 18
markets:
Chicago New York Seattle
San Francisco Los Angeles Philadelphia
Orange County, California Boston Oakland
Washington, DC Dallas Northern Virginia
Detroit Fort Worth Northern New Jersey
San Jose Atlanta Houston
As part of our previously announced expansion, we plan to provide service in
Minneapolis and Cleveland by September 30, 2000. Due to the success we have
experienced in our existing markets, we have decided to expand our geographic
footprint to include four additional markets by September 30, 2001. When we
complete this expansion, we will provide service in 24 markets, encompassing a
total of 56 metropolitan statistical areas. As of February 29, 2000, we had
sold 270,000 access lines, of which 215,565 were installed and in service. This
compares to 237,167 lines sold and 181,103 lines installed and in service as of
December 31, 1999 and 85,329 lines sold and 70,572 lines installed and in
service as of March 31, 1999.
In response to market demand for faster, more reliable solutions to Internet
connectivity, we have launched a new data services business. We have hired an
Internet industry veteran to lead a dedicated team of employees to build this
business. Our new suite of services, which we expect to roll-out during the
third quarter of 2000, will include:
. Managed High-Speed Internet Access--We intend to provide our customers
with reliable, direct access to multiple Tier-1 Internet backbones with
private peering relationships that avoid highly-congested public access
points . We believe this service will alleviate many of the latency,
packet-loss and reliability problems associated with the Internet.
. Colocation Services--We intend to leverage our existing and planned
colocation facilities by leasing space to those customers that need to
reach our high concentration of end-users.
. Private Peering Services--We intend to offer private peering services to
enable ISPs, content providers and application service providers to
exchange traffic at our peering points, thereby avoiding the congestion
at public interconnection points.
We will offer these data services by creating FIXs in each of our existing
and planned switching and colocation sites in 24 major U.S. markets. Our FIXs,
based on a redundant switch and router platform, will be IP-enabled meeting
points for both Internet users and content and application service providers.
We believe content and application service providers will value our proximity
to end-users, which results from our substantial role as a provider of Internet
dial-up facilities.
We currently provide dial-up access services to approximately 200 ISPs that
use the Focal network to bring traffic to the Internet. We believe that we have
been successful at achieving significant penetration in our key markets. For
example, we estimate that more than one-third of all dial-up Internet traffic
in the Chicago metropolitan area passes through a Focal switching center. End-
user dial-up traffic travels through our switching centers, all of which
contain colocation space in which many of our customers house their equipment.
We believe that this colocation space is of unique value because of its
proximity to the end-user. By colocating at a Focal facility, our content and
application service provider customers will be at a point closest to the edge
of the Internet, resulting in improved connections and faster download speeds.
As of March 31, 2000, we had over 110,000 square feet of secure and
environmentally-conditioned colocation space available to our customers or
under development. As part of our new data services strategy, we plan to expand
our colocation space to approximately 500,000 square feet across 36 FIX centers
located in our 24 target markets.
44
<PAGE>
We believe we will have a competitive advantage over other carriers and
Internet infrastructure companies due to our:
. Established relationships with some of the largest corporate, ISP and
VAR customers in the nation
. Network infrastructure, which has been designed with colocation space
adjacent to our switching centers
. Highly reliable network
. Reputation for quality service and customer care
. Ability to package switched local service and high-speed data and
Internet connections
In addition to these new data services, we continue to deploy DSL services
and a nationwide network based on ATM technology. We believe that by providing
a full portfolio of data services, we will better serve the needs of our
customers and appeal to a broader market.
To support our long distance service offerings, we have leased
approximately 23,000 DS-3 miles of transport capacity connecting each of our
existing and planned markets. Using these facilities, we are developing our
nationwide ATM network to carry data and voice traffic. This will allow us to
provide virtual private network services for both data and voice. We are
currently able to price long distance voice calls that remain on the Focal
network as if they were local calls using our FocaLINC service.
We believe we were the first competitive communications provider to employ
the "smart-build" approach to network design. As such, we own and operate our
switches, initially lease, rather than own, transport capacity and acquire
fiber transport capacity when and where the volume of customer traffic
warrants. During 1999, we leased facilities for 100% of our transport
requirements. However, we signed agreements with Level 3 Communications and
Metromedia Fiber Network Services to acquire a combined minimum of 10,800
fiber miles of our own local fiber transport capacity in many of our markets.
We activated our own Chicago transport network in February 2000 and expect to
activate our remaining transport networks in other markets by the end of 2000.
By combining leased with owned fiber capacity, we expect to better control
these assets and generate stronger operating results.
We also expect to apply our "smart-build" approach to the design of our
Internet services infrastructure. We plan to initially buy Internet transit
services from a minimum of three Internet backbone providers in each of our
planned markets. This strategy is consistent with the approach we have taken
with transport capacity.
A majority of our revenue is currently derived from the provision of
switched data services for our targeted customers. Due to customer demand, in
each of our markets we are deploying digital subscriber line, or DSL,
nationwide networking using asynchronous transfer mode, or ATM, technology,
and a new set of data services, which includes managed high-speed Internet
access, content and application hosting and peering services. We believe that
by providing these data services, we will appeal to a broader customer base.
Market Potential
We believe communications-intensive users in large metropolitan markets are
inadequately supplied with highly reliable data and voice services. We also
believe that these types of users will increasingly demand diversity in
communications providers. As a result, we have chosen to initially do business
only in large metropolitan markets with a high concentration of
communications-intensive customers. We select our target geographical markets
using several criteria:
. Sufficient market size
. Favorable regulatory environment
. The existence of multiple fiber transport and Internet backbone
providers with extensive networks
. The existence of, or ability to obtain, attractive interconnection
agreements with the ILEC
45
<PAGE>
We currently offer circuit-switched data and voice services and plan to
offer packet-switched data services and high-speed Internet services. We
believe the market potential in our target markets for these services is large
and rapidly growing. By the end of 2000, we estimate:
. the addressable market for circuit-switched data and voice services will
be $64 billion
. the addressable market for private line and packet-switched data
services will be $11 billion
. the addressable market for high-speed Internet services, including
access and colocation will be $12 billion.
Consequently, we estimate our total market potential within our target markets
to be approximately $87 billion by the end of 2000.
Market for Circuit-Switched Data and Voice Services
The market potential is large and growing for circuit-switched data and
voice services. According to data published by the FCC, these communications
services in the U.S. generated 1998 revenues of approximately $165 billion, net
of access charges. A market study done by our management estimates that
switched services from the business and residential segments in the
metropolitan markets we intend to serve by the end of 2000 will generate
revenue of approximately $64 billion in 2000.
Market for Private Line and Packet-Switched Data Services
According to Frost & Sullivan, the total U.S. market for private line and
packet-switched data services will grow at an annual rate of approximately 15%
from about $22 billion in 1998 to approximately $44 billion by 2003. The DSL
portion of this market in the U.S. is anticipated to grow at an annual rate of
approximately 39% over the same period. Much of the growth is expected to
result from increased demand for streaming media, e-mail, web hosting services,
e-commerce, collaborative workflow and real-time video services and
applications. We estimate that the addressable market for private line and
packet-switched data services in the metropolitan markets we intend to serve by
the end of 2000 will be approximately $11 billion.
Market for High-Speed Internet Services
With the advent of high-speed access, the Internet has become a tool for
mission-critical business applications and consumer services. Pioneer
Consulting predicts that the demand for Internet bandwidth will increase from
0.33 terabits per second in 1999 to 11.9 terabits per second in 2003, creating
a market that in 2003 will be $122 billion in revenues, based on our estimates.
The market for colocation and peering is also expected to grow along with
Internet bandwidth. We approximate that our addressable market for high-speed
Internet services, including access, colocation and peering, will be
approximately $12 billion in the year 2000 for the metropolitan markets we
intend to serve by the end of 2000.
46
<PAGE>
The table below summarizes estimates from our market study regarding our
current and planned markets. You should be aware that, with the exception of
the "Operational Markets," the launch period shown in the second column is our
current estimate of when we will begin providing services in our planned
markets. These estimates are subject to change based upon numerous factors,
including timely performance by third party suppliers and receipt of required
regulatory approvals. You should also be aware that we may choose not to deploy
networks in the markets named below. The markets targeted for launch in 2001
are preliminary and each may be replaced by other markets.
<TABLE>
<CAPTION>
Estimated Number of
Business and Switched
Launch Period Access Lines (1)
------------------- ---------------------
(in thousands)
<S> <C> <C>
Operational Markets:
Chicago, IL........................... May 1997 6,014
New York, NY.......................... January 1998 8,567
Philadelphia, PA...................... September 1998 3,117
San Francisco, CA..................... September 1998 1,699
San Jose, CA.......................... September 1998 1,414
Oakland, CA........................... September 1998 1,932
Washington, DC........................ December 1998 3,412(2)
Northern Virginia..................... December 1998 -- (2)
Los Angeles, CA....................... December 1998 6,937
Orange County, CA..................... December 1998 3,975
Northern New Jersey................... January 1999 5,108
Boston, MA............................ January 1999 4,082
Detroit, MI........................... June 1999 3,711
Seattle, WA........................... September 1999 2,424
Dallas, TX............................ December 1999 2,122
Fort Worth, TX........................ December 1999 963
Atlanta, GA........................... March 2000 2,587
Houston, TX........................... March 2000 2,788
Planned Markets:
Cleveland, OH......................... Second Quarter 2000 1,921
Minneapolis, MN....................... Third Quarter 2000 1,781
Baltimore, MD (3)..................... First Quarter 2001 1,840
Miami, FL (3)......................... Second Quarter 2001 2,098
San Diego, CA (3)..................... Second Quarter 2001 1,906
St. Louis, MO (3)..................... Third Quarter 2001 1,747
------
Total: 72,145
======
</TABLE>
- --------
(1) Access line data has been estimated as of December 31, 2000.
(2) Data for Northern Virginia are included in the data for Washington, DC
(3) Represents markets currently under evaluation for 2001. We cannot assure
you that we will actually deploy networks in these markets. We may choose
to substitute other markets.
47
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Strategy
Our objective is to become the provider of choice for data, voice and
colocation services to large, communications-intensive customers in our target
markets. We are responding to the evolving demands of our existing customers
and positioning ourselves to provide the high-quality voice and data services
that they require. To achieve this objective we intend to:
. Leverage Strong Customer Relationships--Our customer base includes a
substantial number of large corporations, ISPs and VARs, some of which
are:
<TABLE>
<S> <C> <C> <C>
IBM Sony Citigroup United Airlines
E*Trade Merrill Lynch Mindspring GTE Internetworking
CompuServe Nortel Networks Sears Motorola
OnSite
Access Seren Innovations UniDial Communications Sprint
</TABLE>
We have built strong relationships with these customers. Focal has a
reputation for reliable, sophisticated service and superior customer
care and support. We operate a robust network in order to meet the
demanding requirements of our communications-intensive customers. We
also have a sophisticated sales force that works closely with our
customers to make sure that their needs are met. We believe that the
strength of our existing customer relationships gives us a competitive
advantage over other communications services providers who may try to
target our customer base. Consequently, we believe we can leverage the
relationships we have built with our customers and increase our share
of their total communications expenditures by selling them additional
services.
. Expand Service Offerings--We intend to expand our suite of service
offerings in response to our customers' demand for sophisticated new
services. Our new data services business will offer valuable Internet
infrastructure services, including managed, high-speed Internet access,
"edge-of-the network" colocation and local Internet peering points. Our
Internet access service will offer customers dedicated Internet backbone
connectivity that is faster and more reliable than service they can
purchase on their own. Due to our proximity to the Internet's end-users,
our colocation centers will provide ISPs, content providers and
application service providers with a central, convenient colocation
facility located close to the "edge" of the network. Finally, as more
ISPs, content providers and application service providers colocate with
us, we plan to offer local peering services that enable these parties to
directly connect with each other at our facilities, thereby avoiding the
congestion at public interconnection points. We believe this strategy
will allow us to significantly grow our revenues and increase our
profitability as we drive additional demand for our existing services,
increase the penetration rate of our new services and leverage our
existing network, sales and management infrastructure.
. Design a Capital-Efficient Network--By utilizing the "smart-build"
approach to network design we believe we have optimized our return on
invested capital. We do this by initially leasing, rather than owning,
fiber capacity, concentrating our capital expenditures on switching
facilities and information systems and acquiring fiber transport
capacity as the volume and demands of our customer traffic warrants.
Because of increased customer traffic volume in some of our markets, we
began acquiring our own fiber transport capacity in 1999. By continuing
to use the "smart-build" approach to network and service deployment, we
expect to reduce the time and money required to launch new markets and
services, minimize the financial risk associated with underutilized
networks and generate revenue and cash flow more quickly. We intend to
use this same strategy as we launch our new suite of Internet services.
. Expand Geographic Coverage--We believe the market potential for Focal's
services in markets with high concentrations of communications-intensive
users is large and growing. We currently offer services in 18 large
metropolitan markets across the United States and intend to aggressively
deploy additional facilities in other key markets. As part of our
deployment plan, we expect to have a total of
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20 markets operational by the end of 2000, and to expand into four
additional markets in 2001. We believe the total addressable market for
all of our services will amount to $87 billion in revenue in 2000.
. Maximize Network Utilization--We supplement our direct sales efforts
with indirect sales to maximize the utilization of our network assets
and systems infrastructure. To achieve this goal we actively utilize our
VAR distribution channel. We provide services to VARs, such as managers
of multi-dwelling units and companies that market bundled communications
services to small- and medium-sized businesses. This enables us to
increase the number of access lines served by our networks, driving
network utilization. We also intend to pursue ways to maximize
utilization rates for our Internet backbone. For example, we plan to
sell unused upstream capacity to ISPs, content providers and application
service providers as a way to maximize the utilization and efficiency of
our network.
Networks
We have installed Nortel DMS-500 SuperNode digital central office switches
in each of our existing markets, and currently plan to deploy similar switches
in our additional markets. As we add customers in a market, it has generally
been cost-effective for us to use leased fiber transport capacity to connect
our customers to our network. We have initially leased local network trunking
facilities from the ILECs in each of our markets in order to connect our
switches to major ILEC central offices serving our central business district
and outlying areas of business concentrations. We have chosen to design our
networks using this "smart-build" approach, which involves purchasing and
maintaining our own switches while leasing our fiber transport facilities on
an as-needed basis. This provides us with added negotiating leverage in
obtaining favorable terms from transport providers and allows us to offer our
customers both redundancy and diversity. In addition, we have designed our
networks to maximize call completion and significantly reduce the likelihood
of blocked calls, which helps us satisfy the needs of our high-volume
customers. This "smart-build" approach is possible because there are multiple
vendors of local fiber transport facilities in each of our large metropolitan
markets, both current and planned. Our switch-based, leased transport network
architecture has allowed us to:
. Reduce the time and money required to launch a new market
. Minimize financial risk associated with under-utilized networks
. Generate revenue and cash flow more quickly
We have the flexibility to add or subtract leased local transport capacity
on an incremental basis with the addition or loss of customers. We believe
that the quantity of existing and planned fiber transport facilities available
from numerous carriers will be sufficient to satisfy our need for local leased
transport facilities and permit us to obtain these facilities at competitive
prices for the foreseeable future. The fiber transport providers in our
current and planned markets compete with each other for our business in order
to maximize the return on their fixed-asset networks, which enables us to
obtain competitive pricing. In addition, because each of our fiber transport
capacity providers is a common carrier, they are required to make their
transport services available to us on terms no less favorable than those
provided to similar customers.
Although during 1999 we leased 100% of our transport facilities, we believe
that it is now economically attractive for us to own a portion of our local
transport capacity because of increased volumes of customer traffic between
our switches and specific ILEC central offices in some of our markets. We are
a party to agreements with Level 3 Communications and Metromedia Fiber Network
Services for the acquisition of local fiber transport capacity covering a
combined minimum of 10,800 fiber miles.
Our agreement with Level 3 Communications provides us with an indefeasible
right of use, or IRU, for a specified number of fibers being constructed or
acquired by Level 3. The IRU in each covered market has a 20-year term and
covers a total of approximately 8,300 fiber miles. Under this agreement, we
are required to pay fees totaling approximately $18 million, payable in
installments based upon the achievement of construction
49
<PAGE>
and installation milestones. We activated our own Chicago transport network in
February 2000 and expect to activate our remaining transport networks in other
markets by the end of 2000. The Level 3 agreement also requires us to pay
nominal quarterly operations and maintenance fees based upon the number of
fiber route miles covered. Our 20-year agreement with Metromedia Fiber Network
Services provides for the long-term lease of a minimum of 2,500 fiber miles of
fiber optic capacity for approximately $53 million over the 20-year term. This
agreement also gives us the option to lease additional fiber in Metromedia
Fiber Network Services' markets for lease payments that decrease according to a
sliding scale based on volume.
We have also employed a "smart-build" approach in developing our inter-
city strategy. Initially, we resold long distance transmission service by
buying minutes on a wholesale basis. Going forward, we have decided to lease
fiber optic transport capacity connecting our switches between each of our
existing and planned markets. We will therefore transport our calls from market
to market over our own network and terminate the calls either directly at our
customer's location or at the ILEC switch. For international calls, we have
negotiated agreements with various international carriers for termination of
our international calls throughout the world.
To implement our inter-city network, we have signed agreements with a
number of carriers under which we have leased approximately 23,000 DS-3 miles
of transport capacity connecting each of our existing and planned markets. This
inter-city, DS-3 backbone network will initially be based on time division
multiplexing technology. During 2000, we plan to convert the inter-city
backbone to ATM technology. We believe the use of ATM switches will provide
greater flexibility in creating and managing both data and voice services over
the same physical network. We are currently able to price inter-city calls that
remain on our network as if they were local calls--a service we call FocaLINC.
We are a party to a private line service agreement with MCI WorldCom
providing for the lease of fiber transport capacity that will be used to
connect our existing and planned markets. Under this agreement, we have agreed
to pay total charges of at least $70 million for private line services,
including existing private lines used within our markets to provide local
service. The charges are payable as minimum annual volume commitments of $10
million in the year ended May 3, 2000, $13.2 million in the year ended May 3,
2001 and $15.6 million in each of the years ended May 3, 2002, 2003 and 2004.
If we terminate the agreement prior to the end of the term, we are required,
with limited exceptions, to pay the difference between the commitment for the
relevant year and our actual charge, as well as 50% of the commitment for each
remaining year during the term.
In order to support high-speed access to corporate LANs, we began in 1999 to
deploy DSL technology in our key markets. We are obtaining colocation space
from the ILECs and installing DSL access multiplexers, or DSLAMs, in colocation
cages in ILEC central offices located in densely populated regions. Once
installed, the DSLAMs terminate into an ATM switch, which transports high-speed
data from end users to Focal's corporate customers. These customers then manage
the flow of this traffic onto their corporate LANs.
To launch our new data services, which we expect will include managed high-
speed Internet access, colocation and peering services, we plan to:
. Build a new Internet platform, called a Focal Internet eXchange, or FIX,
in each of our switch and colocation sites. Each FIX will consist of a
state-of-the art, fully-redundant, powerful Internet routing and
switching infrastructure that will enable us to provide high quality
Internet access services to our customers. The local facilities will be
monitored by a centralized data network operations center, staffed 24
hours a day, seven days a week, and supported by trained technical
resources in the field.
. Purchase transit services from a minimum of three Tier-1 backbone
providers in each of our planned markets. The transit services will
terminate in routers in our FIXs, giving our customers direct access to
multiple Internet backbones and allowing them to bypass congested, public
interconnection points.
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Products and Services
Data Services
Existing Services. Focal Virtual Office is designed to allow a corporate
customer's employees to dial-in to the corporate customer's local area network
using a telephone number in the employee's local calling area. This allows the
employee to access the local area network for the price of a local call and
enables our corporate customer to avoid the higher cost of maintaining region-
wide 800 service for local area network access. In addition, our Virtual Office
customers are able to use the Focal Finder(TM) service, an interactive tool
placed on the customer's web site that automatically provides a telecommuting
employee with the local calling number to be used for server access.
Focal Multi-Exchange Service, a variant of the Focal Virtual Office service
marketed to ISPs, allows an ISP's customers to cost-effectively access the
ISP's remote access servers. The combination of the multi-exchange service
capacity and our high level of customer care has resulted in strong demand for
our Multi-Exchange Service from ISPs.
We are currently deploying DSL access services to provide high-speed,
dedicated access to corporate LANs and the Internet. This service is being
marketed to each of our targeted customer segments-- large corporations, ISPs
and VARs. DSL service is or will be available in a variety of speeds ranging
from 144 kilobits per second to up to seven megabits per second. We believe DSL
access service is a natural extension of the switched data services that we
have provided since inception.
On July 2, 1999, Focal entered into a five-year joint marketing and service
agreement with Splitrock Services, Inc., subsequently acquired by McLeodUSA
Incorporated, a provider of advanced data communications services to ISPs,
telecommunications carriers and other businesses. Under this agreement, McLeod
has agreed to purchase a minimum of 10,000 DSL lines as may be needed by McLeod
to provide service to McLeod's wholesale customers or retail end-users in
Focal's markets, subject to service availability on a timely basis. Focal also
has been granted a right of first refusal to provide DSL service to McLeod
within Focal's service territory to the extent McLeod is not providing DSL
services over its own network. In turn, McLeod has been granted a right of
first refusal to offer specified data communications and network services if
Focal itself does not offer these services within the relevant geographic
market. The parties have also agreed to cooperate in selected network planning
functions.
With the purchase of our own fiber capacity, we believe we can offer both
intra-city and inter-city private line data services at attractive prices.
Consequently, we plan to more aggressively market private lines for data
applications to new and existing customers.
We offer our customers the ability to colocate equipment in our switching
centers. Equipment colocation benefits the customer by allowing it to
inexpensively house its data equipment without having to maintain secure,
environmentally controlled space. We also offer them equipment maintenance
services. These services are particularly well-suited to our ISP customers, who
frequently operate remote access servers and routers in conjunction with our
switched services. As of March 31, 2000 we had over 110,000 square feet of
customer colocation space available or under development.
New Services. As overall Internet usage has grown, it has placed tremendous
demands on public networks and peering points. As traffic moves from one
Internet backbone to another, it passes through a variety of interconnection
points. Users frequently complain about delays, lost packets and other
deterioration in service at these congested exchange points. At the same time,
access speeds available to consumers and businesses continue to increase. New
technology and faster modems are accelerating the speed at which users can
access the Internet.
With these greater access speeds and as more and more companies begin to
distribute content and applications over the Internet, demand for larger-sized
files and more complex applications has increased. As a
51
<PAGE>
result, reliable Internet network performance has become essential to
businesses and consumers. Erratic performance and lengthy delays, once an
acceptable norm, have become unacceptable. For most, this means that fast,
reliable and stable delivery of content and applications will become the new
standard.
Our new data services respond to this increased demand for high-speed
Internet access and improved Internet content and services delivery. We
recently created a new data services business to provide our customers with
faster, reliable solutions to Internet connectivity. We expect these services
will include managed high-speed Internet access, colocation and peering
services. By building on our reputation as a premier provider of local dial-up
access services to ISPs, we intend to expand the value proposition to our
customers while satisfying their demand for additional Internet services.
Our managed high-speed Internet access services will be targeted to our
corporate and ISP customer segments. We expect that these services will provide
high-quality access optimally routed over multiple Tier-1 Internet backbone
networks. We will buy Internet transit services from a minimum of three Tier-1
backbone providers, terminating those connections on our routers in our
switching centers. We believe that our aggregation of different providers and
control over these routers will allow us to provide a higher quality of service
than our customers could otherwise afford. The service would allow direct
access to the leading global backbones with private peering connections to
reach most of the Internet's top destinations, with availability of other
backbones in case of a network failure or outage. We expect that this solution
will reduce most of the problems, namely packet loss and latency, that slow
Internet services today, and will provide faster download speeds and increased
reliability.
We also intend to sell upstream bandwidth in bulk to colocation customers
who need to send large amounts of data to the Internet. Since most of our
current customers will typically send small files to and receive large files
back from the Internet, the remaining "upstream" bandwidth is often unused and
can be packaged for customers needing a one-way service. While this is a
targeted, niche market, it nonetheless offers us the opportunity to sell, at a
small incremental cost, bandwidth that would otherwise be unused.
Our colocation services will be targeted to customers who need to reach a
high concentration of end-users. Following the installation of a FIX, we will
be able to offer an enhanced colocation environment to our customers. By
colocating in a Focal facility, our colocation customers will have the ability
to improve the performance of content and application delivery by situating as
close to the edge of the network as possible and reach customers of multiple
ISPs from one location. Potential customers for this service include content
replication and distribution services, streaming media hosting services,
application service providers, unified messaging providers and companies
providing downloads of software and other large files.
We believe that our private peering points will facilitate a more reliable
exchange of traffic than is currently available. The current peering option for
most of our ISP customers is to exchange traffic at the public exchange points.
These public exchange points are major bottlenecks in the transfer of data as
congestion causes lost packets and delays. By managing a private peering
environment for the exclusive use of our customers, we will be able to
facilitate smoother exchanges of Internet traffic.
While we expect that each of our Internet services will stand on its own,
the services are highly complementary. We believe that we will attract
colocation customers because we offer convenient access to end-users of
multiple ISPs. We believe we will attract ISP and corporate customers not only
because of our more reliable connectivity services, but also because of the
ready access to content and applications that our customers may host in our
facilities.
Voice Services
Inbound Services. Our basic, inbound service allows for the completion of
calls to a new phone number we supply to our customer. Alternatively, local
number portability, or LNP, allows us to provide inbound services using a
customer's existing phone number. While LNP is occasionally unavailable and
cumbersome to implement, it permits us to serve customers without altering
their existing phone numbers. Consequently, we expect LNP to become
increasingly useful to us in taking existing business from our primary
competitors, the ILECs.
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Direct inward dial service allows inbound calls to reach a particular
station on a customer's phone system without operator intervention. We market
direct inward dial service to our corporate customers as both a primary and
backup service. As a primary service, the customer uses Focal numbers where a
new line and number are needed, as when a customer hires a new employee. As a
backup service, we can implement an alternative numbering plan for the customer
in case the customer's primary service from the ILEC or another CLEC is
interrupted.
Outbound Services. Our basic outbound services allow local and toll calls to
be completed within a metropolitan region and long distance calls to be
completed worldwide. This direct outward dial service is utilized by end users
in several ways. As a primary service, a customer uses Focal as a replacement
for the ILEC in placing calls to destinations within the region. In our least
cost routing application, a customer can utilize our service in conjunction
with its existing ILEC service to route calls using whichever carrier is least
expensive for that particular type of call or time of day.
Other outbound applications include outbound 800 calling and long distance
overflow service. In order to encourage customers to use our service, we offer
customers an incentive for letting us provide their outbound 800 calls. In the
case of long distance overflow service, we act as a backup to the customer's
existing long distance carrier in order to optimize the number of direct,
special access lines installed from the customer's premises to the long
distance carrier's network.
Our FocaLINC service is designed to price inter-city calls that remain on
our network as if they were local calls. This product provides a cost-effective
way for our customers in one market to make calls to their offices in other
Focal markets.
All of the services described above are commonly provisioned over a high-
speed digital communications circuit called a T-1 facility and interface
directly with our customers' private branch exchange or other customer-owned
equipment. Direct interfacing averts our need to provide multiplexing
equipment, which combines a number of communications paths onto one path, at
the customer's location. This is possible due to the high call volume generated
by the large communications-intensive customers we target. Our ability to
directly interface with existing customer equipment further minimizes our
capital investment and maximizes our overall return on capital. We also believe
our installation of DSL equipment utilizing HDSL2 technology will allow us to
more cost-effectively provision T-1 facilities needed for voice customers. In
addition DSL technology will allow us to reach more customers in areas not
currently served by fiber.
Advanced Services
CDR Express provides our VAR customers with automated delivery of daily call
detail records, or CDRs, via the Internet. This system enables these customers
to accurately bill their customers in a secure environment. CDR Express, as
well as some other Focal products, are located in Your Domain--a section of our
web site specifically dedicated to each customer. Your Domain enables our
customers to access their most recent invoices, call detail records and the
customer order entry forms. Your Domain is protected by a customer's user name
and password. Your Domain can also inform customers of new product offerings
being developed by us. Our Form View product, located in Your Domain, allows
our customers to download order forms and other important documents through the
Internet at their convenience.
Focal FLOW is an outbound service marketed to VARs that need to be able to
switch outbound traffic among multiple long distance or international carriers.
We partition our central office switch so VARs can utilize the core switching
capability of our equipment at reasonable per minute or per port cost.
Sales and Marketing
Our primary objective is to satisfy the need for highly reliable
communications services for communications-intensive users in the large
metropolitan markets in which we operate by providing diverse, reliable and
sophisticated services. We believe that we have a competitive advantage in
satisfying this need since we are focused on delivering a specific set of
innovative services to our target customers.
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Diversity. Focal provides diversity to communications-intensive users by
delivering highly reliable, local communications services as an alternative to
the ILEC. This type of diversity already exists in other areas of
communications services, such as long distance. Communications-intensive
customers clearly embrace the benefits of diversity, particularly because
redundancy minimizes the effects of facilities failures and maximizes
competitive pricing. As a result, most of our target customers typically have
multiple long distance providers, multiple equipment vendors and multiple local
private-line providers. Because of our focused strategy, we believe that we are
uniquely positioned to become the provider of choice for data and voice
communications services for large, communications-intensive corporate users,
VARs and ISPs. Our focused strategy is based on our ability to deliver the
superior level of diverse, reliable and sophisticated services that our
customers require.
Reliability. We provide reliable service to communications-intensive users,
who are highly sensitive to the potential effects of facilities failures, by
designing our networks around the same theme of diversity that we advocate for
our customers. Although local services are perceived as simple, basic services,
the delivery of highly reliable, local services requires sophisticated systems.
We have engineered our switching and transport networks to meet the demanding
traffic and reliability requirements of our target customers. Our network
strategy is based on developing and operating a robust, reliable, high-
throughput local network relative to the ILECs and other CLECs. Because we are
a relatively new entrant to the markets we serve, we must meet or exceed the
performance quality of the existing local networks in order to attract
communications-intensive users to our networks. Unlike smaller users that tend
to pre-qualify vendors based on price, we believe that communications-intensive
users choose vendors based on the performance of their networks, and
specifically, their reliability. As a result, the design and operation of our
network are key success factors in our business development process.
We conducted extensive research to identify the best hardware for the high-
volume users that we serve. As a result of this research, we selected Nortel
DMS-500 SuperNode central office switches, which we have engineered to reduce
significantly the likelihood of blocked calls and to maximize call completion.
As such, our customers are unlikely to find themselves unable to complete or
receive calls due to limitations inherent in our switches. We typically connect
to a large number of switches in the ILEC's network. As of March 31, 2000, we
had connected to a total of 1,447 ILEC switches. We believe this is a
competitive advantage because it increases call completion even if a portion of
the ILEC's trunking network becomes blocked. We optimize the configuration of
our network by implementing overflow routing between the ILEC's network and
ours, where available. Because the customer base of the ILECs and other CLECs
is not typically as communications-intensive as ours, we specifically
engineered our network to accommodate traffic volumes per customer far in
excess of that which the ILECs or other CLECs typically experience. We believe
that our design is unique among ILECs and CLECs and is attractive to our target
customer base of communications-intensive users. In addition, we enhance our
reliability by delivering service from our switches to customers over multiple
fiber transport systems.
We have also implemented safeguards in our network design to maximize
reliability. The DMS-500 SuperNode switch allows us to distribute customer
traffic across multiple bays of equipment, thus minimizing the effects of any
customer outage. In addition, these switches were engineered by Nortel Networks
with fully redundant processors and memory in the event of a temporary failure.
Similarly, we design our FIXs to achieve high levels of reliability by
connecting each FIX to at least three Internet backbone providers and by
building two levels of redundancy into our switching and routing infrastructure
at each FIX. Our disaster prevention strategy includes service from multiple
power sources where available, on-site battery backup and diesel generator
power at each switching facility to protect against failures of our electrical
service.
Sophistication. Our target customers are knowledgeable, sophisticated buyers
of communications services that demand a high level of professionalism
throughout a vendor's organization. We believe that the technical
sophistication of our management and operations team has been a critical factor
in our initial success and will continue to differentiate us from our
competitors. Execution of our strategy of penetrating communications-intensive
accounts requires a well-experienced team of sales professionals. As a result,
attracting and retaining
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experienced sales professionals is important to our overall success. Our sales
professionals' compensation is structured to retain these valuable employees
through the grant of stock options and cash compensation incentives based on
our revenue and operating cash flow objectives.
We divide our direct sales force into four groups:
. The data services group
. The corporate services group
. The telecom services group
. The Internet services group
The data services group is responsible for selling to information services
providers, DSL providers and other data carriers, including ISPs. We are able
to offer several innovative services to ISPs, such as environmentally
conditioned colocation space, virtually non-blocking switching and transport
facilities and firm installation times. Servicing ISPs also maximizes our
network utilization by bringing traffic onto our network during periods, such
as evenings or weekends, when the network would otherwise be under-utilized.
The corporate services group is responsible for selling to large corporate
users. Our sales strategy for these corporate customers is to complement the
customer's service from the ILEC. Our initial sale to a corporate customer
typically involves installing incremental lines for specialized inbound
services, such as Virtual Office, or replacing only a limited number of
outbound lines. After we build the service relationship, we anticipate
increasing our overall penetration of the customer's local service. Over a
period of time, we hope to dominate a corporate customer's local switched
traffic. We emphasize the diversity, reliability and sophistication of our
services in order to earn our place as the local provider of choice for our
corporate customers.
The telecom services group markets directly to VARs and other carriers by
positioning us as a highly-reliable, responsive and cost-effective source of
wholesale local communications services. We believe a wide array of
communications service providers, including long distance companies, will seek
to provide bundled communications services in the large metropolitan markets we
target. We are well-positioned to be the provider of choice for re-bundled
local service. Because we do not intend to directly distribute our services to
residential or small- and medium-sized business customers, we believe that VARs
and other carriers looking to purchase the local service portion of their
bundled service offerings are more likely to purchase service from us rather
than from other ILECs or CLECs that compete with them.
The Internet services group will market our managed high-speed Internet
access, colocation and peering services to large corporate users, information
services providers, VARs, DSL providers and other data carriers, including
ISPs. This group will work as an overlay sales team to the data services group,
the telecom services group and the corporate services group, leveraging our
existing relationships. While our initial customer relationships have been
built by our data services, telecom services and corporate services groups, the
Internet services group will bring depth and expertise in understanding
customer demands related to the Internet and will provide robust solutions to
customer issues.
Information Systems
Superior customer service is critical to achieving our goal of capturing
market share. We are continually enhancing our service approach, which utilizes
a trained team of customer sales and service representatives to coordinate
customer installation, billing and service. Comprehensive support systems are
also a critical component of our service delivery. We have installed systems
designed to address all aspects of our business, including service order,
network provisioning, end-user and carrier billing, and trouble reporting. The
efficiency of our operating processes contributes to our ability to rapidly
initiate service to new accounts. Our installation desk follows a customer's
order, ensuring the installation date is met. Additionally, our customer sales
representatives respond to all other customer service inquiries, including
billing questions and repair calls.
We are enhancing our systems and procedures for operations support, order
provisioning and other back office systems in order to facilitate and
streamline the processing of large order volumes and customer service.
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These systems are required to enter, schedule, provision and track a customer's
order from the point of sale to the installation and testing of service. The
existing systems currently employed by most ILECs, CLECs and long distance
carriers generally require multiple entries of customer information to
accomplish order management, provisioning, switch administration and billing.
This process is not only labor intensive, but it creates numerous opportunities
for errors in provisioning service and billing, delays in installing orders,
service interruptions, poor customer service, increased customer turnover and
significant added expenses due to duplicated efforts and decreased customer
satisfaction.
We are currently using order management software to develop processes that
allow us not only to enter customer orders onsite, via computer and/or over the
Internet, but also to monitor the status of an order as it progresses through
the service initiation process. This software supports the process by which we
convert a customer to our network from the local exchange network of an ILEC or
other carrier, including circuit design and work flow management.
Electronic Bonding with ILECs. In an effort to make the initiation of
service for a customer more efficient, we and Ameritech Illinois have
implemented electronic bonding between our operations support systems.
Electronic bonding is expected to improve productivity by decreasing the period
between the time of sale and the time a customer's line is installed. We
activated electronic bonding with Ameritech in the fourth quarter of 1999.
Electronic bonding allows us to access data from the ILEC, submit service
requests electronically, and more quickly attend to errors in the local service
request form because an order is bounced back if the ILEC determines that there
is a mistake. As a result, we expect to be able to eventually substantially
reduce the time required to switch service to us. Electronic bonding should
also enable us to improve our ability to provide better customer care since we
will more readily be able to pinpoint problems with a customer's order.
Electronic Bonding with Customers. We are also working toward the electronic
bonding of that portion of the billing process in which we gather customer
specific information, including their current service options, and the process
of identifying and resolving customer service problems.
We believe automation of internal processes contributes to the overall
success of a service provider and that billing is a critical element of any
telephone company's operation. We deliver billing information in a number of
media besides paper, including electronic files and Internet inquiry. Our
Invoice Domain service allows customers to securely access and view their
monthly invoices over the Internet. In addition, this service allows customers
to download call detail records. Similarly, our VAR customers can download call
records on a daily basis through our secure web site. This allows them to
efficiently process invoices for their end-user customers.
Significant Relationships
We have no customers that accounted for more than 10% of our revenues during
the three years ended December 31, 1999.
Our relationships with Ameritech and Bell Atlantic are mandatory, co-carrier
relationships and are not that of a customer and supplier. Nevertheless,
Ameritech and Bell Atlantic are shown here due to their contribution to our
revenues for the three years ended December 31, 1999. Ameritech Illinois and
Bell Atlantic New York accounted for approximately 43% and 20% of our
consolidated revenues in 1999, respectively, and 59% and 16% of our
consolidated revenues in 1998, respectively. Ameritech Illinois accounted for
approximately 81% of our consolidated revenues in 1997. The revenues from these
carriers for the three years ended December 31, 1999 are the result of
interconnection agreements we have entered into with them relating to the
transport and termination of communications traffic. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"--Regulation" for further discussion regarding reciprocal compensation.
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Competition
Portions of our industry are highly competitive. We face a variety of
existing and potential competitors, including:
. The ILECs in our current and target markets
. Other voice and data CLECs
. Long distance carriers
. Potential market entrants, including cable television companies, VARs,
electric utilities, microwave carriers, wireless telephone system
operators and private networks built by large end-users
. Foreign carriers
. Internet infrastructure companies
Our primary competitor in each of our existing and planned markets is the
ILEC. Examples include BellSouth, Bell Atlantic, U S WEST, SBC (including its
subsidiaries Ameritech Illinois and Pacific Bell) and GTE. These ILECs are
generally required to file their prices with the state regulatory agencies in
their service areas. Any price changes must be reflected in these filings. The
ILECs have also generally been given the flexibility to respond to competition
with lower pricing. In most cases, proposals for lower pricing must also be
filed with the state utility commissions and the pricing must be made available
to similarly situated customers. We believe this provides a disincentive for
the ILECs to significantly vary or discount prices even in competitive
situations. However, as a CLEC, similar obligations apply to us. See "--
Regulation--State Regulation."
The ILECs offer a wider variety of services in a broader geographic area
than ours and have much greater resources than we do. This may encourage an
ILEC to subsidize the pricing for services with which we compete with the
profits of other services in which the ILEC remains the dominant provider. We
believe competition has limited the number of services dominated by ILECs. In
addition, state regulators have exercised their enforcement powers in a way
that makes it unlikely the ILECs would be able to successfully pursue this type
of protective pricing strategy for an extended period.
In addition to competition from ILECs, we also face competition from a
growing number of other CLECs. Although CLECs overall have only captured
approximately 5% of total revenue of the U.S. local telecommunications market,
we nevertheless compete to some extent with other CLECs in our customer
segments. There are typically several other CLECs competing in each
metropolitan market we serve or plan to enter. Examples of data and voice CLECs
in our markets include Allegiance Telecom, Covad Communications Group, MCI
WorldCom, NEXTLINK Communications, NorthPoint Communications Group, Rhythms
NetConnections and Teleport Communications Group, now a part of AT&T. In some
instances, these CLECs have resources greater than ours and offer a wider range
of services. Many of the CLECs in our markets target small- and medium-sized
business customers, which differs from our target customer base of large,
communications-intensive users.
The data services market is also extremely competitive. Our principal
competitors in this market include Internet connectivity providers such as
UUNET Technologies and Verio, private peering companies, such as InterNAP
Network Services and Equinix, RBOCs that offer Internet access, global,
national and local ISPs and companies that offer colocation services, such as
Exodus Communications and AboveNet Communications. We also believe that new
competitors will enter the data services market. See "Risk Factors--
Competition."
Some of the ILECs recently requested, among other things, that the FCC relax
regulation of their provision of advanced data networks, which may also be used
for voice traffic. While the FCC has denied those requests, it has initiated a
rule-making that is intended to establish the procedures and safeguards
necessary before these ILECs could, through separate subsidiary companies,
provide these services on a largely
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deregulated basis. If adopted, these rules may provide additional opportunities
for competition from these ILECs. SBC and Ameritech received authority from the
FCC to create such a subsidiary in the FCC's approval of their merger. Bell
Atlantic New York also received similar authority with the recent grant of its
application to provide long-distance service in New York. The FCC recently
released an order addressing, among other things, colocation rights of carriers
offering advanced data services, but deferred action on the separate subsidiary
issue. Bills have been introduced in Congress that would grant RBOCs permission
to provide data services in areas where they are currently restricted from
doing so. Although we cannot predict the outcome of any proposed or pending
legislation, the ability of RBOCs to provide data services on a broader basis
could have a material adverse effect on us. In addition, the FCC recently acted
to enable ISPs to buy DSL services in bulk from ILECs, which could result in
additional competition for ISPs business.
In addition to ILECs and other CLECs, we are increasingly competing with
long distance carriers. A number of long distance carriers have introduced
local telecommunications services to compete with us and the ILECs. These
services include toll calling and other local calling services, which are often
packaged with the carrier's long distance service. While we do not believe the
packaging aspect of the service is particularly attractive to the
communications-intensive customers we target, large long distance carriers
enjoy certain competitive advantages due to their vast financial resources and
brand name recognition. In addition, we believe there is a risk the long
distance carriers may subsidize the pricing of their local services with
profits from long distance services. We anticipate that the entry of some of
the ILECs into the long distance market will reduce the risk of this type of
activity by reducing the profitability of the long distance carrier's long
distance minutes. Further, to the extent the long distance carrier purchases
our service on a wholesale basis and rebundles it at a subsidized rate, we may
benefit as the subsidized, wholesale service could result in higher market
penetration than we would otherwise have achieved. In addition, we have
displaced long distance carriers where the customer was dissatisfied with the
quality of the long distance carrier's local service. We expect our reputation
for exceptional service quality and customer care will continue to result in us
displacing the long distance carrier as the primary alternative to the ILEC in
competitive situations. In addition, we expect that some of our recent and
proposed service offerings, which enable long distance calls to be priced like
local calls, will increase our competitiveness.
We compete principally on the basis of the quality, sophistication and
reliability of our service. See "--Sales and Marketing." We believe that the
principal competitive factors in our markets are speed and reliability of
service, quality of facilities, level of customer care and technical support,
and the timing and market acceptance of new services and enhancements to
existing services.
Regulation
The following summary of regulatory developments and legislation is not
complete. It does not describe all present and proposed federal, state and
local regulation and legislation affecting the telecommunications industry.
Existing federal and state regulations are currently subject to judicial
proceedings, legislative hearings and administrative proposals that could
change, in varying degrees, the manner in which our industry operates. We
cannot predict the outcome of these proceedings or their impact on the
telecommunications industry or us.
Overview. Our services are subject to varying degrees of federal, state and
local regulation. The FCC exercises jurisdiction over all the facilities of,
and services offered by, telecommunications common carriers like us to the
extent we use our facilities to provide, originate or terminate interstate or
international communications. State regulatory commissions retain jurisdiction
over most of the same facilities and services to the extent they are used to
provide, originate or terminate intrastate communications. The decisions of
these regulatory bodies are often subject to judicial review, which makes it
difficult for us to predict outcomes in this area.
Federal Regulation. We must comply with the requirements of common carriage
under the Communications Act of 1934. Comprehensive amendments to the
Communications Act of 1934 were made by the Telecommunications Act of 1996,
referred to as the Telecom Act, which substantially altered both federal
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and state regulation of the telecommunications industry. The purpose of this
legislation was to deregulate the telecommunications industry to a significant
degree, thereby fostering increased competition among carriers. Because
implementation of the Telecom Act is subject to numerous federal and state
policy rule-making and judicial review, we cannot predict with certainty what
its ultimate effect on us will be.
Under the Telecom Act, any entity may enter a telecommunications market,
subject to reasonable state safety, quality and consumer protection
regulations. The Telecom Act makes local markets accessible by requiring the
ILEC to permit interconnection to its network and establishing ILEC obligations
with respect to:
. Colocation of equipment. This allows companies like us to install and
maintain our own network equipment, including DSLAMs and fiber optic
equipment, in ILEC central offices.
. Interconnection. This requires the ILECs to permit their competitors to
interconnect with ILEC facilities at any technically feasible point in
the ILECs' networks.
. Reciprocal compensation. This requires the ILECs and CLECs to compensate
each other for telecommunications traffic that originates on the network
of one carrier and is sent to the network of the other.
. Resale of service offerings. This requires the ILEC to establish
wholesale rates for services it provides to end-users at retail rates to
promote resale by CLECs.
. Access to unbundled network elements. This requires the ILECs to
unbundle and provide access to some components of their local service
network to other local service providers. Unbundled network elements are
portions of an ILEC's network, such as copper lines or "loops," that
CLECs can lease in order to create their own facilities networks.
. Number portability. This requires the ILECs and CLECs to allow a
customer to retain an existing phone number within the same local area
even if the customer changes telecommunications services providers. All
telecommunications carriers will be required to contribute to the shared
industry costs of number portability, with the first payments made in
the fourth quarter of 1999.
. Dialing parity. This requires the ILECs and CLECs to establish dialing
parity so that customers do not perceive a quality difference between
networks when dialing.
. Access to rights-of-way. This requires the ILECs and CLECs to establish
non-discriminatory access to telephone poles, ducts, conduits and
rights-of-way.
ILECs are required to negotiate in good faith with other carriers that
request any or all of the arrangements discussed above. If a requesting carrier
is unable to reach agreement with the ILEC within a prescribed time, either
carrier may request arbitration by the applicable state commission. If an
agreement still cannot be reached, carriers are forced to abide by the
obligations established by the FCC and the applicable state commission.
We have entered into a number of interconnection agreements with the ILECs
in our markets and will enter into additional agreements as our build-out
progresses. We have existing interconnection agreements in each of our existing
markets and in several of our planned markets. Nine of the interconnection
agreements covering our existing markets, including the agreement covering
Chicago, expired in 1999. Eight of the interconnection agreements covering our
existing markets, including the agreement covering New York, expire in 2000.
The expiration of these agreements will require that we negotiate new
interconnection terms with the ILECs. Pending conclusion of these negotiations,
several existing interconnection agreements should continue to govern the
payment of reciprocal compensation and other interconnection terms while other
renegotiated agreements will be given retroactive effect from the expiration
date of the superceded agreement following the conclusion of negotiations and
arbitrations. Failing to reach agreement on renegotiations, we have filed for
arbitration in states in Bell Atlantic and Ameritech territory. See "Risk
Factors--Internet-Related Reciprocal Compensation" and "--Relationship with
ILECs."
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The FCC is charged with establishing guidelines to implement the Telecom
Act. In August 1996, the FCC released a decision, known as the Interconnection
Decision, that established rules for the interconnection requirements outlined
above and provided guidelines for interconnection agreements by state
commissions. The U.S. Court of Appeals for the Eighth Circuit vacated portions
of the Interconnection Decision. On January 25, 1999, the U.S. Supreme Court
reversed the Eighth Circuit and upheld the FCC's authority to issue regulations
governing pricing of unbundled network elements provided by the ILECs in
interconnection agreements, including regulations governing reciprocal
compensation, which are discussed in more detail below. In addition, the
Supreme Court affirmed an FCC rule that allows requesting carriers to "pick and
choose" the most attractive portions of existing interconnection agreements
with other carriers. The Supreme Court did not, however, address other
challenges raised about the FCC's rules at the Eighth Circuit because those
challenges were not decided by the Eighth Circuit. These challenges will have
to be addressed by the Eighth Circuit in light of the Supreme Court's decision.
In addition, the Supreme Court disagreed with the standard applied by the FCC
for determining whether an ILEC should be required to provide a competitor with
particular unbundled network elements.
The FCC adopted a new standard in November 1999 for analyzing unbundled
network elements as required by the Supreme Court's order. Applying this
standard to the existing network elements, the FCC concluded that ILECs would
no longer be required to provide directory assistance and operator services as
network elements, though they will continue to be available pursuant to tariff
at different prices. The FCC also removed unbundled switching as an element in
urban areas where the incumbents are also providing certain other combinations
of elements in a non-discriminatory fashion. However the FCC declined, except
in limited circumstances, to require ILECs to unbundle certain facilities used
to provide high speed Internet access and other data services.
The Supreme Court's decision and the FCC's order on remand do not remove all
uncertainty concerning the pricing terms and conditions of interconnection
agreements. The Eighth Circuit could set aside the FCC's rules concerning the
pricing of unbundled network elements, and the incumbents may challenge the
FCC's order on remand from the Supreme Court for not removing additional
network element obligations. Furthermore, the complexity of the revised rules
creates uncertainty as to how they might be enforced by the states. The
resulting uncertainty makes it difficult to predict whether we will be able to
continue to rely on our existing interconnection agreements or have the ability
to negotiate acceptable interconnection agreements in the future.
In addition to requiring the ILECs to open their networks to competitors and
reducing the level of regulation applicable to CLECs, the Telecom Act also
reduces the level of regulation that applies to the ILECs, thereby increasing
their ability to respond quickly in a competitive market. For example, the FCC
has applied "streamlined" tariff regulation of the ILECs, which shortens the
requisite waiting period before which tariff changes may take effect. These
developments enable the ILECs to change rates more quickly in response to
competitive pressures. The FCC has also adopted heightened price flexibility
for the ILECs, subject to specified caps. If exercised by the ILECs, this
flexibility may decrease our ability to effectively compete with the ILECs in
our markets.
The Telecom Act also gives the FCC authority to determine not to regulate
carriers if it believes regulation would not serve the public interest. The FCC
is charged with reviewing its regulations for continued relevance on a regular
basis. As a result of this mandate, a number of regulations that apply to CLECs
have been and may in the future continue to be eliminated. We cannot, however,
guarantee that any regulations that are now or will in the future be applicable
to us will be eliminated.
In March 1999, the FCC issued an order requiring ILECs to provide unbundled
loops and colocation on more favorable terms than had previously been
available. The order permits colocation of equipment that could be used to more
efficiently provide advanced data services such as high-speed DSL service, and
requires less expensive "cageless" colocation. In the March order, the FCC
deferred action on its previous proposal to permit ILECs to offer advanced data
services through separate affiliates, free from some of the obligations of
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the Telecom Act. In an August order, the FCC determined that advanced services
are telecommunication services subject to regulation under Sections 251 and 252
of the Telecom Act. In the same order the FCC issued a notice of proposed rule
making on terms for the provision of such services on a separate subsidiary
basis.
In an FCC decision on voluntary remand, the FCC affirmed and clarified its
position that advanced data services are subject to the interconnection, resale
and bundling requirements of the Telecom Act. Permitting ILECs to provision
data services through separate affiliates with fewer regulatory requirements
could have a material adverse impact on our ability to compete in the data
services sector. The FCC imposed conditions on the merger of SBC with Ameritech
in October that permit the provisioning of advanced data services via separate
subsidiaries pursuant to various requirements, some of which expire in the near
term. The FCC is currently considering a request from SBC for a waiver of a
portion of its merger requirements. If granted, this waiver would permit SBC to
provide certain DSL technologies in portions of its networks without complying
with the non-discrimination requirements of its merger conditions. We cannot
predict whether these requirements are enforceable, nor whether they will deter
anticompetitive behavior if they are enforceable. Bell Atlantic's application
for long distance service in New York has been approved subject to similar
separate subsidiary provisions. These areas of regulation are subject to change
through additional proceedings at the FCC or judicial challenge.
On March 17, 2000, the District of Columbia Circuit Court vacated those
portions of the FCC's expanded colocation rules that permitted CLECs to
colocate equipment that contained functions in addition to those necessary for
interconnection or access to unbundled network elements. The Court, while
upholding the FCC's authority to require cageless colocation, also rejected the
FCC's effort to leave the choice of space within the central office to the
CLEC. The Court also vacated the FCC's regulations that permit CLECs to install
their own cross-connects between different colocation arrangements in ILEC
central offices. The Court vacated the FCC's rules in part and remanded to the
FCC the issue of what equipment is necessary for interconnection or access to
unbundled elements.
On December 9, 1999, the FCC released its line sharing order that requires
ILECs to offer line sharing as an unbundled network element by June 6, 2000.
Line sharing permits CLECs to use a customer's existing line to provide DSL
services while the ILEC continues to use the same line to provide voice
service. Prices for line sharing will be set by the states.
Reciprocal Compensation. We expect that reciprocal compensation payments
will make up a significant portion of our initial revenues in each of our
markets. Reciprocal compensation is the compensation paid by one carrier to
complete particular calls on another local exchange carrier's network. Because
a significant portion of our customers typically receive more calls than they
make, we expect to receive more reciprocal compensation than we pay for calls
that originate on our networks. As a result of the current regulatory
environment and several trends in our business, which are discussed below, we
expect our revenues from reciprocal compensation to decline.
Some ILECs have refused to pay reciprocal compensation charges that they
estimate are the result of inbound ISP traffic because they believe that this
type of traffic is outside the scope of existing interconnection agreements.
For example, Ameritech disputed a portion of the reciprocal compensation
charges billed to it by us, which it believed were related to Internet charges.
In March of 1998, the Illinois Commerce Commission ruled in favor of Focal and
other CLECs regarding this dispute. In October 1998, Ameritech complied with
the ruling and we received payment for past reciprocal compensation charges
that represent substantially all of the disputed amounts. Reciprocal
compensation payments from Ameritech comprised approximately 81% of our
revenues for the year ended December 31, 1997 and payments from Ameritech and
Bell Atlantic comprised approximately 60% and 75% of our revenues for the years
ended December 31, 1999 and 1998, respectively. On June 18, 1999, the Seventh
Circuit affirmed the Illinois Commerce Commission's order requiring the payment
of reciprocal compensation for ISP-bound traffic. On August 19, 1999, the
Seventh Circuit modified its prior order by providing that Ameritech is free to
raise in state courts any state claims concerning reciprocal
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compensation, and by deferring any ruling on the petitions for rehearing
pending the Court's resolution in other cases of procedural issues concerning
the participation of state commissioners. Ameritech had previously filed such a
state complaint which at its request had been held in abeyance pending the
outcome of the federal case.
Some states in which our current and planned markets are located have
ordered the ILECs to pay reciprocal compensation for Internet-related calls
based on existing interconnection agreements or state arbitrations. The
majority of states that have addressed the question have ruled that
compensation is owed for this traffic. However, these states and other states
that have not considered the issue to date may yet determine that no
compensation is owed. A finding that reciprocal compensation is not payable for
ISP traffic in Illinois, New York or Pennsylvania would have a material adverse
effect on us.
In addition, on February 26, 1999, the FCC issued a declaratory ruling and
Notice of Proposed Rulemaking concerning inbound ISP traffic. The FCC concluded
in its ruling that ISP traffic is jurisdictionally mixed and largely interstate
in nature, and thus within the FCC's jurisdiction. The FCC has requested
comment as to what reciprocal compensation rules should govern this traffic
upon expiration of existing interconnection agreements. The FCC also determined
that no federal rule existed that governed reciprocal compensation for ISP
traffic at the time existing interconnection agreements were negotiated and
concluded that it should permit states to determine whether reciprocal
compensation should be paid for calls to ISPs under existing interconnection
agreements.
In light of the FCC's order, state commissions, which previously addressed
this issue and required reciprocal compensation to be paid for ISP traffic, may
reconsider and may modify their prior rulings. Several ILECs, including
Ameritech, are seeking to overturn prior orders that they claim are
inconsistent with the FCC's February 26, 1999 order. Relief sought could
include repayment of reciprocal compensation amounts previously paid by the
ILECs. Of the 28 state commissions that have considered the issue since the
FCC's February 26, 1999 order, 24 of these states have upheld the requirement
to pay reciprocal compensation for ISP-bound traffic. Only Massachusetts, New
Jersey, South Carolina and Louisiana are not requiring reciprocal compensation
for this traffic, at least pending negotiations and a further FCC decision.
Missouri and Ohio are not requiring current payment, but are requiring a true-
up based on the FCC's future decision. In addition, of the seven Federal
District Courts and the three Courts of Appeals that have reviewed this issue
on the merits to date, all have upheld state decisions requiring that
reciprocal compensation be paid for ISP-bound traffic.
On March 24, 2000, the U.S. Court of Appeals for the District of Columbia
Circuit vacated the FCC's Declaratory Ruling that Internet-bound calls are
jurisdictionally interstate and therefore not local calls for which reciprocal
compensation is owed. The Court remanded the proceeding to the FCC for a
further review of the nature of these calls for purposes of reciprocal
compensation. We cannot predict the impact of the Court's ruling on pending or
future proceedings at this time.
The New York Public Service Commission (the "NYPSC") determined that in
certain circumstances, Bell Atlantic can pay a lower reciprocal compensation
rates for calls terminated by a CLEC in excess of a ratio of three terminating
calls to each originating call. The NYPSC also provided an opportunity to a
CLEC having a ratio in excess of three-to-one, such as Focal, to demonstrate
that its network is such that the higher rate should be applied. Unless Focal
can demonstrate a basis for entitlement to the higher rate, it will receive the
lower tariffed rate as of January 2000. Bell Atlantic filed a tariff seeking to
reduce the end office rate by thirty percent from its current level of
$0.0034/MOU. We intend to vigorously challenge all aspects of the Bell Atlantic
effort to reduce the rates as described above. Bell Atlantic has also informed
us that it intends to unilaterally escrow these payments in two smaller
markets, New Jersey and Delaware.
Upon expiration of our existing interconnection agreements, we must
negotiate new rates for reciprocal compensation with each carrier. Pending
conclusion of these negotiations, the existing interconnection agreements are
expected to continue to govern the payment of reciprocal compensation. We
expect rates for reciprocal compensation will be lower under new
interconnection agreements than under our existing agreements. A reduction in
rates payable for reciprocal compensation could have a material adverse effect
on us, as could any requirement to refund reciprocal compensation paid to date.
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Interstate Access Charges. In addition to charging other carriers reciprocal
compensation for terminating local traffic, Focal also collects access charges
from carriers for originating and terminating interexchange traffic. Some
interexchange carriers, including AT&T and Sprint, have challenged our switched
access rates as well as those of other CLECs, and have withheld some payments
for the switched access services that they continue to receive. Although no
formal complaints have been filed against us, AT&T and Sprint have asserted
claims against other CLECs that our charges for switched access services are
higher than those of the ILEC serving the same territory, and are therefore
unjust and unreasonable. These interexchange carriers have refused to pay us
any originating access charges in excess of the corresponding incumbent rate.
Because our access charges are appreciably less than some CLECs, and are lower
than the access charge rates charged by smaller incumbents having traffic
volumes similar to ours, we do not expect the FCC to require any appreciable
reduction in our tariffed rates. Accordingly, we are actively considering
filing a collection action against AT&T and Sprint for their underpayment of
our tariffed access charges.
Internet Regulation. There is currently only a small body of laws and
regulations applicable to access to or commerce on the Internet. As the
significance of the Internet expands, federal, state and local governments may
adopt rules and regulations that affect the Internet. We cannot predict the
nature of these regulations or their impact on our business. The FCC has
previously indicated that it would consider whether certain forms of phone-to-
phone IP telephony should be regulated as telecommunications services for
universal service purposes. No decision has been made.
Tariff and Filing Requirements. Non-dominant carriers, including Focal, must
file tariffs with the FCC listing the rates, terms and conditions of interstate
and international services provided by the carrier. On October 29, 1996, the
FCC adopted an order in which it eliminated the requirement that non-dominant
interstate carriers maintain tariffs on file with the FCC for domestic
interstate services. The FCC's order was issued pursuant to authority granted
in the Telecom Act to forebear from regulating any telecommunications services
provider if specified statutory analyses are satisfied. The FCC's order,
however, has been stayed by a federal court. Accordingly, non-dominant
interstate carriers, including Focal, currently must continue to file
interstate tariffs with the FCC until final determination of the issue. Any
challenges to these tariffs by regulators or third parties could cause us to
incur substantial legal and administrative expenses.
In addition, periodic reports concerning carriers' interstate circuits and
deployment of network facilities also are required to be filed with the FCC.
The FCC generally does not exercise direct oversight over cost justification
and the level of charges for services of non-dominant carriers, although it has
the power to do so. The FCC may also impose prior approval requirements on
transfers of control and assignments of operating authorizations. Fines or
other penalties also may be imposed for violations of FCC rules or regulations.
The FCC also requires that certified carriers like Focal notify the FCC of
foreign carrier affiliations and secure a determination that such affiliations,
if in excess of a specified amount, are in the public interest.
State Regulation. Most states regulate entry into the markets for local
exchange and other intrastate services, and states' regulation of CLECs vary in
their regulatory intensity. The majority of states require that companies
seeking to provide local exchange and other intrastate services to apply for
and obtain the requisite authorization from a state regulatory body, such as a
state commission. This authorization process generally requires the carrier to
demonstrate that it has sufficient financial, technical and managerial
capabilities and that granting the authorization will serve the public
interest. As of March 31, 2000, we had obtained local exchange certification or
were otherwise authorized to provide local exchange service in:
California Illinois Minnesota Pennsylvania
Delaware Indiana Missouri Texas
District of Columbia Maryland New Jersey Virginia
Florida Massachusetts New York Washington
Georgia Michigan Ohio
To the extent that an area within a state in which we provide service is served
by a small or rural exchange carrier not currently subject to competition, we
may not currently have authority to provide service in those areas at this
time.
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As a CLEC, we are and will continue to be subject to the regulatory
directives of each state in which we are and will be certified. Most states
require that CLECs charge just and reasonable rates and not discriminate among
similarly situated customers. Some other state requirements include:
. The filing of periodic reports
. The payment of various regulatory fees and surcharges
. Compliance with service standards and consumer protection rules
States also often require prior approvals or notifications for certain
transfers of assets, customers, or ownership of a CLEC and for issuances by
certified carriers of equity securities, notes or indebtedness, although the
terms of this offering do not require any prior approval. States generally
retain the right to sanction a carrier or to revoke certifications if a carrier
violates relevant laws and/or regulations. Delays in receiving required
regulatory approvals could also have a material adverse effect on us. We cannot
assure you that regulators or third parties will not raise material issues with
regard to our compliance or non-compliance with applicable laws or regulations.
In most states, certificated carriers like us are required to file tariffs
setting forth the terms, conditions, and prices for services which are
classified as intrastate. In some states, the required tariff may list a range
of prices for particular services, and in others, such prices can be set on an
individual customer basis. We may, however, be required to file tariff addenda
of the contract terms.
Under the Telecom Act, implementation of our plans to compete in local
markets is and will continue to be, to a certain extent, controlled by the
individual states. The states in which we operate or intend to operate have
taken regulatory and legislative action to open local communications markets to
various degrees of local exchange competition.
Local Regulation. We are also subject to numerous local regulations, such as
building code requirements, franchise and local public rights of way. These
regulations may vary greatly from state to state and from city to city.
Employees
As of February 29, 2000, we employed 669 full-time employees, none of whom
were covered by a collective bargaining agreement. We believe that our future
success will depend on our continued ability to attract and retain highly
skilled and qualified employees. We believe that our relations with our
employees are good.
Properties
We are headquartered in Chicago, Illinois and lease office space in a number
of locations, primarily for network equipment installations and sales and
administrative offices. Our material leased switching and network properties
are located in:
Chicago, Illinois New York, New York Los Angeles, California
Philadelphia, Pennsylvania Washington, DC Cambridge, Massachusetts
Norristown, Pennsylvania Seattle, Washington Atlanta, Georgia
Southfield, Michigan Dallas, Texas Cleveland, Ohio
Houston, Texas San Francisco, California
Minneapolis, Minnesota
Jersey City, New Jersey San Jose, California
and cover approximately 452,000 square feet of leased space as of February 29,
2000. These leases expire in years ranging from 2004 to 2013 and have varying
renewal options. We also own approximately 13 acres of real property in
Arlington Heights, Illinois. This property, which includes a 52,000 square foot
building, houses our second Chicago switching center, national data center and
national network operations center.
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Legal and Administrative Proceedings
With the exception of the matters discussed below, we are not aware of any
litigation against us. In the ordinary course of our business, we are involved
in a number of regulatory proceedings before various state commissions and the
FCC.
On September 16, 1997, we filed a complaint and request for temporary
injunction against Ameritech Illinois with the Illinois Commerce Commission.
The complaint claimed breach of the terms of the interconnection agreement
between us and Ameritech Illinois because Ameritech Illinois refused to pay
reciprocal compensation for our transport and termination of calls to our end-
users that Ameritech Illinois believed were ISPs. In the interests of obtaining
a more timely judgment, we withdrew our complaint without prejudice on October
17, 1997 and filed to intervene in a consolidated suit that included similar
complaints against Ameritech Illinois by several other CLECs. On March 11,
1998, the Illinois Commerce Commission issued an order that required Ameritech
Illinois to pay reciprocal compensation for calls made to ISPs. On March 15,
1998, Ameritech Illinois filed a motion with the Illinois Commerce Commission
to stay the order pending an appeal, which was denied on March 23, 1998. On
March 27, 1998, Ameritech Illinois filed suit in the United States District
Court for the Northern District of Illinois seeking reversal of the Illinois
Commerce Commission order. Ameritech Illinois also sought a stay of this order
from the District Court, which was granted while the case was decided. On July
21, 1998, the District Court upheld the Illinois Commerce Commission's order,
finding that calls to ISPs are local calls and therefore subject to the
reciprocal compensation rules contained in the Telecom Act. The District Court
stayed the decision to permit any party to appeal. Ameritech Illinois then
appealed the decision to the U.S. Court of Appeals for the Seventh Circuit on
August 25, 1998, and was denied a stay while the appeal is pending. In October
1998, Ameritech Illinois complied with the order and we received payment for
past reciprocal compensation charges that represent substantially all of the
disputed amounts. On June 18, 1999, the Seventh Circuit affirmed the Illinois
Commerce Commission's order requiring the payment of reciprocal compensation
for ISP-bound traffic. On August 19, 1999, the Seventh Circuit modified its
prior order to permit Ameritech to raise in state courts any state claims
concerning reciprocal compensation, and deferred any ruling on the petitions
for rehearing pending the Court's resolution in other cases of procedural
issues concerning the participation of state commissioners. Ameritech had
previously filed such a complaint which at its request had been held in
abeyance pending the outcome of the federal case. See "--Regulation" for a
description of federal rule-making and other developments affecting reciprocal
compensation.
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MANAGEMENT
Executive Officers, Selected Key Employees and Directors
The table below contains information about the ages and positions of Focal's
executive officers, selected key employees, and directors, as of March 31,
2000.
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Robert C. Taylor, Jr.... 40 Director, President and Chief Executive Officer
John R. Barnicle........ 35 Director, Executive Vice President and Chief Operating Officer
Joseph A. Beatty........ 36 Executive Vice President and Chief Financial Officer
Michael L. Mael......... 43 Executive Vice President and President, Focal Data Communications
Renee M. Martin......... 44 Senior Vice President, General Counsel and Secretary
Robert M. Junkroski..... 36 Vice President and Treasurer
Gregory J. Swanson...... 33 Controller
Richard J. Metzger...... 51 Vice President of Regulatory Affairs and Public Policy
James E. Crawford, III.. 54 Director
John A. Edwardson....... 50 Director
Paul J. Finnegan........ 47 Director
Richard D. Frisbie...... 50 Director
James N. Perry, Jr...... 39 Director
Paul G. Yovovich........ 46 Director
</TABLE>
Robert C. Taylor, Jr. Mr. Robert Taylor is Chief Executive Officer and
President for Focal Communications Corporation. He was appointed to this
position in August 1996. Mr. Taylor is also the company's co-founder and a
director. Mr. Taylor is the Chairman of the Association for Local
Telecommunications Services, the nation's leading organization representing
facilities-based competitive local exchange carriers. In addition, Mr. Taylor
sits on the board of directors for IPLAN Networks, a CLEC based in Argentina.
Mr. Taylor has held positions with MFS Communications, most recently since 1994
as Vice President of Global Accounts, where he worked with the company's 50
largest customers and executed market development activities in Mexico and
Canada. Prior to joining MFS in 1994, Mr. Taylor was one of the original senior
executives at McLeodUSA Incorporated. Mr. Taylor has also held management
positions with MCI, Bellcore and Ameritech. Mr. Taylor received his M.B.A. from
the University of Chicago Graduate School of Business and holds a Bachelor of
Science degree in Mechanical Engineering.
John R. Barnicle. Mr. Barnicle has been Executive Vice President and Chief
Operating Officer and a director since June 1996. Mr. Barnicle is a co-founder
of Focal and is responsible for day-to-day operations, engineering, marketing
and long-term planning. In 1996, Mr. Barnicle was Vice President of Marketing
for MFS Telecom Companies, a subsidiary of MFS Communications. From 1994 to
1996, Mr. Barnicle was a Vice President of Duff & Phelps Credit Rating Company
and before that held various marketing, operations and engineering positions
with MFS Telecom (1992-1994) and Centel Corporation, a local exchange carrier
(1986-1992). Mr. Barnicle received his M.B.A. with Distinction from DePaul
University and holds a Bachelor of Science degree in Electrical Engineering.
Joseph A. Beatty. Mr. Beatty has been Executive Vice President and Chief
Financial Officer since November 1996 and was also Treasurer from November 1996
through January 1999 and Secretary from November 1996 through April 1998. He
was also a director from May 1996 to November 1996. Mr. Beatty is a co-founder
of Focal and is responsible for all financial operations and information
systems. From 1994 to 1996, Mr. Beatty was a Vice President with NationsBanc
Capital Markets, where he was responsible for investment research coverage of
the telecommunications industry. From 1992 to 1994, Mr. Beatty was a Vice
President of Duff & Phelps Credit Rating Company with responsibility for credit
ratings in the telecommunications and electric utility sectors. From 1985 to
1992, Mr. Beatty held various technical management positions with Centel
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<PAGE>
Corporation's local exchange carrier division. Mr. Beatty received his M.B.A.
with a concentration in Finance from the University of Chicago Graduate School
of Business and is a Chartered Financial Analyst. In addition, Mr. Beatty holds
a Bachelor of Science degree in Electrical Engineering.
Michael L. Mael. Mr. Mael has been Executive Vice President and President,
Focal Data Communications, since January 2000. Mr. Mael is responsible for
developing and managing Focal's data services business. From 1997 until January
2000, he was Vice President, Applications and Web Services, at PSINet, where he
developed and managed the company's global Web hosting business. From 1992
until 1997, Mr. Mael held various management positions at MCI Communications in
finance, marketing and business development, and was a member of the team that
created MCI's Internet initiative. From 1986 until 1992, he worked as a
management consultant, both for Strategic Planning Associates and
independently. Mr. Mael received his M.B.A. from Stanford University, and holds
a Bachelor of Arts degree.
Renee M. Martin. Ms. Martin has been Senior Vice President, General Counsel
and Secretary since March 1998. Ms. Martin is responsible for our legal,
regulatory, real estate and human resources functions. From 1984 to 1998, Ms.
Martin held various executive positions at Ameritech, most recently as Vice
President and General Counsel Small Business Services, where she directed
corporate legal resources to address contract negotiations, employment issues,
regulatory affairs and litigation, and managed outside legal counsel. From 1982
to 1984, Ms. Martin was an attorney at the law firm of Cook and Franke, S.C.,
where she concentrated on general business and corporate law. Ms. Martin
received her J.D. from the University of Wisconsin and holds a Bachelor of Arts
degree in Journalism.
Robert M. Junkroski. Mr. Junkroski has been Vice President and Treasurer
since January 1999 and was Controller from January 1997 to January 1999. He is
responsible for all our accounting, revenue assurance, audit, cash and risk
management and customer credit functions. From 1995 to 1997, Mr. Junkroski was
Controller for Brambles Equipment Services, Inc., an equipment leasing company,
where he was responsible for establishing and maintaining the divisional
accounting, financial reporting and budgeting functions. From 1987 to 1995, Mr.
Junkroski was Controller for Focus Leasing Corporation, an equipment leasing
company, where he was responsible for the development and implementation of the
accounting and financial reporting functions of several emerging companies. Mr.
Junkroski is a Certified Public Accountant, received his M.B.A. with honors
from Roosevelt University concentrating in Finance and Accounting and holds a
Bachelor of Business Administration degree.
Gregory J. Swanson. Mr. Swanson has been Controller since January 1999 and
is our principal accounting officer. He is responsible for all internal and
external accounting and reporting functions. From June 1998 to December 1998,
Mr. Swanson was Director of External Reporting for Allegiance Corporation, a
health care manufacturing and distribution company. Before that he spent
approximately nine years at Arthur Andersen LLP, a public accounting firm,
where he was responsible for audit and business advisory services to technology
and manufacturing companies. Mr. Swanson is a Certified Public Accountant and
holds a Bachelor of Science degree in Accounting.
Richard J. Metzger. Mr. Metzger has been Vice President of Regulatory
Affairs and Public Policy since September 1998. He is responsible for our
regulatory and public policy activities. From 1994 to 1998, he served as
General Counsel of the Association for Local Telecommunications Services. From
1984 to 1993, he held various legal positions with Ameritech including serving
as Vice President and General Counsel of Wisconsin Bell and Michigan Bell. From
1976 to 1984, he was an attorney at the law firm of Sidley & Austin. Mr.
Metzger received his J.D. from the University of Chicago and holds a Bachelor
of Arts degree in Philosophy of Science.
James E. Crawford, III. Mr. Crawford has served as a director of Focal since
November 1996. Since August 1992, he has been a general partner of Frontenac
Company, a venture capital firm. From February 1984 to August 1992, Mr.
Crawford was a general partner of William Blair Venture Management Co., a
venture capital fund. He was also a general partner of William Blair & Company,
an investment bank and brokerage firm affiliated with William Blair Venture
Management Co., from January 1987 to August 1992. Mr. Crawford serves as a
director of Optika, Inc., Input Software, Inc., Allegiance Telecom and several
private companies.
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<PAGE>
John A. Edwardson. Mr. Edwardson has served as a director of Focal since
February 1999. He has been Chairman of Burns International Services Corp., a
security services company, since June 1999 and President and Chief Executive
Officer of Burns International since March 1999. From 1994 to 1998, Mr.
Edwardson was President of UAL Corporation, the holding company for United
Airlines and also served as UAL's Chief Operating Officer from April 1995
through September 1998. He previously was Executive Vice President and Chief
Financial Officer of Ameritech and held executive positions with Northwest
Airlines. Mr. Edwardson also serves as a director of Burns International and
Household International, Inc.
Paul J. Finnegan. Mr. Finnegan has served as a director of Focal since
November 1996. Since January 1993, Mr. Finnegan has been Managing Director of
Madison Dearborn Partners, Inc., the general partner of Madison Dearborn.
Previously, he served in various positions at First Capital Corporation of
Chicago and its affiliates. Mr. Finnegan currently serves on the Board of
Trustees of The Skyline Fund and the Board of Directors or Managers, as
applicable, of CompleTel, LLC and Allegiance Telecom.
Richard D. Frisbie. Mr. Frisbie has served as a director of Focal since
November 1996. Mr. Frisbie is a founder and has been Managing Partner of
Battery Ventures since 1983. He is responsible for management of the Battery
Funds and focuses principally on communications opportunities. Mr. Frisbie
serves as a director of Allegiance Telecom.
James N. Perry, Jr. Mr. Perry has been a director of Focal since November
1996. From January 1993 to January 1999, he served as Vice President of Madison
Dearborn Partners, Inc., and since January of 1999 has served as Managing
Director of Madison Dearborn Partners, Inc. Previously, Mr. Perry served in
various positions at First Capital Corporation of Chicago and its affiliates.
Mr. Perry currently serves as a director or manager, as applicable, of Clearnet
Communications, Inc., Omnipoint Corporation, CompleTel, LLC, CompleTel Holdings
and Allegiance Telecom.
Paul G. Yovovich. Mr. Yovovich has served as a director of Focal since March
1997. He is a private investor and a principal of Lake Capital Management. Mr.
Yovovich served as President of Advance Ross Corporation, an international
transaction services and manufacturing company, from 1993 to 1996. He served in
several executive positions with Centel Corporation from 1982 to 1992, where
his last position was that of President of its Central Telephone Company unit.
Mr. Yovovich also serves as a director of 3Com Corporation, Customer Services,
Inc., Lante Corporation, Van Kampen Open End Funds, Comarco, Inc. and American
Media Operations, Inc.
1997 Plan
Our 1997 Non-Qualified Stock Option Plan (the "1997 Plan") gave our board of
directors broad discretion to grant non-qualified stock options to directors,
officers and other key employees. Following our initial public offering of
common stock in August 1999, no further grants of stock options have been or
will be made under the 1997 Plan. The total number of shares of common stock
that may be issued or transferred under the 1997 Plan may not exceed 6,324,625
shares of common stock. The maximum share number can be adjusted if we
undertake a stock split, stock dividend or other similar transactions. The
board of directors determines who will receive options and what the terms of
the options will be.
The option agreements between us and each existing optionee provide that,
upon the occurrence of a Change in Control (as defined in the 1997 Plan), the
portion of the option that would have vested in the 12 month period following
the Change in Control (if the optionee remained employed by us during that
period) will automatically become vested as of the date of the Change in
Control. In addition, if we terminate the optionee's employment, actually or
constructively, in connection with or in anticipation of a Change in Control,
or within two years after a Change in Control, all of the optionee's remaining
options will automatically become vested and exercisable as of the date of
termination.
As of April 3, 2000, there were options covering 5,759,341 shares of Focal's
common stock outstanding under the 1997 Plan with a weighted average exercise
price of $2.99 per share.
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1998 Plan
We also have the 1998 Equity Performance Incentive Plan (the "1998 Plan")
that permits the board of directors to grant a variety of awards to officers
and other key employees. The board of directors can grant:
. Incentive and non-qualified stock options
. SARs, which are rights to receive an amount equal to a specified portion
of the increase in market value of a common stock over a specified
exercise price between the date of grant and the date of exercise
. Restricted shares, which involve the immediate transfer of shares of
common stock for the performance of services. Restricted shares must be
subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Internal Revenue Code
. Deferred shares, which involve an agreement to deliver shares of common
stock in the future in consideration for the performance of services
. Performance shares, each of which is a bookkeeping unit equivalent to
one share of common stock
. Performance units, each of which is a bookkeeping unit equivalent to
$1.00
The total number of shares of common stock that may be issued or transferred
under the 1998 Plan may not exceed 2,050,000. The maximum share number is
subject to adjustment in the event of a stock split, stock dividend or other
similar transactions.
The board of directors has broad discretion in granting and establishing the
terms of awards under the 1998 Plan subject to the limitations contained in the
1998 Plan.
As of April 3, 2000, there were options covering 2,025,218 shares of Focal's
common stock outstanding under the 1998 Plan with a weighted average exercise
price of $34.78 per share. Focal may not grant awards under the 1998 Plan after
August 21, 2008.
Director Plan
We also have a 1998 Equity Plan for Non-Employee Directors that permits
directors ("Non-Employee Directors") who are not employees, representatives or
affiliates of any of Madison Dearborn, Frontenac or Battery Ventures
(collectively, the "Institutional Investors") to elect to receive all or a
portion of their compensation as directors in the form of shares of common
stock. The Director Plan also permits us to issue options to Non-Employee
Directors to purchase shares of common stock.
The number of shares of common stock that may be issued or transferred under
the Director Plan, plus the number of shares of common stock covered by
outstanding awards, may not exceed 150,000 shares in the aggregate. The maximum
number of shares may be adjusted if Focal undertakes a stock split, stock
dividend or other similar transactions.
As of April 3, 2000, there were options covering 2,698 shares of our common
stock outstanding under the Director Plan with a weighted average exercise
price of $44.50 per share.
The total number of shares available under the 1997 Plan, the 1998 Plan and
the 1998 Non-Employee Plan may not exceed 8,530,000.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below sets forth information regarding beneficial ownership of our
common stock as of February 29, 2000 for:
. Each of the Named Executive Officers
. Each of our directors
. All of our executive officers and directors as a group
. Each other person who we know beneficially owns 5% or more of our common
stock
Except as set forth below, there are no other persons who to our knowledge
as of February 29, 2000 beneficially owned 5% or more of our common stock. The
percentages specified below are based on 60,852,316 shares of common stock
outstanding as of February 29, 2000. Unless otherwise noted, the address of
each Named Executive Officer and director of Focal is 200 North LaSalle Street,
Suite 1100, Chicago, Illinois 60601.
<TABLE>
<CAPTION>
Number of Shares Percent
Name Beneficially Owned (1) Beneficially Owned
- ---- ---------------------- ------------------
<S> <C> <C>
Named Executive Officers
Robert C. Taylor, Jr. (2)............ 2,865,385 4.7%
John R. Barnicle (3)................. 2,794,585 4.6%
Joseph A. Beatty (4)................. 2,865,385 4.7%
Renee M. Martin (5).................. 35,687 *
Directors
James N. Perry, Jr. (6).............. 21,606,425 35.5%
Paul J. Finnegan (7)................. 21,606,425 35.5%
James E. Crawford III (8)............ 10,084,010 16.6%
Richard D. Frisbie (9)............... 5,041,365 8.3%
Paul G. Yovovich (10)................ 289,850 *
John A. Edwardson (11)............... 202,134 *
All Executive Officers and Directors
as a Group (13 persons) (12)........ 45,988,013 75.3%
Other Owners
Madison Dearborn Capital Partners,
L.P. (13)........................... 21,606,425 35.5%
Frontenac VI, L.P. (14).............. 10,082,980 16.6%
Battery Ventures III, L.P. (15)...... 5,041,365 8.3%
Brian F. Addy (16)................... 2,690,385 4.4%
</TABLE>
- --------
* Less than 1% of the issued and outstanding shares of our common stock.
(1) In accordance with the rules of the Securities and Exchange Commission,
each beneficial owner's holding has been calculated assuming full exercise
of outstanding warrants and options exercisable by the holder within 60
days after February 29, 2000, but no exercise of outstanding warrants and
options held by any other person. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned by them,
subject to applicable community property laws.
(2) Includes 175,000 shares of common stock subject to vesting provisions
contained in the executive's Restricted Stock Agreement. Also includes
1,115,385 shares of common stock held by Mistral Partners, L.P., a family
limited partnership. Mr. Taylor exercises sole voting and investment power
over shares held by this partnership.
(3) Includes 175,000 shares of common stock subject to vesting provisions
contained in the executive's Restricted Stock Agreement. Also includes
350,000 shares of common stock held by JRB Partners, L.P., a family
limited partnership. Mr. Barnicle exercises sole voting and investment
power over shares held by this partnership.
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(4) Includes 175,000 shares of common stock subject to vesting provisions
contained in the executive's Restricted Stock Agreement. Also includes
865,000 shares of common stock held by Coventry Court Partners, L.P., a
family limited partnership. Mr. Beatty exercises sole voting and
investment power over shares held by this partnership.
(5) Consists of shares of common stock subject to options which are
exercisable within 60 days of February 29, 2000.
(6) Mr. Perry, a director, owns no shares in his own name. Consists of shares
of common stock owned by Madison Dearborn. See footnote 13 below. Mr.
Perry's address is c/o Madison Dearborn Partners, Inc., Three First
National Plaza, Suite 3800, Chicago, IL 60602.
(7) Mr. Finnegan, a director, owns no shares in his own name. Consists of
shares of common stock owned by Madison Dearborn. See footnote 13 below.
Mr. Finnegan's address is c/o Madison Dearborn Partners, Inc., Three First
National Plaza, Suite 3800, Chicago, IL 60602.
(8) Mr. Crawford, a director, owns no shares in his own name. Consists of
shares of common stock owned by Frontenac and 1,030 shares of common stock
owned by Mr. Crawford's son. See footnote 14 below. Mr. Crawford's address
is c/o Frontenac Company, 135 S. LaSalle Street, Suite 3800, Chicago, IL
60603.
(9) Mr. Frisbie, a director, owns no shares in his own name. Consists of
shares of common stock owned by Battery. See footnote 15 below. Mr.
Frisbie's address is c/o Battery Ventures, 20 William Street, Wellesley,
MA 02481.
(10) Includes 151,716 shares of common stock and an additional 138,134 shares
of common stock subject to options which are exercisable within 60 days of
February 29, 2000.
(11) Includes 150,000 shares of common stock and an additional 52,134 shares of
common stock subject to options which are exercisable within 60 days of
February 29, 2000.
(12) Includes 45,741,871 shares of common stock and an additional 246,142
shares of common stock subject to options which are exercisable within 60
days of February 29, 2000.
(13) Consists of shares of common stock owned by Madison Dearborn. Messrs.
Perry and Finnegan, directors of Focal, are principals of Madison Dearborn
Partners, Inc., the ultimate general partner of Madison Dearborn. Because
of these positions, Messrs. Perry and Finnegan share voting and investment
power with respect to the shares owned by Madison Dearborn. The address of
Madison Dearborn is Three First National Plaza, Suite 3800, Chicago, IL
60602. See "Risk Factors--Potential Conflicts of Interest."
(14) Consists of shares of common stock owned by Frontenac. Mr. Crawford, a
director, is a general partner of Frontenac Company, the general partner
of Frontenac. Because of this position, Mr. Crawford shares voting and
investment power with respect to the shares owned by Frontenac. The
address of Frontenac is 135 S. LaSalle Street, Suite 3800, Chicago, IL
60603. See "Risk Factors--Potential Conflicts of Interest."
(15) Consists of shares of common stock owned by Battery Ventures. Mr. Frisbie,
a director, is a managing general partner of Battery Ventures. Because of
this position, Mr. Frisbie shares voting and investment power with respect
to the shares owned by Battery Ventures. The address of Battery Ventures
is 20 William Street, Wellesley, MA 02481. See "Risk Factors--Potential
Conflicts of Interest."
(16) Mr. Addy is a "Named Executive Officer." He resigned from Focal, effective
January 7, 2000. Includes 1,115,385 shares of common stock held by Ad-
Venture Capital Partners, L.P., a family limited partnership. Mr. Addy
exercises sole voting and investment power over shares held by this
partnership.
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CERTAIN TRANSACTIONS
The Stock Purchase Agreement and Stockholders' Agreement
We have entered into a Stock Purchase Agreement with some of our
stockholders, dated as of November 27, 1996 and amended after that date.
Pursuant to the Stock Purchase Agreement and additional related agreements, our
existing stockholders were granted registration rights described below.
The Stock Purchase Agreement also requires us to:
. Deliver financial information to the Institutional Investors and certain
of their transferees in a private sale of shares of common stock
. Provide access by the Institutional Investors, and certain of their
transferees in a private sale of shares of common stock, to our physical
properties, books and records
. Comply with the periodic reporting requirements under the Exchange Act
to enable holders of "restricted shares" of common stock to sell those
shares of common stock pursuant to Rule 144 under the Securities Act of
1933 or a short-form registration statement under the Securities Act of
1933.
Registration Rights
Focal has granted registration rights to some holders of its common stock.
These holders of common stock have the benefit of the following demand
registration:
. Subject to minimum dollar amounts, Madison Dearborn may demand two
registrations on Form S-1
. Frontenac and Battery may each demand one registration on Form S-1
. The holders of 8% of all shares of common stock subject to the
registration agreement may demand an unlimited number of registrations
on Form S-2 or Form S-3
In addition, stockholders that have been granted registration rights have
unlimited "piggyback" registration rights under which they have the right to
request that we register their shares of common stock whenever we register any
of our securities under the Securities Act of 1933 and the registration form to
be used may be used for the registration of their shares of common stock. These
piggyback registration rights will not, however, be available:
. If the piggyback registration is in connection with an underwritten
registration and the managing underwriter concludes that including
shares of common stock owned by holders of "piggyback" registration
rights would have an adverse impact on the marketing of the securities
to be sold in the underwritten offering
. For registrations undertaken because of a demand registration
Employment Agreement with Mr. Mael
We entered into an employment agreement with Michael Mael, an Executive Vice
President of Focal, on January 12, 2000. Mr. Mael's agreement provides that he
will receive a minimum base salary of $225,000 (or any greater amount approved
by a majority of the board of directors) and bonuses determined by the board in
their sole discretion. Except as provided herein, Mr. Mael's employment
agreement contains substantially the same employment terms as our employment
agreements with our other executive officers. In addition to the employment
agreement, on January 20, 2000 we granted to Mr. Mael 150,000 shares of
restricted stock under our 1998 Equity Performance and Incentive Plan, which
shares are subject to forfeiture until they vest under the agreement. One-third
of the shares vest under the agreement on each of the first three anniversaries
of January 31, 2000 provided that Mr. Mael remains in our employ. If Mr. Mael
is terminated by us other than for cause, leaves for good reason or dies or
becomes disabled, all of the shares immediately become non-forfeitable and
fully vested.
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Stock Purchases by Our Directors
In May 1997, Mr. Yovovich purchased 115,385 shares of common stock for a
purchase price of $75,000. In October 1998, he purchased an additional 33,334
shares of common stock for himself and members of his family for a purchase
price of $100,000. In March 1999, Mr. Edwardson purchased 150,000 shares of
common stock for a purchase price of $472,500.
Some of Our Directors are also Directors of our Competitors
Some of our directors, who serve as representatives of the Institutional
Investors, also serve on the boards of directors of companies with which we may
compete or enter into agreements. Specifically, Mr. Crawford, Mr. Finnegan, Mr.
Frisbie and Mr. Perry are directors of Allegiance Telecom, a Dallas-based CLEC.
Allegiance Telecom is one of our competitors. See "Risk Factors--Potential
Conflicts of Interest."
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DESCRIPTION OF THE 1998 NOTES
On February 18, 1998, we issued $270 million stated principal amount at
maturity of our 12.125% Senior Discount Notes due 2008, or 1998 notes, which
resulted in gross proceeds of $150,027,606. The following description is a
summary of the material provisions of the 1998 notes and the indenture dated
February 18, 1998, which governs the 1998 notes, and which we refer to as the
February 1998 indenture.
The 1998 notes have the following characteristics:
. They mature on February 15, 2008 and are limited to an aggregate stated
principal amount at maturity of $270,000,000.
. They were issued at an issue price of $555.6578 per $1,000 stated
principal amount at maturity (the "Issue Price"), which represents
55.56578% of the stated principal amount at maturity.
. They generated gross proceeds to Focal of $150,027,606.
. The indebtedness of Focal evidenced by the 1998 notes ranks senior in
right of payment to all indebtedness of Focal which is expressly
subordinated in right of payment to the 1998 notes and pari passu in
right of payment with all other existing and future unsubordinated and
unsecured indebtedness to Focal including the 2000 senior notes. The
1998 notes are effectively subordinated in right of payment to all
existing and future liabilities, including trade payables, of any of
Focal's subsidiaries. In addition, holders of secured indebtedness of
Focal will be entitled to a prior claim on those assets of Focal
securing their indebtedness to the extent of the proceeds of those
assets.
. They bear interest on the Issue Price at a rate of 12.125% per annum
computed on a semiannual note equivalent basis from the issue date of
the 1998 notes.
. In the period prior to February 15, 2003, interest at a rate of 12.125%
per annum will accrue on the Issue Price of the 1998 notes but will not
be payable in cash ("Deferred Interest").
. From and after February 15, 2003, interest at a rate of 12.125% per
annum ("Current Interest") on the stated principal amount at maturity of
the 1998 notes will be payable in cash semiannually on August 15 and
February 15 of each year, beginning on August 15, 2003.
. The stated principal amount at maturity is $1,000 per 1998 note and
represents the Issue Price, plus Deferred Interest accrued but unpaid up
to February 15, 2003. Focal will pay interest on overdue principal and
premium, if any, of the 1998 notes and, to the extent lawful, interest
on overdue installments of interest on the 1998 notes at a rate per
annum equal to the interest rate payable on the 1998 notes.
We may elect to redeem all or part of the 1998 notes at any time or from
time to time, on or after February 15, 2003 at the redemption prices set forth
below, which are expressed as percentages of stated principal amount at
maturity, plus accrued and unpaid Current Interest, if any, on the stated
principal amount at maturity so redeemed to the redemption date if redeemed
during the 12-month period commencing February 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003.......................... 106.063%
2004.......................... 104.042%
2005.......................... 102.021%
2006 and thereafter........... 100.000%
</TABLE>
In addition, at any time and from time to time prior to February 15, 2001,
we may redeem in the aggregate up to 35% of the original aggregate stated
principal amount at maturity of the 1998 notes with the proceeds from one or
more registered underwritten primary public offerings of common stock.
Redemption will be at a price (expressed as a percentage of the accreted value
of the 1998 notes on the redemption date) of 112.125% so long as at least 65%
of the original aggregate stated principal amount at maturity of the 1998 notes
remains outstanding after each redemption. Any such redemption may only be
effected once and must be effected within 90 days after such public offering
upon not less than 30 nor more than 60 days' notice.
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If a Change of Control (as defined below) occurs, each holder of a 1998 note
will have the right to require us to repurchase all or any part of the holder's
1998 notes at a purchase price equal to 101% of the accreted value thereof,
plus accrued and unpaid Current Interest, if any, up to but excluding the
Change of Control payment date. If after giving effect to the Change of Control
repurchase offer, at least 95% of the original aggregate stated principal
amount at maturity of the 1998 notes has been redeemed or repurchased, we have
the right to redeem the balance of the 1998 notes at a purchase price equal to
101% of the accreted value thereof, plus accrued and unpaid Current Interest,
if any, up to but excluding the determined redemption date.
A "Change of Control" will occur under the February 1998 indenture if:
. the sale, conveyance, transfer or lease of all or substantially all of
the assets of Focal to any "person" or "group" (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act, including
any group acting for the purpose of acquiring, holding, voting or
disposing of securities within the meaning of Rule 13d-5(b)(i) under the
Securities Exchange Act), other than Madison Dearborn, Frontenac,
Battery Ventures or any of their affiliates, or subsidiaries of Focal,
occurs;
. any "person" or "group" (as the term is used in Sections 13(d)(3) and
14(d)(2) of the Securities Exchange Act, including any group acting for
the purpose of acquiring, holding, voting or disposing of securities
within the meaning of Rule 13d-5(b)(i) under the Securities Exchange
Act), other than Madison Dearborn, Frontenac, Battery or any of their
affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act) of more than 50% of the total voting
power of all classes of the capital stock the holders of which are
entitled to vote for the election of directors ("voting stock") of Focal
(including any warrants, options or rights to acquire such voting
stock), calculated on a fully diluted basis;
. during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors (together
with any directors whose election or appointment by the board or whose
nomination for election by the stockholders of Focal was approved by a
vote of a majority 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 then in office; or
. the merger, amalgamation or consolidation of Focal with or into another
person or the merger of another person with or into Focal shall have
occurred, and the securities of Focal that are outstanding immediately
prior to such transaction and which represent 100% of the aggregate
voting power of the voting stock of Focal are changed into or exchanged
for cash, securities or property, unless pursuant to such transaction
such securities are changed into or exchanged for, in addition to any
other consideration, securities of the surviving corporation that
represent immediately after giving effect to such transaction, at least
a majority of the aggregate voting power of the voting stock of the
surviving corporation.
We are also required to offer to repurchase the 1998 notes if all or some of
the net proceeds of an asset sale are not used to purchase telecommunications
equipment or repay other senior indebtedness.
The February 1998 indenture contains restrictive covenants which, among
other things, restrict our ability to:
. Incur additional indebtedness and, in the case of our subsidiaries,
issue preferred stock
. Pay dividends
. Prepay subordinated indebtedness
. Repurchase capital stock
. Enter into sale and leaseback transactions
. Make investments
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. Engage in transactions with affiliates
. Create liens on our assets
. Cause encumbrances or restrictions to exist on the ability of our
subsidiaries to pay dividends
. Sell assets
. Engage in mergers and consolidations
The February 1998 indenture contains events of default that are
substantially similar to those relating to the exchange notes offered hereby.
See "Description of the Exchange Notes." An event of default will occur under
the February 1998 indenture if, among other things:
. any principal payment in excess of $1,000,000 with respect to
indebtedness of Focal is not paid when due within any applicable grace
period;
. our indebtedness is accelerated by its holders and the principal amount
of the accelerated indebtedness exceeds $5,000,000; or
. a court enters a final judgment against us in an uninsured or
unindemnified aggregate amount in excess of $10,000,000, which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period
of 60 consecutive days.
Focal consummated an exchange offer of the 1998 notes in August 1998.
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DESCRIPTION OF THE EXCHANGE NOTES
General
The outstanding notes were, and the exchange notes will be, issued under an
indenture dated as of January 12, 2000 between Focal and Harris Trust and
Savings Bank, as trustee, which we refer to as the January 2000 indenture. For
purposes of this description of the exchange notes, references to "Focal,"
"we," "our" or "us" refers to Focal Communications Corporation and does not
include its subsidiaries except for purposes of financial data determined on a
consolidated basis. Except as otherwise indicated, the following description
relates to both the outstanding notes and the exchange notes, which we
collectively refer to as the 2000 senior notes.
The terms of the exchange notes are identical in all material respects to
the outstanding notes, except that:
. the exchange notes have been registered under the Securities Act and
therefore will not be subject to the restrictions on transfer applicable
to the outstanding notes and
. holders of the exchange notes will not be entitled to rights of holders
of outstanding notes under the exchange and registration agreement.
The terms of the exchange notes include those stated in the January 2000
indenture and those made a part of the January 2000 indenture by reference to
the Trust Indenture Act of 1939 as in effect on the date of the January 2000
indenture. The exchange notes are subject to all of those terms, and holders
of the exchange notes should refer to the January 2000 indenture and the Trust
Indenture Act for a complete statement of the applicable terms. A copy of the
January 2000 indenture is available from Focal on request. The statements and
definitions of terms under this caption relating to the 2000 senior notes and
the January 2000 indenture are summaries and do not purport to be complete.
These summaries use terms defined in the January 2000 indenture and are
qualified in their entirety by express reference to the January 2000
indenture. Some of the terms used in this description are defined below under
"--Definitions."
Principal, Maturity and Interest
The 2000 senior notes issued under the January 2000 indenture are limited
to $275,000,000 aggregate principal amount of which all $275,000,000 was
issued in the offer and sale of the outstanding notes. For each outstanding
note accepted for exchange, the holders will receive an exchange note having a
principal amount equal to that of the tendered outstanding note. The exchange
notes will mature on January 15, 2010. We will not be required to make any
mandatory sinking fund payments in respect of the exchange notes. Interest on
the exchange notes will accrue at a rate of 11 7/8% per annum and be payable
in cash semi-annually in arrears on each July 15 and January 15, commencing
July 15, 2000 to registered holders of exchange notes, on July 1 or January 1,
as the case may be, immediately preceding the interest payment date. Interest
on the exchange notes will accrue from the most recent interest payment date
to which interest has been paid or duly provided for or, if no interest has
been paid or duly provided for, from the date of issuance. Cash interest will
be computed on the basis of a 360-day year of twelve 30-day months. If we
default on any payment of principal and/or premium (whether upon redemption or
otherwise), cash interest will accrue on the amount in default at the rate of
interest borne by the exchange notes. Interest on overdue principal and
premium and, to the extent permitted by law, on overdue installments of
interest will accrue at the rate of interest borne by the exchange notes.
The exchange notes will be issued without coupons and in fully registered
form only, in minimum denominations of $1,000 principal amount and integral
multiples thereof.
The interest rate on the exchange notes will be subject to increase in some
circumstances if several conditions are not satisfied, all as further
described under "--Exchange Offer; Registration Rights." All references herein
to interest shall include such additional interest, if appropriate.
Ranking
The exchange notes will be senior unsecured obligations of Focal ranking
pari passu in right of payment with all existing and future senior
Indebtedness of Focal, including the outstanding notes and the 1998 notes,
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<PAGE>
and will rank senior in right of payment to all existing and future
subordinated Indebtedness of Focal, if any. Holders of secured Indebtedness of
Focal, however, will have claims that are prior to the claims of the holders
with respect to the assets securing the other Indebtedness except to the extent
the exchange notes are equally and ratably secured by the same assets. The
January 2000 indenture permits Focal to incur secured Indebtedness. As of
December 31, 1999, we had approximately $44.2 million of secured Indebtedness
outstanding to which holders of the exchange notes would have been effectively
subordinated in right of payment. In addition, as of December 31, 1999, we had
approximately $253.8 million of indebtedness. See "Risk Factors--
Subordination."
Our operations are conducted through our subsidiaries and, therefore, we are
dependent upon cash flow from these entities to meet our obligations. Our
subsidiaries will have no direct obligation to pay amounts due on the exchange
notes and will not guarantee the exchange notes. As a result, the exchange
notes will be effectively subordinated to all existing and future Indebtedness
and other liabilities of our subsidiaries (including trade payables). See "Risk
Factors--Subordination." Except to the extent that loans made by us to our
subsidiaries are recognized as Indebtedness, any rights of Focal and its
creditors, including the holders, to participate in the assets of any of our
subsidiaries upon any liquidation or reorganization of any subsidiary will be
subject to the prior claims of the subsidiary's creditors (including trade
creditors).
Book-Entry System
The outstanding notes were issued in the form of two Global Notes (as
defined in the January 2000 indenture) held in book-entry form, one
representing the outstanding notes issued under Rule 144A and the other
representing the outstanding notes issued under Regulation S. The exchange
notes will initially be issued in the form of one or more Global Notes held in
book-entry form. The exchange notes will be deposited with the trustee as
custodian for DTC, and DTC or its nominee will initially be the sole registered
holder of the exchange notes for all purposes under the January 2000 indenture.
Except as set forth below, a Global Note may not be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to DTC.
The exchange notes that are issued as described below under "--Certificated
Notes" will be issued in definitive form.
Upon the transfer of an exchange note in definitive form, the exchange note
will, unless the Global Note has previously been exchanged for exchanges notes
in definitive form, be exchanged for an interest in the Global Note
representing the principal amount of the exchange notes being transferred.
Upon the issuance of a Global Note, DTC or its nominee will credit, on its
internal system, the accounts of persons holding through it with the respective
principal amount of exchange notes of the individual beneficial interests
represented by the Global Note. Ownership of beneficial interests in a Global
Note will be limited to persons that have accounts with DTC ("participants") or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in a Global Note will be shown on, and the transfer
of that ownership interest will be effected only through, records maintained by
DTC or its nominee for the Global Note. Ownership of beneficial interests in
the Global Note by persons that hold through participants will be shown on, and
the transfer of that ownership interest within such participant will be
effected only through, records maintained by such participant. The laws of some
jurisdictions require that some purchasers of securities take physical delivery
of the securities in definitive form. These limits and laws may impair the
ability to transfer beneficial interests in a Global Note.
Payment of principal of, premium, if any, on and interest on exchange notes
represented by any Global Note will be made to DTC or its nominee, as the case
may be, as the sole registered owner and the sole holder of the exchange notes
represented thereby for all purposes under the January 2000 indenture. Neither
Focal, the trustee, nor any agent of Focal will have any responsibility or
liability for:
. any aspect of DTC's reports relating to or payment made on account of
beneficial ownership interests in a Global Note representing any
exchange notes or for maintaining, supervising or reviewing any of DTC's
records relating to such beneficial ownership interests or
. any other matter relating to the actions and practices of DTC or any of
its participants.
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We have been advised by DTC that upon receipt of any payment of principal
of, premium, if any, on or interest on any Global Note, DTC will immediately
credit, on its book-entry registration and transfer system, the accounts of
participants with payments in amounts proportionate to their respective
beneficial interests in the principal or face amount of the Global Note, as
shown on the records of DTC. We expect that payments by participants to owners
of beneficial interests in a Global Note held through such participants will
be governed by standing instructions and customary practices as is now the
case with securities held for customer accounts registered in "street name"
and will be the sole responsibility of such participants.
So long as DTC or its nominee is the registered owner or holder of such
Global Note, DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the exchange notes represented by such Global Note for
the purposes of receiving payment on the exchange notes, receiving notices and
for all other purposes under the January 2000 indenture and the exchange
notes. Beneficial interests in exchange notes will be evidenced only by, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Except as provided above, owners of beneficial interests in
a Global Note will not be entitled to and will not be considered the holders
of the Global Note for any purposes under the January 2000 indenture.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if the person is not a participant, on the
procedures of the participant through which the person owns its interest, to
exercise any rights of a holder under the January 2000 indenture. We
understand that, under existing industry practices, in the event that we
request any action of holders or that an owner of a beneficial interest in a
Global Note desires to give or take any action that a holder is entitled to
give or take under the January 2000 indenture, DTC would authorize the
participants holding the relevant beneficial interest to give or take the
action, and the participants would authorize beneficial owners owning through
the participants to give or take the action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised us that it will take any action permitted to be taken by a
holder of exchange notes (including the presentation of exchange notes for
exchange as described below) only at the direction of one or more participants
to whose account with DTC interests in the Global Note are credited and only
in respect of such portion of the aggregate principal amount of the exchange
notes as to which such participant or participants has or have given such
direction.
DTC has advised us that DTC is a limited-purpose trust company organized
under the Banking Law 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 New York Uniform
Commercial Code and a "clearing agency" registered under the Securities
Exchange Act. DTC was created to hold the securities of its participants and
to facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations some of whom (and/or their representatives) own DTC.
Access to DTC's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy of the information.
Certificated Notes
The exchange notes represented by a Global Note are exchangeable for
certificated exchange notes only if:
. DTC notifies us that it is unwilling or unable to continue as a
depository for such Global Note or if at any time DTC ceases to be a
clearing agency registered under the Securities Exchange Act, and a
successor depository is not appointed by us within 90 days;
. we execute and deliver to the trustee a notice that such Global Note
will be so transferable, registrable and exchangeable, and such transfer
is registrable; or
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<PAGE>
. there has occurred and be continuing an Event of Default with respect to
the exchange notes represented by such Global Note.
Any Global Note that is exchangeable for certificated exchange notes
pursuant to the preceding sentence will be transferred to, and registered and
exchanged for, certificated exchange notes in authorized denominations and
registered in such names as DTC or its nominee holding such Global Note may
direct. Subject to the foregoing, a Global Note is not exchangeable, except for
a Global Note of like denomination to be registered in the name of DTC or its
nominee. In the event that a Global Note becomes exchangeable for certificated
exchange notes:
. certificated exchange notes will be issued only in fully registered form
in denominations of $1,000 or integral multiples thereof;
. payment of principal, any repurchase price, and interest on the
certificated exchange notes will be payable, and the transfer of the
certificated exchange notes will be registrable, at our office or agency
maintained for such purposes; and
. no service charge will be made for any issuance of the certificated
exchange notes, although we may require payment of a sum sufficient to
cover any tax or governmental charge imposed in connection with the
issuance.
Optional Redemption
The exchange notes will be redeemable, at our option, in whole or in part,
at any time or from time to time, on or after January 15, 2005 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice by first
class mail to each holder's last address as it appears in the Register, at the
redemption prices set forth below (expressed as percentages of principal
amount), plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period commencing January 15 of each of the years
set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2005.......................... 105.938%
2006.......................... 103.958%
2007.......................... 101.979%
2008 and thereafter........... 100.000%
</TABLE>
In addition, at any time and from time to time prior to January 15, 2003, we
may redeem in the aggregate up to 35% of the initially outstanding aggregate
principal amount of the 2000 senior notes with the proceeds from one or more
underwritten primary public offerings of our common stock pursuant to an
effective registration statement under the Securities Act following which there
is a Public Market at a redemption price of 111.875% of the principal amount of
the 2000 senior notes, plus Additional Interest, if any, so long as at least
65% of the original aggregate principal amount of the 2000 senior notes remains
outstanding after each such redemption. Any such redemption may only be
effected once and must be effected within 90 days after such public offering
upon not less than 30 nor more than 60 days' notice.
If less than all of the 2000 senior notes are to be redeemed, the trustee
shall select, in such manner as it shall deem fair and appropriate, the
particular 2000 senior notes to be redeemed or any portion thereof in principal
amounts of $1,000 or integral multiples thereof.
Mandatory Redemption
Except as set forth under "--Repurchase at the Option of Holders upon a
Change of Control" and "--Asset Sale," we are not required to make redemption
payments or sinking fund payments with respect to the 2000 senior notes.
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Repurchase at the Option of Holders upon a Change of Control
Upon the occurrence of a Change of Control, each holder will have the right
to require us to repurchase all or any part (equal to $1,000 principal amount
or an integral multiple thereof) of such holder's 2000 senior notes pursuant to
the offer described below (the "Change of Control Offer") at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to but excluding any Change
of Control Payment Date (as defined below).
Within 30 days following any Change of Control, the Company or the trustee
(at the expense of the Company) shall mail a notice to each holder stating:
(i) that a Change of Control Offer is being made pursuant to the
covenant described under "--Repurchase at the Option of Holders upon a
Change of Control" and that all 2000 senior notes timely tendered will be
accepted for payment,
(ii) the Change of Control Purchase Price and the purchase date (the
"Change of Control Payment Date"), which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed,
(iii) any 2000 senior notes or portions thereof not tendered or accepted
for payment will continue to accrue interest,
(iv) that unless we default in the payment of the Change of Control
Purchase Price, all 2000 senior notes or portions thereof accepted for
payment pursuant to the Change of Control Offer shall cease to accrue
interest from and after the Change of Control Payment Date,
(v) holders electing to have any 2000 senior notes or portions thereof
purchased pursuant to a Change of Control Offer will be required to
surrender their 2000 senior notes to the Paying Agent at the address set
forth in the notice prior to the close of business on the third Business
Day preceding the Change of Control Payment Date,
(vi) holders will 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 of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount of 2000 senior notes delivered for purchase, and a
statement that such holder is withdrawing such holder's election to have
such 2000 senior notes or portions thereof purchased,
(vii) holders whose 2000 senior notes are being purchased only in part
will be issued new 2000 senior notes equal in principal amount to the
unpurchased portion of the 2000 senior note or 2000 senior notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof, and
(viii) if after giving effect to such Change of Control Offer, at least
95% of the original aggregate principal amount of the 2000 senior notes has
been redeemed or repurchased, we shall have the right to redeem the balance
of the 2000 senior notes at the Change of Control Redemption Purchase
Price.
On the Change of Control Payment Date, we will:
(i) accept for payment 2000 senior notes or portions thereof properly
tendered pursuant to the Change of Control Offer,
(ii) irrevocably deposit with the Paying Agent in immediately available
funds an amount equal to the Change of Control Purchase Price in respect of
all 2000 senior notes or portions thereof so tendered and
(iii) deliver, or cause to be delivered, to the trustee the 2000 senior
notes so accepted together with an Officers' Certificate listing the 2000
senior notes or portions thereof tendered to us and accepted for payment.
The Paying Agent will promptly mail to each holder of 2000 senior notes so
accepted, payment in an amount equal to the Change of Control Purchase Price
for such 2000 senior notes, and we will execute and the trustee will promptly
authenticate and mail to each holder a new 2000 senior note equal in principal
amount to any unpurchased portion of the 2000 senior notes surrendered, if any.
Each such new 2000 senior note will be in a principal amount of $1,000 or an
integral multiple thereof.
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If after giving effect to a Change of Control Offer at least 95% of the
original aggregate principal amount of the 2000 senior notes has been
repurchased, we will have the right to redeem the balance of the 2000 senior
notes at a redemption price (the "Change of Control Redemption Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to but excluding the Change of Control Redemption Date (as defined
below) by giving the holders notice of such redemption within 30 days following
the Change of Control Payment Date with respect to such Change of Control Offer
(the "Change of Control Redemption"). Such notice will state that:
(i) a Change of Control Offer has been consummated and after giving
effect thereto at least 95% of the original aggregate principal amount of
the 2000 senior notes has been redeemed or repurchased,
(ii) we are exercising our right to redeem the balance of the
outstanding 2000 senior notes,
(iii) the redemption date (the "Change of Control Redemption Date") with
respect to such 2000 senior notes which will be no earlier than 30 days nor
later than 60 days from the date such notice is mailed,
(iv) unless we default in the payment of the Change of Control
Redemption Purchase Price with respect to such 2000 senior notes, all such
2000 senior notes will cease to accrue interest from and after such Change
of Control Redemption Date and
(v) holders are required to surrender their 2000 senior notes to the
Paying Agent at the address set forth in the notice prior to the close of
business on the third Business Day preceding such Change of Control
Redemption Date.
On the Change of Control Redemption Date, we will:
(i) accept for payment 2000 senior notes or portions thereof properly
tendered pursuant to the Change of Control Redemption,
(ii) irrevocably deposit with the Paying Agent in immediately available
funds an amount equal to the applicable Change of Control Redemption
Purchase Price in respect of all 2000 senior notes so tendered, and
(iii) deliver, or cause to be delivered, to the trustee the 2000 senior
notes so accepted together with an Officers' Certificate listing the 2000
senior notes tendered to the Paying Agent and accepted for payment.
The Paying Agent will promptly mail to each holder of 2000 senior notes so
accepted, payment in an amount equal to the applicable Change of Control
Redemption Purchase Price for such 2000 senior notes.
The existence of the holders' right to require, subject to certain
conditions, us to repurchase 2000 senior notes upon a Change of Control may
deter a third party from acquiring us in a transaction that constitutes a
Change of Control. Future indebtedness of Focal may contain provisions which
prohibit the purchase by Focal of any 2000 senior notes prior to the date
specified in such 2000 senior notes as the fixed date on which the principal of
such 2000 senior notes is due and payable, require obligations thereunder to be
repurchased upon a Change of Control or limit or prohibit our ability to comply
with our obligations under the January 2000 indenture in the event of a Change
of Control. Further, our failure to pay the Change of Control Purchase Price
would constitute an Event of Default which in turn could cause an event of
default under such other indebtedness of Focal. Moreover, due to the financial
effect of such repurchase on Focal, the exercise by the holders of their right
to require us to repurchase the 2000 senior notes could cause a default under
such other indebtedness, even if the Change of Control itself does not. If a
Change of Control Offer is made, we cannot assure you that we will have
sufficient funds to pay the Change of Control Purchase Price for all 2000
senior notes tendered by holders seeking to accept the Change of Control Offer.
If a Change of Control Offer occurs at a time when we do not have sufficient
available funds to pay the Change of Control Purchase Price for all 2000 senior
notes tendered pursuant to such offer or at a time when we are prohibited from
purchasing the 2000 senior notes (and we are unable either to obtain the
consent of the holders of the relevant indebtedness or to repay such
indebtedness), an Event of Default would occur under the January 2000
indenture.
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One of the events that constitutes a Change of Control under the January
2000 indenture is a sale, conveyance, transfer or lease of all or substantially
all of the property of Focal. The January 2000 indenture is governed by New
York law, and there is no established definition under New York law of
"substantially all" of the assets of a corporation. Accordingly, if we were to
engage in a transaction in which we disposed of less than all of our assets, a
question of interpretation could arise as to whether such disposition was of
"substantially all" of our assets and whether we were required to make a Change
of Control Offer.
To the extent such laws and regulations are applicable, we will comply with
the requirements of Section 14(e) under the Securities Exchange Act and any
other securities laws and regulations in connection with the repurchase of 2000
senior notes pursuant to a Change of Control Offer or a Change of Control
Redemption.
Except as described in this prospectus with respect to a Change of Control,
the January 2000 indenture does not contain any other provisions that permit
holders to require that we repurchase or redeem 2000 senior notes in the event
of a takeover, recapitalization or similar restructuring.
Asset Sale
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, consummate an Asset Sale unless:
(i) Focal or such Restricted Subsidiary, as the case may be, receives
consideration for such Asset Sale at least equal to the Fair Market Value
(as evidenced by a Board Resolution delivered to the trustee) of the
Property or other assets sold or otherwise disposed of,
(ii) at least 75% of the consideration received by Focal or such
Restricted Subsidiary for such Property or other assets consists of (a)
cash, readily-marketable cash equivalents or Telecommunications Assets, (b)
the assumption of Indebtedness of Focal or such Restricted Subsidiary
(other than Indebtedness that is subordinated by its terms to the 2000
senior notes) and the release of Focal or the Restricted Subsidiary, as the
case may be, from all liability on the Indebtedness so assumed or (c)
publicly-traded shares of Capital Stock (other than Preferred Stock and
Disqualified Stock) traded in the United States of any Person engaged in a
Telecommunications Business and,
(iii) Focal or any Restricted Subsidiary, as the case may be, uses the
Net Cash Proceeds from such Asset Sale in the manner set forth in the next
paragraph.
Within 360 days after any Asset Sale, Focal or any Restricted Subsidiary, as
the case may be, may at its option:
(i) reinvest an amount equal to the Net Cash Proceeds (or any portion
thereof) from such Asset Sale in Telecommunications Assets or in Capital
Stock of any Person engaged in the Telecommunications Business, and/or
(ii) apply an amount equal to such Net Cash Proceeds (or remaining Net
Cash Proceeds):
(a) to the permanent reduction of senior secured Indebtedness of
Focal (other than Indebtedness to a Restricted Subsidiary unless the
proceeds thereof are used by such Restricted Subsidiary in a manner
contemplated by clauses (i) through (iii) of this sentence) or other
Indebtedness of Focal (other than Indebtedness to a Restricted
Subsidiary unless the proceeds thereof are used by such Restricted
Subsidiary in a manner contemplated by clauses (i) through (iii) of
this sentence) that is senior to the 2000 senior notes or to the
permanent reduction of Indebtedness, or to the redemption of Preferred
Stock, of any Restricted Subsidiary (other than Indebtedness to, or
Preferred Stock owned by, Focal or another Restricted Subsidiary unless
the proceeds thereof are used by Focal or such Restricted Subsidiary in
a manner contemplated by clauses (i) through (iii) of this sentence),
or
(b) to the extent none of Focal or any of its Restricted
Subsidiaries has any Indebtedness outstanding of the type referred to
in the immediately preceding clause (a) (other than Indebtedness under
senior secured revolving credit facilities), to the repayment of
outstanding Indebtedness under
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any such revolving credit facility; provided, however, that neither
Focal nor any Restricted Subsidiary shall be required to permanently
reduce the commitments under any such revolving credit facility by an
amount equal to the outstanding Indebtedness thereunder so repaid or
prepaid, and/or
(iii) apply an amount equal to such Net Cash Proceeds (or remaining Net
Cash Proceeds) to prepay, whether in whole or in part, Indebtedness that is
pari passu with the 2000 senior notes and that matures prior to January 15,
2010.
Any Net Cash Proceeds from any Asset Sale that are not used within 360 days as
described in clauses (i) through (iii) above shall constitute "Excess
Proceeds."
If at any time the aggregate amount of Excess Proceeds calculated as of any
date exceeds $5 million, Focal shall, within 30 days of such date, make an
offer to purchase (an "Asset Sale Offer"), on a pro rata basis from all
holders:
(i) the 2000 senior notes at a purchase price (the "Offer Purchase
Price") in cash equal to 100% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to but excluding the purchase date, in
accordance with the procedures set forth in the January 2000 indenture and
(ii) to the extent required by the terms thereof, any other Indebtedness
of Focal that is pari passu with the 2000 senior notes.
The pro rata amount of such Excess Proceeds to be used to purchase 2000
senior notes shall be in an amount equal to the aggregate amount of such Excess
Proceeds multiplied by the quotient obtained by dividing the principal amount
of the outstanding 2000 senior notes by the sum of such principal amount and
the principal amount (or accreted value, as the case may be) of such other
Indebtedness. To the extent that the aggregate Offer Purchase Price of all 2000
senior notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds relating thereto (such shortfall constituting a "Deficiency"), Focal
may use such Deficiency for general corporate purposes and such Deficiency
shall not thereafter constitute Excess Proceeds for any purpose. In the event
the aggregate principal amounts of the outstanding 2000 senior notes tendered
pursuant to an Asset Sale Offer is in excess of the Excess Proceeds to be used
to purchase such 2000 senior notes, such Excess Proceeds shall be applied to
purchase such 2000 senior notes on a pro rata basis in principal amounts of
$1,000 or integral multiples thereof. Any amount remaining after giving effect
to such purchase shall constitute a Deficiency and shall be applied as provided
in the immediately preceding sentence. Upon the completion of the purchase of
all 2000 senior notes tendered pursuant to an Asset Sale Offer, the amount of
Excess Proceeds shall be reset to zero.
To the extent such laws and regulations are applicable, we will comply with
the requirements of Section 14(e) under the Securities Exchange Act and any
securities laws and regulations, in connection with the repurchase of 2000
senior notes pursuant to an Asset Sale Offer.
Certain Covenants
Set forth below are certain covenants that are contained in the January 2000
indenture:
Limitation on Consolidated Indebtedness
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, Incur any Indebtedness after the Issue Date. However, we may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the net proceeds therefrom, the ratio of (a) the
aggregate consolidated principal amount of Indebtedness of Focal outstanding as
of the most recent available quarterly or annual balance sheet, after giving
pro forma effect to the Incurrence of such Indebtedness and any other
Indebtedness Incurred since such balance sheet date and the receipt and
application of the proceeds thereof, to (b) Consolidated Cash Flow Available
for Fixed Charges for the four full fiscal quarters immediately preceding the
Incurrence of such Indebtedness for which consolidated financial statements of
Focal are available, determined on a pro forma basis as if any such
Indebtedness had been Incurred and the proceeds thereof had been applied at the
beginning of such four fiscal quarters, would be less than 6.0 to 1.0 for such
four-quarter periods.
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Notwithstanding the foregoing limitation, Focal and its Restricted
Subsidiaries may Incur each and all of the following:
(i) Senior Indebtedness in an aggregate principal amount outstanding at
any one time not to exceed $250,000,000, and any renewal, extension,
refinancing or refunding thereof in an amount which, together with any
principal amount remaining outstanding or available pursuant to this clause
(i) does not exceed the aggregate principal amount outstanding or available
under all such Senior Indebtedness immediately prior to such renewal,
extension, refinancing or refunding, less, in any case, any amount of such
Indebtedness permanently repaid under the covenant described above under
"--Asset Sale";
(ii) Indebtedness (including Guarantees) Incurred to finance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire
equipment, inventory or network assets (including acquisitions by way of
any Capital Lease Obligation and acquisitions of the Capital Stock of a
Person that becomes a Restricted Subsidiary to the extent of the Fair
Market Value of the equipment, inventory or network assets so acquired) by
Focal or a Restricted Subsidiary after the Issue Date;
(iii) Indebtedness owed by Focal to any Significant Restricted
Subsidiary or Indebtedness owed by a Restricted Subsidiary to Focal or to a
Significant Restricted Subsidiary; provided that upon either:
(a) the transfer or other disposition by a Significant Restricted
Subsidiary or Focal of any Indebtedness so permitted to a Person other
than Focal or a Significant Restricted Subsidiary or
(b) the issuance (other than directors' qualifying shares), sale,
transfer or other disposition of shares of Capital Stock (including by
amalgamation, consolidation or merger) of a Significant Restricted
Subsidiary (such that upon such sale, transfer or other disposition
such Restricted Subsidiary would no longer meet the definition of a
Significant Restricted Subsidiary) to a Person other than Focal or a
Significant Restricted Subsidiary, the provisions of this clause (iii)
shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred at the time of such
transfer or other disposition;
(iv) Indebtedness Incurred to renew, extend, refinance or refund
(including successive extensions, renewals, refinancings and refundings),
whether in whole or in part (each, a "refinancing"):
(a) the 2000 senior notes,
(b) Indebtedness outstanding at the date of the January 2000
indenture,
(c) Indebtedness Incurred pursuant to clause (ii) above, or
(d) Indebtedness Incurred pursuant to the first paragraph under the
caption "--Limitation on Consolidated Indebtedness," in an aggregate
principal amount not to exceed the aggregate principal amount of the
Indebtedness so refinanced plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of
the Indebtedness so refinanced or the amount of any premium reasonably
determined by Focal as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase, plus the
expenses of Focal and its Restricted Subsidiaries incurred in
connection with such refinancing; provided that Indebtedness the
proceeds of which are used to refinance the 2000 senior notes or
Indebtedness which is pari passu with the 2000 senior notes or
Indebtedness which is subordinate in right of payment to the 2000
senior notes shall only be permitted under this clause (iv) if:
(y) in the case of any refinancing of the 2000 senior notes or
Indebtedness which is pari passu with the 2000 senior notes, the
refinancing Indebtedness is made pari passu to the 2000 senior notes
or constitutes Subordinated Indebtedness, and, in the case of any
refinancing of Subordinated Indebtedness, the refinancing
Indebtedness constitutes Subordinated Indebtedness and
(z) in any case, the refinancing Indebtedness by its terms, or by
the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, (1) does not provide for payments of
principal of such Indebtedness at stated maturity or by way of a
sinking fund applicable
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thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by Focal (including any redemption,
retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of
the acceleration of any payment with respect to such Indebtedness
upon any event of default thereunder), in each case prior to the
time the same are required by the terms of the Indebtedness being
refinanced and (2) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by Focal) of such
Indebtedness at the option of the holder thereof prior to the time
the same are required by the terms of the Indebtedness being
refinanced, other than a redemption or other retirement at the
option of the holder of such Indebtedness (including pursuant to an
offer to purchase made by Focal) which is conditioned upon a change
of control pursuant to provisions substantially similar to those
described under "--Repurchase at the Option of Holders upon a Change
of Control";
(v) Indebtedness:
(a) in respect of performance, surety or appeal bonds provided in the
ordinary course of business,
(b) in respect of guarantees or letters of credit Incurred in the
ordinary course of business or
(c) arising from customary agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees
or letters of credit, surety bonds or performance bonds securing any
obligations of Focal or any of its Restricted Subsidiaries pursuant to
such agreements, in the case of this clause (c) Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring
all or any portion of such business, assets or Restricted Subsidiary for
the purpose of financing such acquisition);
(vi) Indebtedness outstanding under the 2000 senior notes and the
January 2000 indenture;
(vii) Subordinated Indebtedness in an aggregate principal amount
outstanding at any one time not to exceed $100,000,000, less, in any case,
any amount of such Indebtedness permanently repaid as provided under the
covenant described above under "--Asset Sale;"
(viii) Indebtedness of Focal such that, after giving effect to the
incurrence thereof, the total aggregate principal amount of Indebtedness
incurred under this clause (viii) plus any refinancings thereof otherwise
incurred in compliance with the January 2000 indenture would not exceed
200% of Total Net Incremental Equity;
(ix) Acquired Indebtedness;
(x) Indebtedness of Focal to the extent the net proceeds thereof are
promptly:
(a) used to repurchase 2000 senior notes tendered as a result of a
Change of Control Offer or
(b) deposited to defease the 2000 senior notes as provided under the
covenant described below under "--Satisfaction and Discharge of the
January 2000 Indenture, Defeasance";
(xi) Indebtedness not otherwise permitted to be Incurred pursuant to
clauses (i) through (x) above, which, together with any other outstanding
Indebtedness Incurred pursuant to this clause (xi), will not exceed
$25,000,000 aggregate principal amount at any one time outstanding; and
(xii) Indebtedness of Focal and any Restricted Subsidiary outstanding on
the Issue Date including, without limitation, the 1998 notes.
For purposes of determining any particular amount of Indebtedness under this
"--Limitation on Consolidated Indebtedness" covenant:
(i) Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included, and
(ii) any Liens granted pursuant to the equal and ratable provisions
referred to in the "--Limitation on Liens" covenant described below shall
not be treated as Indebtedness.
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For purposes of determining compliance with this "--Limitation on
Consolidated Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the above clauses, Focal, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses. Focal may, however, allocate portions of
such Indebtedness between or among such clauses.
Limitation on Restricted Payments
Focal will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment unless, at the time of and
after giving effect to such proposed Restricted Payment:
(i) no Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof,
(ii) after giving effect, on a pro forma basis, to such Restricted
Payment and the Incurrence of any Indebtedness the net proceeds of which
are used to finance such Restricted Payment, Focal could Incur at least
$1.00 of additional Indebtedness pursuant to the first paragraph of "--
Limitation on Consolidated Indebtedness," and
(iii) after giving effect to such Restricted Payment on a pro forma
basis, the aggregate amount expended (the amount so expended, if other than
cash, to be determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) or declared for all Restricted
Payments after the Issue Date does not exceed the sum of:
(a) 50% of the Consolidated Net Income of Focal if Consolidated Net
Income shall be a deficit, minus 100% of such deficit) for the period
(taken as one accounting period) beginning on the last day of the
fiscal quarter immediately preceding the Issue Date and ending on the
last day of the fiscal quarter for which Focal's financial statements
are available immediately preceding the date of such Restricted
Payment, plus
(b) 100% of the net reduction in Investments, subsequent to the
Issue Date, in any Person, resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of Property (but only to the extent such interest, dividends,
repayments or other transfers of Property are not included in the
calculation of Consolidated Net Income), in each case to Focal or any
Restricted Subsidiary from any Person (including from Unrestricted
Subsidiaries) or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment"), not to exceed in the case of any Person
the amount of Investments previously made subsequent to the Issue Date
by Focal or any Restricted Subsidiary in such Person and which was
treated as a Restricted Payment, plus
(c) the aggregate Net Cash Proceeds received after the Issue Date
(x) as capital contributions to Focal,
(y) from the issuance (other than to a Subsidiary of Focal) of
Capital Stock (other than Disqualified Stock) of Focal and warrants,
rights or options on Capital Stock (other than Disqualified Stock)
of Focal, or
(z) from the conversion of Indebtedness of Focal into Capital
Stock (other than Disqualified Stock and other than by a Subsidiary
of Focal) of Focal after the date of the January 2000 indenture,
less, in the case of this clause (c), an amount equal to the amount of
such Net Cash Proceeds that are used to Incur Indebtedness pursuant to
clause (viii) under the covenant described above under "--Limitation on
Consolidated Indebtedness" or to make Restricted Payments pursuant to
clauses (ii) or (vi) of the second paragraph of this "Limitation on
Restricted Payments" covenant.
The foregoing limitations shall not prevent Focal from:
(i) paying a dividend on its Capital Stock at any time within 60 days
after the declaration thereof if, on the declaration date, Focal could have
paid such dividend in compliance with the preceding paragraph,
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(ii) retiring (a) any Capital Stock of Focal or (b) any Indebtedness of
Focal that is subordinate in right of payment to the 2000 senior notes, in
exchange for, or out of the proceeds of the substantially concurrent sale
of Qualified Stock of Focal,
(iii) retiring any Indebtedness of Focal subordinated in right of
payment to the 2000 senior notes in exchange for, or out of the proceeds
of, the substantially concurrent Incurrence of Indebtedness of Focal (other
than Indebtedness to a Subsidiary of Focal), if such new Indebtedness (a)
is subordinated in right of payment to the 2000 senior notes at least to
the same extent as the Indebtedness being refinanced, (b) has an Average
Life longer than the 2000 senior notes, and (c) has no scheduled principal
payments due in any amount earlier than the equivalent amount of principal
under the Indebtedness so retired,
(iv) retiring any Capital Stock or options to acquire Capital Stock of
Focal held by any directors, officers or employees of Focal or any
Restricted Subsidiary upon the termination of such Person's tenure as a
director or employee, as the case may be, so long as the aggregate price
paid for all such retired Capital Stock or options does not exceed
$5,000,000 in the aggregate,
(v) retiring any Capital Stock of Focal to the extent necessary (as
determined in good faith by a majority of the disinterested members of the
Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) to prevent the loss, or to secure the renewal or
reinstatement, of any license or franchise held by Focal or any Restricted
Subsidiary from any governmental agency,
(vi) Investments in any Person the primary business of which is related,
ancillary or complimentary to the business of Focal and its Restricted
Subsidiaries on the date of such Investments if the aggregate amount of
Investments made pursuant to this clause (vi) does not exceed the sum of
(a) $20,000,000 plus (b) an amount equal to (x) Total Net Incremental
Equity, minus (y) any amount of Total Net Incremental Equity to the extent
it has been used to Incur Indebtedness pursuant to clause (viii) under the
covenant described above under "--Limitation on Consolidated Indebtedness",
(vii) the declaration or payment of dividends on the Common Stock of
Focal (so long as such dividends are paid to the holders of all classes of
Common Stock) following a Public Equity Offering of such Common Stock of up
to 6% per annum of the Net Cash Proceeds received by Focal in such Public
Equity Offering,
(viii) payments or distributions to dissenting stockholders pursuant to
applicable law to the extent required in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
January 2000 indenture applicable to mergers, consolidations and transfers
of all or substantially all of the property and assets of Focal, and
(ix) making Investments not otherwise permitted in an aggregate amount
not to exceed $10,000,000 at any one time outstanding.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (ii) and (iii) of the foregoing
paragraph shall not be included as Restricted Payments.
Not later than the date of making any Restricted Payment (including any
Restricted Payment permitted to be made pursuant to the two previous
paragraphs), Focal shall deliver to the trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the required calculations were computed, which calculations may be
based upon Focal's latest available financial statements.
Limitation on Liens
Focal may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, Incur or suffer to exist any Lien on or with respect to any
Property or other assets or interests therein now owned or hereafter acquired
or any income or profits therefrom or any interest thereon to secure any
Indebtedness without making, or causing such Restricted Subsidiary to make,
effective provision for securing the 2000 senior notes equally and ratably with
such Indebtedness, provided that no Indebtedness of Focal which is subordinate
in right of payment to the 2000 senior notes may be so secured.
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The foregoing restrictions shall not apply to:
(i) Liens existing on the date of the January 2000 indenture and
securing Indebtedness outstanding on the date of the January 2000
indenture,
(ii) Liens Incurred on or after the Issue Date pursuant to clause (i) of
the second paragraph under the covenant "--Limitation on Consolidated
Indebtedness,"
(iii) Liens in favor of Focal or any Significant Restricted Subsidiary,
(iv) Liens on Property of Focal or a Restricted Subsidiary acquired,
constructed or constituting improvements made after the Issue Date to
secure Indebtedness Incurred pursuant to clause (ii) of the second
paragraph under "--Limitation on Consolidated Indebtedness" which is
otherwise permitted under the January 2000 indenture, if (a) the principal
amount of any Indebtedness secured by any such Lien does not exceed 100% of
such purchase price or cost of construction or improvement of the Property
subject to such Lien, (b) such Lien attaches to such Property prior to, at
the time of, or within 180 days after, the engineering, acquisition,
installation, development, improvement, completion of construction or
commencement of operation of such Property and (c) such Lien does not
extend to or cover any Property other than the specific item of Property
(or portion thereof) acquired, engineered, constructed, installed,
developed or constituting the improvements made with the proceeds of such
Indebtedness,
(v) Liens to secure Acquired Indebtedness, if (a) such Lien attaches to
the acquired asset prior to the time of the acquisition of such asset and
(b) such Lien does not extend to or cover any other Property,
(vi) Liens to secure Indebtedness Incurred to extend, renew, refinance
or refund (or successive extensions, renewals, refinancings or refundings),
in whole or in part, Indebtedness secured by any Lien referred to in the
foregoing clauses (i), (ii), (iv) and (v) so long as such Lien does not
extend to any other Property and the principal amount of Indebtedness so
secured is not increased except as otherwise permitted under clause (iv) of
the second paragraph of "--Limitation on Consolidated Indebtedness,"
(vii) Liens not otherwise permitted by the foregoing clauses (i) through
(vi) in an aggregate amount not to exceed 5% of Focal's Consolidated
Tangible Assets as of the date on which any such Lien arises,
(viii) Liens granted after the Issue Date pursuant to the immediately
preceding paragraph to secure the 2000 senior notes, and
(ix) Permitted Liens.
Limitation on Sale and Leaseback Transactions
Focal will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction (other than a Sale
and Leaseback Transaction between Focal or a Restricted Subsidiary on the one
hand and a Restricted Subsidiary or Focal on the other hand), unless:
(i) Focal or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Sale and Leaseback Transaction at least equal
to the Fair Market Value (as evidenced by a Board Resolution) of the Property
subject to such transaction,
(ii) the Attributable Indebtedness of Focal or such Restricted Subsidiary
with respect thereto is included as Indebtedness and would be permitted under
the covenant described under "--Limitation on Consolidated Indebtedness,"
(iii) Focal or such Restricted Subsidiary would be permitted to create a
Lien on such Property without securing the 2000 senior notes by the covenant
described under "--Limitation on Liens," and
(iv) the Net Cash Proceeds from such transaction are applied in accordance
with the covenant described under "--Asset Sale."
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Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
Focal will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, cause or suffer to exist or become effective, or enter into, any
encumbrance or restriction (other than pursuant to law or regulation) on the
ability of any Restricted Subsidiary:
(i) to pay dividends or make any other distributions in respect of its
Capital Stock or pay any Indebtedness or other obligation owed to Focal or
any Restricted Subsidiary,
(ii) to make loans or advances to Focal or any Restricted Subsidiary, or
(iii) to transfer any of its Property to Focal or any other Restricted
Subsidiary, except:
(a) any encumbrance or restriction existing as of the Issue Date,
(b) any encumbrance or restriction pursuant to an agreement relating
to an acquisition of Property, so long as the encumbrances or
restrictions in any such agreement relate solely to the Property so
acquired,
(c) any encumbrance or restriction relating to any Indebtedness of
any Restricted Subsidiary existing on the date on which such Restricted
Subsidiary is acquired by Focal or another Restricted Subsidiary (other
than any such Indebtedness Incurred by such Restricted Subsidiary in
connection with or in anticipation of such acquisition),
(d) any encumbrance or restriction pursuant to an agreement
effecting a permitted refinancing of Indebtedness issued pursuant to an
agreement referred to in the foregoing clauses (a) through (c), so long
as the encumbrances and restrictions contained in any such refinancing
agreement are not materially more restrictive than the encumbrances and
restrictions contained in such agreements,
(e) in the case of clause (iii) above only, customary provisions (x)
that restrict the subletting, assignment or transfer of any Property or
other asset that is a lease, license, conveyance or contract or similar
Property or other asset, (y) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
Property or other assets of Focal or any Restricted Subsidiary not
otherwise prohibited by the January 2000 indenture or (z) arising or
agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate,
detract from the value of Property or other assets of Focal or any
Restricted Subsidiary in any manner material to Focal or any Restricted
Subsidiary,
(f) in the case of clause (iii) above only, restrictions contained
in any security agreement (including a Capital Lease Obligation)
securing Indebtedness of Focal or a Restricted Subsidiary otherwise
permitted under the January 2000 indenture, but only to the extent such
restrictions restrict the transfer of the Property subject to such
security agreement,
(g) any encumbrance or restriction pursuant to a Senior Indebtedness
which is permitted to be outstanding under clause (i) of the second
paragraph of "--Limitation on Consolidated Indebtedness,"
(h) in the case of clause (iii) above only, any encumbrance or
restriction pursuant to an agreement for Indebtedness that is permitted
to be outstanding under clause (ii) of the second paragraph of "--
Limitation on Consolidated Indebtedness," and
(i) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, provided that the consummation of such
transaction would not result in a Default, that such restriction
terminates if such transaction is not consummated and that the
consummation or abandonment of such transaction occurs within one year
of the date such agreement was entered into.
The foregoing limitations shall not prevent Focal or any Restricted
Subsidiary from (i) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted under the "--Limitation on Liens" covenant or (ii)
restricting the sale or other disposition of Property or other assets of Focal
or any of its Restricted Subsidiaries that secure Indebtedness of Focal or any
of its Restricted Subsidiaries otherwise permitted under "--Limitation on
Consolidated Indebtedness."
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Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
Focal will not sell, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except:
(i) to Focal or a Wholly Owned Restricted Subsidiary,
(ii) issuances of directors' qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to
the extent required by applicable law,
(iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect to such
issuance or sale would have been permitted to be made under the covenant
described above under "--Limitation on Restricted Payments" if made on the
date of such issuance or sale, or
(iv) issuances or sales of Common Stock (other than Disqualified Stock)
of a Restricted Subsidiary, provided that Focal or such Restricted
Subsidiary applies the Net Cash Proceeds, if any, of any such sale in
accordance with the covenant described above under "--Asset Sale."
Transactions with Affiliates
Focal will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, sell, lease, transfer, or otherwise dispose of, any of
its Properties or assets to, or purchase any Property or other assets from, or
enter into any contract, agreement, understanding, loan, advance or Guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless:
(i) such Affiliate Transaction or series of related Affiliate
Transactions is on terms that are no less favorable to Focal or such
Restricted Subsidiary than those that could have been obtained in a
comparable arm's-length transaction by Focal or such Restricted Subsidiary
with a Person that is not an Affiliate (or, in the event that there are no
comparable transactions involving Persons who are not Affiliates of Focal
or the relevant Restricted Subsidiary to apply for comparative purposes, is
otherwise on terms that, taken as a whole, Focal has determined to be fair
to Focal or the relevant Restricted Subsidiary), and
(ii) Focal delivers to the trustee:
(a) with respect to any Affiliate Transaction involving aggregate
payments or, in the case of assets or Property, a Fair Market Value in
excess of $1,000,000, a certificate of the chief executive, operating
or financial officer of Focal evidencing such officer's determination
that such Affiliate Transaction or series of related Affiliate
Transactions complies with clause (i) above and is in the best
interests of Focal or such Restricted Subsidiary,
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments or, in the case of
assets or Property, a Fair Market Value in excess of $5,000,000, a
Board Resolution certifying that such Affiliate Transaction or series
of related Affiliate Transactions complies with clause (i) above and
that such Affiliate Transaction or series of related Affiliate
Transactions has been approved by a majority of the disinterested
members of the Board of Directors who have determined that such
Affiliate Transaction or series of related Affiliate Transactions is in
the best interest of Focal or such Restricted Subsidiary and
(c) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments or, in the case of
any assets or Property, a Fair Market Value in excess of $10,000,000, a
written opinion stating that the transaction complies with clause (i)
above from a financial point of view from an investment banking firm of
national standing in the United States which, in the good faith
judgment of the board of directors, is independent with respect to
Focal and its Subsidiaries and qualified to perform such task.
Notwithstanding the foregoing, the following shall not be deemed Affiliate
Transactions:
(1) any employment, noncompetition, confidentiality or similar agreement
entered into by Focal or any of its Restricted Subsidiaries in the ordinary
course of business,
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(2) any agreement or arrangement with respect to the compensation of a
director or officer of Focal or any Restricted Subsidiary approved by a
majority of the disinterested members of the board of directors,
(3) transactions permitted by the covenant described under "--Limitation
on Restricted Payments,"
(4) transactions pursuant to any agreement or arrangement existing on
the Issue Date, including any renewal, replacement, extension, amendment or
other modification thereof, provided such modifications are not materially
more adverse to Focal or the Restricted Subsidiaries,
(5) issuances of Capital Stock of Focal to any Affiliates, and
(6) the sale of telecommunications services to any Affiliate on an
arm's-length basis which is undertaken in the ordinary course of Focal's
business.
Restricted and Unrestricted Subsidiaries
(i) Focal may designate a Subsidiary (including a newly formed or newly
acquired Subsidiary) of Focal or any of its Restricted Subsidiaries as an
Unrestricted Subsidiary if such Subsidiary does not have any obligations
which, if in default, would result in a cross default on Indebtedness of Focal
or a Restricted Subsidiary (other than Indebtedness to Focal or a Significant
Restricted Subsidiary), and
(a) such Subsidiary has total assets of $1,000 or less,
(b) such Subsidiary has assets of more than $1,000 and an Investment in
such Subsidiary in an amount equal to the Fair Market Value of such
Subsidiary would then be permitted under the first paragraph of "--
Limitation on Restricted Payments," or
(c) such designation is effective immediately upon such Person becoming
a Subsidiary. Unless so designated as an Unrestricted Subsidiary, any
Person that becomes a Subsidiary of Focal shall be classified as a
Restricted Subsidiary thereof.
(ii) Focal may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary if: (a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such designation and (b)
all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if Incurred at such time, have been
permitted to be Incurred (and shall be deemed to have been Incurred) for all
purposes of the January 2000 indenture.
(iii) The designation of a Subsidiary as an Unrestricted Subsidiary or the
designation of an Unrestricted Subsidiary as a Restricted Subsidiary in
compliance with clause (ii) must be made by the Board of Directors pursuant to
a Board Resolution and will be effective as of the date specified in such
Board Resolution.
Reports
Focal will file with the trustee within 15 days after it files them with
the Securities and Exchange Commission copies of the annual reports on Form
10-K and the information, documents, and other reports that Focal is required
to file with the Securities and Exchange Commission pursuant to Section 13 or
15(d) of the Securities Exchange Act as well as quarterly reports ("SEC
Reports"). If Focal ceases to be required to file SEC Reports pursuant to
either of these sections of the Securities Exchange Act, Focal will
nevertheless continue to file such reports with the Securities and Exchange
Commission (unless the Securities and Exchange Commission will not accept such
a filing) and the trustee. Focal will furnish copies of the SEC Reports to the
holders of 2000 senior notes at the time Focal is required to file the same
with the trustee.
Amalgamation, Consolidation, Merger, Conveyance, Lease or Transfer
Focal will not, in any transaction or series of related transactions,
amalgamate or consolidate with, or merge with or into, any other Person (other
than a merger of a Restricted Subsidiary into Focal in which Focal is the
surviving corporation), or sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Property and assets of Focal and
its Restricted Subsidiaries taken as a whole to any other Person, unless:
(i) either (a) Focal is the surviving corporation or (b) the corporation
(if other than Focal) formed by such amalgamation or consolidation or into
which Focal is merged, or the Person which acquires, by sale,
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assignment, conveyance, transfer, lease or disposition, all or
substantially all of the Property and assets of Focal and the Restricted
Subsidiaries taken as a whole (such corporation or Person, the "Surviving
Entity"), is a corporation organized and validly existing under the laws of
the United States of America, any political subdivision thereof, any state
thereof or the District of Columbia and expressly assumes, by a
supplemental indenture, the due and punctual payment of the principal of
(and premium, if any) and interest on all the 2000 senior notes and the
performance of Focal's covenants and obligations under the January 2000
indenture;
(ii) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred in connection with or in respect of such
transaction or series of related transactions), no Default has occurred and
is continuing;
(iii) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred in connection with or in respect of, and any
Indebtedness to be repaid in connection with or as a result of, such
transaction or series of related transactions), Focal (or the Surviving
Entity, if Focal is not the surviving corporation):
(A) has a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Focal immediately prior to such transaction
and
(B) would be permitted to Incur at least $1 of additional
Indebtedness pursuant to the first paragraph of the covenant "--
Limitation on Consolidated Indebtedness";
Notwithstanding the foregoing, this clause (iii)(B) shall not apply to (x)
a consolidation, merger or sale of all (but not less than all) of the
assets of Focal if all Liens and Indebtedness of Focal or the Surviving
Entity, as the case may be, and its Restricted Subsidiaries outstanding
immediately after such transaction would, if Incurred at such time, have
been permitted to be Incurred (and all such Liens and Indebtedness, other
than Liens and Indebtedness of Focal and its Restricted Subsidiaries
outstanding immediately prior to the transaction, will be deemed to have
been Incurred for all purposes of the January 2000 indenture) or (y) a
consolidation, merger or sale of all or substantially all of the assets of
Focal if immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred in connection with or in respect of, and any
Indebtedness to be repaid in connection with or as a result of, such
transaction or series of related transactions) Focal's (or the Surviving
Entity's) leverage ratio computed pursuant to the first paragraph under "--
Limitation on Consolidated Indebtedness" would be equal to or less than the
leverage ratio of Focal immediately prior to such transaction;
(iv) if, as a result of any such transaction, Property of Focal would
become subject to a Lien prohibited by the provisions of the January 2000
indenture described under "--Limitation on Liens" above, Focal or the
Surviving Entity to Focal has secured the 2000 senior notes as required
thereby; and
(v) Focal delivers to the trustee an Officers' Certificate (attaching
the arithmetic computations to demonstrate compliance with clause (iii))
and Opinion of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein relating to
such transaction have been complied with.
Events of Default
Each of the following is an "Event of Default" under the January 2000
indenture:
(i) default in the payment of interest (including Additional Interest,
if any) on any 2000 senior note when the same becomes due and payable, and
the 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 2000 senior note at its maturity, upon optional redemption, including a
Change in Control Redemption Offer, required repurchase (including pursuant
to a Change of Control Offer or an Asset Sale Offer) or otherwise or the
failure to make an offer to purchase any 2000 senior note as required under
the January 2000 indenture;
(iii) default in the performance, or breach, of any covenant or warranty
of Focal in the January 2000 indenture (other than a covenant or warranty
addressed in clauses (i) or (ii) above) and continuance of
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such Default or breach for a period of 60 days after written notice thereof
has been given to Focal by the trustee or to Focal and the trustee by
holders of at least 25% of the aggregate principal amount of the
outstanding 2000 senior notes;
(iv) (a) any principal payment in excess of $10,000,000 with respect to
Indebtedness of Focal or any Restricted Subsidiary is not paid when due
within the applicable grace period, if any, or (b) Indebtedness of Focal or
any Restricted Subsidiary is accelerated by the holders thereof and the
principal amount of such accelerated Indebtedness exceeds $10,000,000;
(v) the entry by a court of competent jurisdiction of one or more final
judgments against Focal or any Restricted Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $10,000,000 which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period of
60 consecutive days; or
(vi) certain events of bankruptcy, insolvency or reorganization
affecting Focal or any Restricted Subsidiary shall occur.
If any Event of Default (other than an Event of Default specified in clause
(vi) above) occurs and is continuing, then and in every such case either the
trustee or the holders of not less than 25% of the aggregate principal amount
of the outstanding 2000 senior notes may declare the principal amount of, and
any accrued and unpaid interest on, all 2000 senior notes then outstanding to
be immediately due and payable by a notice in writing to Focal (and to the
trustee if given by holders), and upon any such declaration, such principal
amount and any accrued and unpaid interest thereon will become and be
immediately due and payable. If any Event of Default specified in clause (vi)
above occurs, the principal amount of, and any accrued and unpaid interest on,
the 2000 senior notes then outstanding shall become immediately due and payable
without any declaration or other act on the part of either the trustee or any
holder. In the event of a declaration of acceleration because an Event of
Default set forth in clause (iv) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (iv)
shall be remedied, or cured or waived by the holders of the relevant
Indebtedness, within 60 days after such Event of Default.
Focal will be required to deliver to the trustee on or before a date not
more than 90 days after the end of each fiscal year a statement regarding
compliance with the January 2000 indenture. In addition, Focal is required
within 30 days after becoming aware of any Default or Event of Default, to
deliver to the trustee a statement describing such Default or Event of Default,
its status and what action Focal is taking or proposes to take with respect
thereto. The trustee may withhold from holders notice of any continuing Default
or Event of Default (other than relating to the payment of principal or
interest) if the trustee determines that withholding such notice is in the
holders' interest.
Amendment, Supplement and Waiver
Focal and the trustee may, at any time and from time to time, without notice
to or consent of any holder of 2000 senior notes, enter into one or more
indentures supplemental to the January 2000 indenture
(i) to evidence the succession of another Person to Focal in accordance
with the terms of the January 2000 indenture and the assumption by such
successor of the covenants of Focal in the January 2000 indenture and the
2000 senior notes,
(ii) to add to the covenants of Focal, for the benefit of the holders,
or to surrender any right or power conferred upon Focal by the January 2000
indenture,
(iii) to add any additional Events of Default,
(iv) to evidence and provide for the acceptance of appointment under the
January 2000 indenture of a successor trustee,
(v) to secure the 2000 senior notes,
(vi) to cure any ambiguity in the January 2000 indenture, to correct or
supplement any provision in the January 2000 indenture which may be
inconsistent with any other provision therein or to add any other
provisions with respect to matters or questions arising under the January
2000 indenture if such actions do not adversely affect the interests of the
holders in any material respect, or
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(vii) to comply with the requirements of the Securities and Exchange
Commission or any other regulatory authority in order to effect or maintain
the qualification of the January 2000 indenture under the Trust Indenture
Act.
With the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding 2000 senior notes, Focal and the trustee
may enter into one or more indentures supplemental to the January 2000
indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the January 2000 indenture or modifying
in any manner the rights of the holders. However, no such supplemental
indenture may, without the consent of the holder of each outstanding 2000
senior note:
(i) change the date specified in any 2000 senior note as the fixed date
on which the principal of such 2000 senior note is due and payable, or
change the due date of any installment of interest on any 2000 senior note,
or alter the redemption provisions thereof, or reduce the principal amount
thereof (or premium, if any), or the interest thereon that would be due and
payable upon Maturity thereof, or change the place of payment where, or the
coin or currency in which, any 2000 senior note or any premium or interest
thereon is payable,
(ii) subordinate in right of payment, or otherwise subordinate, the 2000
senior notes to any other Indebtedness,
(iii) impair the right to institute suit for the enforcement of any
payment with respect to the 2000 senior notes,
(iv) make any change that would result in Focal being required to make
any deduction or withholding from any payment made under or with respect to
the 2000 senior notes, or
(v) modify any provision of this paragraph (except to increase any
percentage set forth herein).
The holders of not less than a majority in aggregate principal amount of the
outstanding 2000 senior notes may, on behalf of the holders of all the 2000
senior notes, waive any past Default under the January 2000 indenture and its
consequences, except a Default (i) in the payment of any amount on any 2000
senior note, or (ii) in respect of a covenant or provision hereof which under
the proviso to the prior paragraph cannot be modified or amended without the
consent of the holder of each outstanding 2000 senior note affected.
Satisfaction and Discharge of the January 2000 Indenture; Defeasance
Focal may terminate its obligations under the January 2000 indenture when:
(i) either (a) all outstanding 2000 senior notes have been delivered to
the trustee for cancellation or (b) all such 2000 senior notes not
theretofore delivered to the trustee for cancellation have become due and
payable, will become due and payable within one year or are to be called
for redemption within one year under irrevocable arrangements satisfactory
to the trustee for the giving of notice of redemption by the trustee in the
name and at the expense of Focal, and Focal has irrevocably deposited or
caused to be deposited with the trustee funds in an amount sufficient to
pay and discharge the entire indebtedness on the 2000 senior notes not
theretofore delivered to the trustee for cancellation, for principal of (or
premium, if any, on) and interest to the date of deposit or maturity or
date of redemption,
(ii) Focal has paid or caused to be paid all sums payable by Focal under
the January 2000 indenture, and
(iii) Focal has delivered an Officers' Certificate and an Opinion of
Counsel relating to compliance with the conditions set forth in the January
2000 indenture.
Focal, at its election, shall:
(i) be deemed to have paid and discharged its debt on the 2000 senior
notes and the January 2000 indenture shall cease to be of further effect as
to all outstanding 2000 senior notes (except as to (a) rights of
registration of transfer, substitution and exchange of 2000 senior notes
and Focal's right of optional
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redemption, (b) rights of holders to receive payments of principal of,
premium, if any, and interest on the 2000 senior notes (but not the Change
of Control Purchase Price or the Offer Purchase Price), (c) the rights,
obligations and immunities of the trustee under the January 2000 indenture
and (d) certain other specified provisions in the January 2000 indenture)
and
(ii) cease to be under any obligation to comply with certain restrictive
covenants including those described under "--Certain Covenants," after the
irrevocable deposit by Focal with the trustee, in trust for the benefit of
the holders, at any time prior to the Maturity of the 2000 senior notes, of
(a) United States dollars in an amount, (b) U.S. Government Obligations
which through the payment of interest and principal will provide, not later
than one day before the due date of payment in respect of the 2000 senior
notes, money in an amount, or (c) a combination thereof, sufficient to pay
and discharge the principal of, and interest on, the 2000 senior notes then
outstanding on the dates on which any such payments are due in accordance
with the terms of the January 2000 indenture and of the 2000 senior notes.
Such defeasance or covenant defeasance shall be deemed to occur only if certain
conditions are satisfied, including, among other things, delivery by Focal to
the trustee of an opinion of independent counsel, reasonably acceptable to the
trustee to the effect that:
(i) such deposit, defeasance and discharge will not be deemed, or result
in, a taxable event for U.S. federal income tax purposes with respect to
the holders (and, in the case of defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change
in applicable U.S. federal income tax law), and
(ii) Focal's deposit will not result in the trust created thereby or the
trustee being subject to regulation under the Investment Company Act.
The Trustee
Harris Trust and Savings Bank is the trustee under the January 2000
indenture and its current address is 311 West Monroe Street, Chicago, Illinois
60606.
The holders of not less than a majority in aggregate principal amount of the
outstanding 2000 senior notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the trustee, subject to certain exceptions. Except during the continuance of an
Event of Default, the trustee will perform only such duties as are specifically
set forth in the January 2000 indenture. The January 2000 indenture provides
that in case an Event of Default shall occur (which shall not be cured or
waived), the trustee will be required, in the exercise of its rights and powers
under the January 2000 indenture, to use the degree of care of a prudent person
in the conduct of such person's own affairs. Subject to such provisions, the
trustee will be under no obligation to exercise any of its rights or powers
under the January 2000 indenture at the request of any of the holders, unless
such holders shall have offered to the trustee indemnity satisfactory to it
against any loss, liability or expense.
No Personal Liability of Controlling Persons, Directors, Officers, Employees
and Stockholders
No controlling Person, director, officer, employee, incorporator or
stockholder of Focal, as such, shall have any liability for any covenant,
agreement or other obligations of Focal under the 2000 senior notes or the
January 2000 indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation, solely by reason of its past, present
or future status as a controlling Person, director, officer, employee,
incorporator or stockholder of Focal. By accepting a 2000 senior note each
holder waives and releases all such liability (but only such liability). The
waiver and release are part of the consideration for issuance of the 2000
senior notes. Nonetheless, such waiver may not be effective to waive
liabilities under the federal securities laws and it has been the view of the
Securities and Exchange Commission that such a waiver is against public policy.
Governing Law
The January 2000 indenture and the 2000 senior notes are and will be
governed by and construed in accordance with the laws of the State of New York
without giving effect to its conflicts of laws provisions.
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Transfer and Exchange
The outstanding notes are subject to certain restrictions on transfer. A
holder may transfer or exchange 2000 senior notes in accordance with the
January 2000 indenture. Focal, the Registrar and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and Focal may require a holder to pay any taxes and fees required by
law or permitted by the January 2000 indenture.
Exchange Offer; Registration Rights
We entered into an exchange and registration agreement with the initial
purchasers pursuant to which we agreed, for the benefit of the holders of the
outstanding notes, to file the registration statement (of which this prospectus
constitutes a part) with the Securities and Exchange Commission registering the
exchange of the outstanding notes for exchange notes having terms substantially
identical in all material respects to the outstanding notes (except that the
exchange notes will not contain terms with respect to transfer restrictions and
will not be entitled to certain benefits under the exchange and registration
agreement). Upon the effectiveness of the registration statement, we will offer
the exchange notes in exchange for surrender of the outstanding notes. We will
keep the registered exchange offer open for not less than 20 business days (or
longer if required by applicable law) after the date notice of the registered
exchange offer is mailed to the holders of the outstanding notes.
For each outstanding note surrendered to Focal pursuant to the registered
exchange offer, the holder of such outstanding note will receive an exchange
note having a principal amount equal to that of the surrendered outstanding
note. Under existing interpretations of the Securities and Exchange Commission,
the exchange notes will be freely transferable by holders other than our
affiliates after the registered exchange offer without further registration
under the Securities Act if the holder of the exchange notes represents that it
is acquiring the exchange notes in the ordinary course of its business, that it
has no arrangement or understanding with any person to participate in the
distribution of the exchange notes and that it is not an affiliate of Focal, as
those terms are interpreted by the Securities and Exchange Commission. However,
broker-dealers ("Participating Broker-Dealers") receiving exchange notes in the
registered exchange offer will have a prospectus delivery requirement with
respect to resales of the exchange notes. The Securities and Exchange
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to exchange notes (other
than a resale of an unsold allotment from the original sale of the outstanding
notes) with this prospectus. Under the exchange and registration agreement, we
are required to allow Participating Broker-Dealers and other persons, if any,
with similar prospectus delivery requirements to use this prospectus in
connection with the resale of the exchange notes.
A holder of outstanding notes (other than certain specified holders) who
wishes to exchange outstanding notes for exchange notes in the exchange offer
will be required to represent that any exchange notes to be received by it will
be acquired in the ordinary course of its business and that at the time of the
commencement of the registered exchange offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the exchange notes and that it is not an
"affiliate" of Focal, as defined in Rule 405 of the Securities Act, or if it is
an affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
We have filed the registration statement and will commence the exchange
offer pursuant to the exchange and registration agreement. In the event that
. applicable interpretations of the Staff of the Securities and Exchange
Commission do not permit us to effect such a registered exchange offer,
. for any other reason the registration statement is not declared
effective within 210 days after the date of original issuance of the
outstanding notes,
. the registered exchange offer is not consummated (the term "consummated"
as used in this context shall mean that Focal has offered the exchange
notes in exchange for surrender of the outstanding notes, kept such
offer open for the period of time required above and fulfilled all of
its other obligations under such offer) within 240 days after the date
of original issuance of the outstanding notes,
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. the initial purchasers so request with respect to outstanding notes held
by such initial purchasers and thus not eligible to be exchanged for
exchange notes in the registered exchange offer, or
. any holder of outstanding notes (other than an initial purchaser or any
affiliate of Focal) does not receive freely tradeable exchange notes in
the registered exchange offer (it being understood that, for purposes of
this clause, (a) the requirement that a holder deliver a prospectus
containing the information required by Items 507 and/or 508 of
Regulation S-K under the Securities Act in connection with sales of
exchange notes acquired in exchange for outstanding notes shall result
in such exchange notes being not "freely tradeable" but (b) the
requirement that a Participating Broker-Dealer deliver a prospectus in
connection with sales of exchange notes acquired in the exchange offer
in exchange for outstanding notes acquired as a result of market making
activities or other trading activities shall not result in the exchange
notes being not "freely tradeable"),
we will, at our cost,
. as promptly as practicable, file a shelf registration statement covering
resales of the outstanding notes or the exchange notes, as the case may
be,
. use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act and
. keep the shelf registration statement effective until two years (or any
shorter period under Rule 144(k) under the Securities Act) after its
effective date (or until one year after such effective date if such
shelf registration statement is filed at the request of an initial
purchaser) or such shorter period that will terminate when all the
outstanding notes or exchange notes, as applicable, covered by the shelf
registration statement have been sold.
We will, in the event a shelf registration statement is filed, among other
things, provide to each holder for whom such shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement, notify each such holder when the shelf registration statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the outstanding notes or the exchange notes, as the
case may be. A holder selling such outstanding notes or exchange notes pursuant
to the shelf registration statement generally would be required to be named as
a selling security holder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the exchange and registration agreement which are applicable to
such holder (including certain indemnification obligations).
If:
. the exchange offer registration statement has not been declared
effective prior to the 210th day following the date of original issuance
of the outstanding notes;
. either the exchange offer has not been consummated or the shelf
registration statement has not been declared effective on or prior to
the 240th day following the date of original issuance of the outstanding
notes; or
. after the shelf registration statement has been declared effective, the
shelf registration statement thereafter ceases to be effective or usable
(subject to certain exceptions) in connection with resales of
outstanding notes or exchange notes in accordance with and during the
periods specified in the exchange and registration agreement without
being succeeded promptly by an additional registration statement filed
and declared effective (each such event referred to above a
"Registration Default"),
interest ("Additional Interest") will accrue on the outstanding notes and the
exchange notes (in addition to the stated interest on the outstanding notes and
the exchange notes) from and including the date on which any such Registration
Default shall occur to but excluding the date on which all Registration
Defaults have been cured. Additional Interest will be payable in cash
semiannually in arrears on January 15 and July 15 of each year, beginning on
the January 15 or July 15 immediately following a Registration Default, at a
rate of 0.50% per annum during the 90-day period immediately following the
occurrence of a Registration Default and shall increase by 0.25% per annum at
the end of each subsequent 90-day period. In no event shall such rate exceed
1.50% per annum in the aggregate regardless of the number of Registration
Defaults.
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The summary in this prospectus of certain provisions of the exchange and
registration agreement does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
exchange and registration agreement, a copy of which has been filed as an
exhibit to the registration statement of which this prospectus is a part.
Definitions
Set forth below is a summary of certain of the defined terms used in the
January 2000 indenture. Reference is made to the January 2000 indenture for the
full definition of all such terms, as well as any capitalized terms used herein
for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person; provided that
such Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such other Person merging
with or into or becoming a Subsidiary of such specified Person.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person; provided that each Unrestricted Subsidiary shall be deemed to be an
Affiliate of Focal and of each other Subsidiary of Focal; provided further that
neither Focal nor any of its Restricted Subsidiaries shall be deemed to be
Affiliates of each other. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "under common
control with" and "controlled by"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of Voting Stock, by agreement or otherwise.
"Asset Sale" means any transfer, conveyance, sale, lease or other
disposition by Focal or any of its Restricted Subsidiaries (including an
amalgamation, consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to any Person (other than Focal or any other
Restricted Subsidiary) in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary of Focal, but excluding a disposition by a
Restricted Subsidiary to Focal or a Significant Restricted Subsidiary or by
Focal to a Significant Restricted Subsidiary) of (i) shares of Capital Stock or
other ownership interests of a Subsidiary of Focal (other than pursuant to an
amalgamation, merger or consolidation of a Restricted Subsidiary into Focal or
any Restricted Subsidiary), (ii) substantially all of the assets of Focal or
any Restricted Subsidiary representing a division or line of business (other
than as part of a Permitted Investment) or (iii) other assets or rights of
Focal or any of its Restricted Subsidiaries outside of the ordinary course of
business and, in each case, that is not governed by the provisions of the
January 2000 indenture applicable to amalgamations, consolidations, mergers,
and transfers of all or substantially all of the assets of Focal; provided that
"Asset Sale" shall not include (a) sales or other dispositions of inventory,
receivables and other current assets in the ordinary course of business or
sales or other dispositions of equipment that has become worn-out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of
Focal or a Restricted Subsidiary, (b) contemporaneous exchanges by Focal or any
Restricted Subsidiary of Telecommunications Assets for other Telecommunications
Assets in the ordinary course of business; provided that the applicable
Telecommunications Assets received by Focal or such Restricted Subsidiary have
at least substantially equal Fair Market Value to Focal or such Restricted
Subsidiary (as evidenced by a Board Resolution), or (c) the sale
or other disposition of any assets (x) with a Fair Market Value (as certified
in an Officers' Certificate) not in excess of $1,000,000 or (y) that constitute
Restricted Payments which are permitted under the covenant "--Limitation on
Restricted Payments" above.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present value
(discounted at
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a rate consistent with accounting guidelines, as determined in good faith by
the responsible accounting officer of such Person) of the payments during the
remaining term of the lease (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 a penalty (in which case the payments during the remaining term
shall include such penalty).
"Average Life" means, as of any date, with respect to any debt security or
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund
or mandatory redemption payment requirements) of such debt security or
Disqualified Stock multiplied in each case by (b) the amount of such principal
or redemption payment, by (ii) the sum of all such principal or redemption
payments.
"Board of Directors" means the board of directors of Focal or any committee
thereof duly authorized to act on behalf of the board of directors.
"Board Resolution" means a copy of a resolution, certified by the Secretary
of Focal to have been a duly adopted resolution of the board of directors and
to be in full force and effect on the date of such certification, and delivered
to the trustee within 60 days of adoption thereof.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal Property which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person prepared in accordance with GAAP, and the maturity
thereof shall be the date of the last payment of rent or any amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without payment of a penalty. The principal amount of such
obligation shall be the capitalized amount that would appear on the face of a
balance sheet of such Person in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
participation or other equivalents of an equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to subscribe for or acquire an equity
interest in such Person.
"Change of Control" shall be deemed to occur if:
(i) the sale, conveyance, transfer or lease of all or substantially all
of the assets of Focal to any "Person" or "group" (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(i) under the Securities
Exchange Act), other than any Permitted Holder (as defined below) or any
Restricted Subsidiary, shall have occurred,
(ii) any "Person" or "group" (as the term is used in Sections 13(d)(3)
and 14(d)(2) of the Securities Exchange Act, including any group acting for
the purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(i) under the Securities Exchange Act), other than
any Permitted Holder, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act) of more than 50% of the total
voting power of all classes of the Voting Stock of Focal (including any
warrants, options or rights to acquire such Voting Stock), calculated on a
fully diluted basis,
(iii) at any time after a Public Market shall exist, during any period
of two consecutive years, individuals who at the beginning of such period
constituted the board of directors (together with (a) any directors whose
election or appointment by the board of directors or whose nomination for
election by the stockholders of Focal was approved by a vote of a majority
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 and (b) any directors elected pursuant to the terms
of any shareholders' agreement among Focal's shareholders) cease for any
reason to constitute a majority of the board of directors then in office,
or
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(iv) the merger, amalgamation or consolidation of Focal with or into
another Person or the merger of another Person with or into Focal shall
have occurred, and the securities of Focal that are outstanding immediately
prior to such transaction and which represent 100% of the aggregate voting
power of the Voting Stock of Focal are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent immediately after
giving effect to such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving corporation.
"Common Stock" means, with respect to Focal, its Common Stock, $.01 par
value.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of Focal and its Restricted Subsidiaries for such
period increased, to the extent deducted in arriving at Consolidated Net
Income, by the sum of (i) Consolidated Interest Expense of Focal and its
Restricted Subsidiaries for such period, (ii) Consolidated Income Tax Expense
of Focal and its Restricted Subsidiaries for such period, (iii) the
consolidated depreciation and amortization expense of Focal and its Restricted
Subsidiaries for such period, (iv) any non-cash expense related to the issuance
to employees of Focal or any Restricted Subsidiary of options to purchase
Capital Stock of Focal or such Restricted Subsidiary, (v) any charge related to
any premium or penalty paid in connection with redeeming or retiring any
Indebtedness prior to its stated maturity and (vi) any non-cash expense related
to a purchase accounting adjustment not requiring an accrual or reserve and
separately disclosed in Focal's consolidated statement of operations and
deficit, and decreased by the amount of any non-cash item that increases such
Consolidated Net Income, all as determined on a consolidated basis in
accordance with GAAP; provided that (a) there shall be excluded therefrom the
Consolidated Cash Flow Available for Fixed Charges (if positive) of any
Restricted Subsidiary (calculated separately for such Restricted Subsidiary in
the same manner as provided above for Focal) that is subject to a restriction
which prevents the payment of dividends or the making of distributions to Focal
or another Restricted Subsidiary to the extent of such restriction and (b) (1)
if, during or after such period, Focal or any of its Restricted Subsidiaries
shall have made any disposition of any Person or business, then Consolidated
Cash Flow Available for Fixed Charges of Focal and its Restricted Subsidiaries
shall be computed so as to give pro forma effect to such disposition and (2)
if, during or after such period, Focal or any of its Restricted Subsidiaries
completes an acquisition of any Person or business which immediately after such
acquisition is a Subsidiary of such Person or whose assets are held directly by
Focal or a Restricted Subsidiary, then Consolidated Cash Flow Available for
Fixed Charges shall be computed so as to give pro forma effect to the
acquisition of such Person or business.
"Consolidated Income Tax Expense" for any period means the aggregate amount
of the provisions for income taxes of Focal and its Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means for any period the interest expense
included in a consolidated income statement (excluding interest income) of
Focal and its Restricted Subsidiaries for such period in accordance with GAAP,
including without limitation or duplication (or, to the extent not so included,
with the addition of), (i) the amortization of Indebtedness discount (including
original issue discount), (ii) any payments or fees with respect to letters of
credit, bankers' acceptances or similar facilities, (iii) fees with respect to
interest rate swap or similar agreements or foreign currency hedge, exchange or
similar agreements, (iv) Preferred Stock dividends of Focal's Restricted
Subsidiaries (other than dividends paid in shares of Preferred Stock that is
not Disqualified Stock) declared and paid or payable, (v) accrued Disqualified
Stock dividends of Focal and its Restricted Subsidiaries, whether or not
declared or paid, (vi) interest on Indebtedness guaranteed by Focal and its
Restricted Subsidiaries, (vii) the portion of any Capital Lease Obligation
accruing during such period that is allocable to interest expense in accordance
with GAAP, (viii) capitalized interest and (ix) commitment and other fees with
respect to senior credit facilities.
"Consolidated Net Income" of Focal means, for any period, the aggregate net
income (or net loss) of Focal and its Restricted Subsidiaries for such period
on a consolidated basis determined in accordance with GAAP; provided that there
shall be excluded therefrom, without duplication (i) all items classified as
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extraordinary or non-recurring, (ii) any net income (or net loss) of any Person
other than Focal and its Restricted Subsidiaries, except to the extent of the
amount of dividends or other distributions actually paid to Focal or its
Restricted Subsidiaries by such other Person during such period, (iii) the net
income (or net loss) of any Person acquired by Focal or any of its Restricted
Subsidiaries in a pooling-of-interests transaction for any period prior to the
date of the related acquisition, (iv) any gain or loss, net of taxes, realized
on the termination of any employee pension benefit plan, (v) net gains (or net
losses) in respect of Asset Sales by Focal or its Restricted Subsidiaries, (vi)
the net income (or net loss) of any Restricted Subsidiary to the extent that
the payment of dividends or other distributions to Focal is restricted by the
terms of its constituting documents or any agreement, instrument, contract,
judgment, order, decree, statute, rule, governmental regulation or otherwise,
except for any dividends or distributions actually paid by such Restricted
Subsidiary to Focal, (vii) with regard to a non-wholly owned Restricted
Subsidiary, any aggregate net income (or net loss) in excess of Focal's or such
Restricted Subsidiary's pro rata share of such non-wholly owned Restricted
Subsidiary's net income (or net loss), and (viii) the cumulative effect of
changes in accounting principles.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person and
its Restricted Subsidiaries after deducting therefrom all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other
like intangibles, which in each case under GAAP would be included on such
consolidated balance sheet.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of Focal and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take account of Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
the Capital Stock of Focal or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP.
"Default" means any event, act or condition, the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness by the holder thereof at any time, in whole or in part, on or
prior to the date specified in the 2000 senior notes as the fixed date on which
the principal of such 2000 senior notes are due and payable.
"Eligible Cash Equivalents" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof in
each case with a term of not more than one year, (ii) investments in time
deposit accounts, term deposit accounts, certificates of deposit, money-market
deposits, bankers acceptances and obligations maturing within one year of the
date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America or any state thereof
and which bank or trust company has, or the obligation of which bank or trust
company is guaranteed by a bank or trust company which has, capital, surplus
and undivided profits aggregating in excess of $150,000,000 and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one "nationally recognized statistical rating organization" (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of Focal) organized and in existence
under the laws of the United States of America with a rating at the time as of
which
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any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's
Corporation, (v) investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth, territory or province of the United States of America or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Corporation or "A-2" by Moody's Investors Service, Inc., (vi)
other debt obligations maturing in 365 days or less issued by a corporation
(other than an Affiliate of Focal) organized under the laws of the United
States or any state thereof and rated at least "A-" by S&P or "A3" by Moody's,
and (vii) with respect to any Foreign Subsidiary, investments by such Foreign
Subsidiary that are comparable to those described in clauses (iv) and (v) above
but with respect to such Foreign Subsidiary's country of organization or
country in which it conducts its business operations.
"Fair Market Value" means, with respect to any asset or Property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy, as determined in good faith by the board of
directors.
"Foreign Subsidiary" means any Restricted Subsidiary of Focal which (i) is
not organized under the laws of the United States, any state thereof or the
District of Columbia, and (ii) conducts substantially all of its business
operations outside the United States of America.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied, which were in effect on the date of the January 2000
indenture.
"Guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to
the foregoing); provided that the term "Guaranteed" and any meaning correlative
thereto shall not include endorsements for collection or deposit.
"Holder" means (i) in the case of any Certificated Note, the Person in whose
name such Certificated Note is registered in the Note Register and (ii) in the
case of any Global Note, the Depositary.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
"Incurrable" and "Incurring" shall have meanings correlative to the foregoing);
provided that a change in GAAP that results in an obligation of such Person
that exists at such time becoming Indebtedness shall not be deemed an
Incurrence of such Indebtedness and that the accrual of interest shall not be
deemed an Incurrence of Indebtedness. Indebtedness otherwise Incurred by a
Person before it becomes a Subsidiary of Focal (whether by merger,
amalgamation, consolidation, acquisition or otherwise) shall be deemed to have
been Incurred by Focal at the time at which such Person becomes a Subsidiary of
Focal.
"Indebtedness" means, at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with the acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business, (iii) any reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) any obligation of such Person issued or
assumed as the deferred purchase price of Property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business, which in either case are being contested in good faith), (v) any
Capital Lease Obligation of such Person, (vi) the maximum fixed redemption or
repurchase price of Disqualified Stock of such Person and, to the extent held
by Persons other than such Person or its Restricted
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Subsidiaries, the maximum fixed redemption or repurchase price of Preferred
Stock of such Person's Restricted Subsidiaries, at the time of determination,
(vii) any Attributable Indebtedness with respect to any Sale and Leaseback
Transaction to which such Person is a party, (viii) Indebtedness of other
Persons secured by a Lien to which the Property owned or held by such first
Person is subject, whether or not the obligation or obligations secured thereby
shall have been assumed (the amount of such Indebtedness being deemed to be the
lesser of the value of such property and assets or the amount of the
Indebtedness so secured) and (ix) any obligation of the type referred to in
clauses (i) through (viii) of this definition of another Person and all
dividends and distributions of another Person the payment of which, in either
case, such Person has Guaranteed or is responsible or liable for, directly or
indirectly, as obligor, Guarantor or otherwise. For purposes of the preceding
sentence, the maximum fixed repurchase price of any Disqualified Stock or
Preferred Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such stock as if such stock were repurchased on
any date on which Indebtedness shall be required to be determined pursuant to
the January 2000 indenture; provided that, if such stock is not then permitted
to be repurchased, the repurchase price shall be the book value of such stock.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Investment" in any Person means any direct, indirect or contingent (i)
advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all of
the business, assets or stock or other evidence of beneficial ownership of such
Person; provided that Investments shall exclude extensions of trade credit in
the ordinary course of business. The amount of any Investment shall be the
original cost of such Investment, plus the cost of all additions thereto and
minus the amount of any portion of such Investment repaid to such Person in
cash as a repayment of principal or a return of capital, as the case may be,
but without any other adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. In
determining the amount of any Investment involving a transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such transfer.
"Issue Date" means the date on which the outstanding notes were first
authenticated and delivered under the January 2000 indenture.
"Lien" means, with respect to any Property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, setoff right, easement,
encumbrance, preference, priority or other security or similar agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property or other asset (including, without limitation, any conditional
sale or title retention agreement having substantially the same economic effect
as any of the foregoing).
"Maturity" means, when used with respect to a 2000 senior note, the date on
which the principal of such 2000 senior note becomes due and payable as
provided therein or in the January 2000 indenture, whether on the date
specified in such 2000 senior note as the fixed date on which the principal of
such 2000 senior note is due and payable, on the Change of Control Payment Date
or purchase date established pursuant to the terms of the January 2000
indenture with regard to an Asset Sale Offer, as applicable, or by declaration
of acceleration, call for redemption or otherwise.
"Net Cash Proceeds" means (i) with respect to the sale of any Property or
other assets by Focal or any of the Restricted Subsidiaries, cash or readily
marketable cash equivalents received net of (a) all reasonable out-of-pocket
expenses of Focal or such Restricted Subsidiary incurred in connection with
such sale, including, without limitation, all legal, title and recording tax
expenses, commissions and other fees and expenses incurred
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(but excluding any finder's fee or broker's fee payable to any Affiliate of
Focal) and all U.S. federal, state, provincial, foreign and local taxes arising
in connection with such sale that are paid or required to be accrued as a
liability under GAAP by Focal or its Restricted Subsidiaries, (b) all payments
made or required to be made by Focal or its Restricted Subsidiaries on any
Indebtedness which is secured by such Properties or other assets in accordance
with the terms of any Lien upon or with respect to such Properties or other
assets or which must, by the terms of such Lien, or in order to obtain a
necessary consent to such transaction or by applicable law, be repaid in
connection with such sale, (c) all contractually required distributions and
other payments made to minority interest holders (but excluding distributions
and payments to Affiliates of Focal) in Restricted Subsidiaries as a result of
such transaction and (d) appropriate amounts to be provided by Focal or any
Restricted Subsidiary, as the case may be, as a reasonable reserve against any
liabilities associated with such assets and retained by Focal or any Restricted
Subsidiary thereof, as the case may be, after such transaction, including,
without limitation, liabilities under any indemnification obligations and
severance and other employee termination costs associated with such
transaction, in each case as determined by the board of directors, in its
reasonable good faith judgment evidenced by a Board Resolution; provided that,
in the event that any consideration for a transaction (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment or indemnification or
other payment or similar adjustment will be made, such consideration (or any
portion thereof) shall become Net Cash Proceeds only at such time as it is
released to Focal or the Restricted Subsidiaries from escrow; and provided,
further, that any noncash consideration received in connection with any
transaction, which is subsequently converted to cash, shall be deemed to be Net
Cash Proceeds at such time, and shall thereafter be applied in accordance with
the January 2000 indenture and (ii) with respect to any sale, issuance,
transfer or other disposition of Capital Stock, the proceeds of such sale,
issuance, transfer or other disposition in the form of cash or cash
equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees and reasonable out-of-pocket expenses of Focal or any Subsidiary of
Focal incurred in connection with such sale, issuance, transfer or other
disposition and net of taxes paid or payable as a result thereof.
"Officers' Certificate" means a certificate signed by (i) the President or
the Chief Executive Officer and (ii) the Chief Financial Officer, the Chief
Accounting Officer or the Treasurer, of Focal and delivered to the trustee,
which shall comply with the January 2000 indenture.
"Permitted Holders" means Madison Dearborn Capital Partnership, L.P.,
Frontenac VI L.P., and Battery Ventures III, L.P., and Affiliates (other than
Focal and the Restricted Subsidiaries) of each of the foregoing.
"Permitted Investments" means (i) Eligible Cash Equivalents, (ii)
Investments in any Person engaged in a Telecommunications Business as a result
of which such Person becomes a Restricted Subsidiary in compliance with the
January 2000 indenture, (iii) Investments pursuant to agreements or obligations
of Focal or a Restricted Subsidiary, in effect on the Issue Date, to make
Investments described in clause (ii) above, (iv) Investments in prepaid
expenses, negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits, (v) Investments,
Capital Stock, bonds, notes, debentures or other debt or equity securities
received as a result of Asset Sales permitted under the covenant described
under "--Asset Sale," (vi) Investments in existence at the Issue Date, (vii)
commission, payroll, travel and similar advances made in the ordinary course of
business to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP, (viii) loans or
advances to employees and directors made in the ordinary course of business at
any time outstanding not to exceed in the aggregate $5,000,000 and (ix) stock,
obligations or securities received in satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor, (ii) other Liens incidental to the conduct of Focal's or a
Restricted Subsidiary's business or the ownership of its Property and assets,
and which do not in the aggregate materially detract from the value of Focal's
and its Restricted Subsidiaries' Property or other assets when taken as a
whole, or materially impair the use thereof in
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the operation of its business, (iii) Liens with respect to assets of a
Restricted Subsidiary granted by such Restricted Subsidiary to secure
Indebtedness owing to Focal, (iv) Liens incurred or pledges and deposits made
in the ordinary course of business in connection with workers' compensation and
unemployment insurance and other types of social security, (v) statutory Liens
of landlords, carriers, warehousemen, mechanics, materialmen, repairmen and
other types of statutory obligations, (vi) deposits made to secure the
performance of tenders, bids, leases, surety and appeal bonds, government
contracts, performance and return-of money bonds and other obligations of like
nature incurred in the ordinary course of business (exclusive of obligations
for the payment of borrowed money), (vii) zoning restrictions, servitudes,
easements, rights-of-way, restrictions and other similar charges or
encumbrances incurred in the ordinary course of business which, in the
aggregate, do not materially detract from the value of the Property subject
thereto or interfere with the ordinary conduct of the business of Focal or its
Restricted Subsidiaries, (viii) Liens arising out of judgments or awards
against Focal or any Restricted Subsidiary with respect to which Focal or such
Restricted Subsidiary is prosecuting an appeal or proceeding for review and
Focal or such Restricted Subsidiary is maintaining adequate reserves in
accordance with GAAP, (ix) any interest or title of a lessor in the Property
subject to any lease other than a Capital Lease, (x) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of Focal and its Restricted Subsidiaries, (xi) Liens encumbering
Property or other assets under construction arising from progress or partial
payments by a customer of Focal or its Restricted Subsidiaries relating to such
Property or other assets, (xii) Liens on Property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation becomes,
or becomes a part of, any Restricted Subsidiary, provided that such Liens do
not extend to or cover any Property or other assets of Focal or any Restricted
Subsidiary other than the Property or other assets acquired, (xiii) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other Property relating to such letters of credit and
the products and proceeds thereof, (xiv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods, (xv) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of
goods entered into by Focal or any of its Restricted Subsidiaries in the
ordinary course of business, (xvi) Liens on or sales of receivables; and (xvii)
Liens in favor of the trustee pursuant to the January 2000 indenture.
"Person" means any individual, corporation, limited liability company,
partnership, limited liability partnership, joint venture, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or other asset, whether real, personal or mixed, or
tangible or intangible, excluding Capital Stock of any other Person.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of Focal immediately prior to the consummation of such Public
Equity Offering has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Qualified Stock" of any Person means a class of Capital Stock other than
Disqualified Stock.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock of Focal or to Focal's stockholders (in their
capacity as such), or declared or paid to any Person other than Focal or a
Restricted Subsidiary on the Capital Stock of any Restricted Subsidiary, in
each case, other than dividends, distributions or payments made solely in
Qualified Stock of Focal or such Restricted Subsidiary and other than pro rata
dividends or other distributions made by a Restricted Subsidiary that is not a
Significant Restricted
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Subsidiary to minority stockholders (or owners of an equivalent interest in the
case of a Restricted Subsidiary that is an entity other than a corporation),
(ii) a payment made by Focal or any of its Restricted Subsidiaries (other than
to Focal or any Restricted Subsidiary) to purchase, redeem, acquire or retire
any Capital Stock of Focal or (iii) a payment made by Focal or any of its
Restricted Subsidiaries (other than a payment made solely in Qualified Stock of
Focal) to redeem, repurchase, defease (including an in-substance or legal
defeasance) or otherwise acquire or retire for value (including pursuant to
mandatory repurchase covenants), prior to any scheduled maturity, scheduled
sinking fund or mandatory redemption payment, Indebtedness of Focal which is
subordinate (whether pursuant to its terms or by operation of law) in right of
payment to the 2000 senior notes and which was scheduled to mature on or after
the maturity of the 2000 senior notes (other than permitted refinancings
thereof) or (iv) an Investment in any Person, including an Unrestricted
Subsidiary or the designation of a Subsidiary as an Unrestricted Subsidiary,
other than (a) a Permitted Investment, (b) an Investment by Focal in a
Restricted Subsidiary engaged in a Telecommunications Business or (c) an
Investment by a Restricted Subsidiary in Focal or in a Restricted Subsidiary
engaged in a Telecommunications Business.
"Restricted Subsidiary" means any Subsidiary of Focal that has not been
designated as an "Unrestricted Subsidiary."
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"Senior Indebtedness" means all Indebtedness of Focal which is not,
expressly by its terms, subordinate or junior in right of payment to the 2000
senior notes.
"Significant Restricted Subsidiary" means any Restricted Subsidiary of which
Focal owns, directly or indirectly, 80% or more of all of the outstanding
Capital Stock or other ownership interests (other than any director's
qualifying shares).
"Subordinated Indebtedness" means Indebtedness of Focal as to which the
payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Indebtedness shall be subordinate to the prior
payment in full of the 2000 senior notes to at least the following extent: (i)
no payments of principal of (or premium, if any) or interest on or otherwise
due in respect of such Indebtedness may be permitted for so long as any Default
in the payment of principal (or premium, if any) or interest on the 2000 senior
notes exists, (ii) in the event that any other Default exists, upon notice by
holders of 25% or more of the aggregate principal amount of the outstanding
2000 senior notes to the trustee, the trustee shall have the right to give
notice to Focal and the holders of such Indebtedness (or trustees or agents
therefor) of a payment blockage, and thereafter no payments of principal of (or
premium, if any) or interest on or otherwise due in respect of such
Indebtedness may be made for a period of 179 days from the date of such notice,
and (iii) such Indebtedness may not (x) provide for payments of principal of
such Indebtedness at the stated maturity thereof or by way of a sinking fund
applicable thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by Focal (including any redemption, retirement
or repurchase which is contingent upon events or circumstances, but excluding
any retirement required by virtue of acceleration of such Indebtedness upon an
event of default thereunder), in each case prior to the final date specified in
the 2000 senior notes as the fixed date on which the principal of such 2000
senior notes is due and payable or (y) permit redemption or other retirement
(including pursuant to an offer to purchase made by Focal) of such other
Indebtedness at the option of the holder thereof prior to the final date
specified in the 2000 senior notes as the fixed date on which the principal of
such 2000 senior notes is due and payable, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to an offer to purchase made by Focal) which is conditioned upon a change of
control of Focal pursuant to provisions substantially similar to those
described under "--Repurchase at the Option of Holders upon a Change of
Control" (and which shall provide that such Indebtedness will not be
repurchased pursuant to such provisions prior to Focal's repurchase of the 2000
senior notes required to be repurchased by Focal pursuant to the provisions
described under "--Repurchase at the Option of Holders upon a Change of
Control").
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"Subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interests of which are owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person and
(iii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, real or personal, whether tangible or intangible,
used or intended for use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products, or (iii) evaluating, owning, operating,
participating in or pursuing any other business that is primarily related to
those identified in the foregoing clauses (i) or (ii) above (in the case of
this clause (iii), however, in a manner consistent with Focal's manner of
business on the Issue Date), and shall, in any event, include all businesses in
which Focal or any of its Subsidiaries are engaged on the Issue Date or have
entered into agreements to engage in or to acquire a company to engage in or
contemplate engaging in, as expressly set forth in this prospectus; provided
that the determination of what constitutes a Telecommunications Business shall
be made in good faith by the Board of Directors.
"Total Net Incremental Equity" means, at any time of determination, the sum
of, without duplication, (i) the aggregate Net Cash Proceeds received by Focal
from capital contributions in respect of existing Capital Stock (other than
Disqualified Stock) or the issuance or sale of Capital Stock (other than
Disqualified Stock or Qualified Stock to the extent the proceeds of such
Qualified Stock are used to retire any Capital Stock or Indebtedness of Focal
pursuant to clause (ii) of the second paragraph of the "Limitation on
Restricted Payments" covenant but including Capital Stock issued upon the
conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Disqualified Stock))
subsequent to the Issue Date, other than to a Subsidiary of Focal, plus (ii)
the Fair Market Value (determined at the time of issuance) of any Capital Stock
(other than Disqualified Stock) of Focal issued as consideration for the
acquisition of Capital Stock or assets of any Person engaged in the
Telecommunications Business, plus (iii) the aggregate Net Cash Proceeds
received by Focal or any Restricted Subsidiary from the sale, disposition,
maturity or repayment (in whole or in part) of any Investment that is made
after the Issue Date and that constituted a Restricted Payment declared or made
on and after the Issue Date to the extent made in reliance on clause (iii)(c)
of the first paragraph or clause (vi)(b) of the second paragraph of the
covenant described above under "--Limitation on Restricted Payments," but only
such Net Cash Proceeds up to an amount equal to the lesser of (a) the return of
capital with respect to the applicable portion of such Investment and (b) the
cost of the applicable portion of such Investment, in either case, less the
cost of the disposition of such Investment, plus (iv) the net reduction in
Investments in any Person made pursuant to clause (vi)(b) of the second
paragraph of the covenant described under "--Limitation on Restricted Payments"
resulting from such Person becoming a Restricted Subsidiary (valued as provided
in the definition of "Investment"), less (v) the aggregate amount of all
Restricted Payments made after the Issue Date (x) to the extent made in
reliance on clause (iii)(c) of the first paragraph or (y) to the extent made in
reliance on clause (vi)(b) of the second paragraph of the covenant described
above under "--Limitation on Restricted Payments."
"Unrestricted Subsidiary" means any Subsidiary of Focal that Focal has
classified as an "Unrestricted Subsidiary" and that has not been reclassified
as a Restricted Subsidiary, pursuant to the terms of the January 2000
indenture. See "--Restricted and Unrestricted Subsidiaries" for a description
of the conditions in which Focal may designate a Subsidiary of Focal an
"Unrestricted Subsidiary."
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"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests (other than any director's qualifying shares) of which
shall at the time be owned by such Person or by one or more other Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more other
Wholly Owned Restricted Subsidiaries of such Person.
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MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of the material United States federal tax
consequences of the exchange of outstanding notes for exchange notes, and, in
the case of non-U.S. holders, of the ownership and disposition of the exchange
notes. This summary is based on the Internal Revenue Code of 1986, as amended,
existing and proposed Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all in effect as of the
date of this prospectus and all of which are subject to change, possibly with
retroactive effect. The summary assumes that you hold the outstanding notes,
and will hold the exchange notes, as capital assets within the meaning of
Section 1221 of the Internal Revenue Code. It does not address any state, local
or foreign tax consequences of the exchange of outstanding notes for exchange
notes. It also does not discuss all of the tax consequences that may be
relevant to you in light of your particular circumstances or if you are a
certain type of holder, including:
. a bank,
. an insurance company,
. a tax-exempt organization,
. a dealer in securities or foreign currencies,
. a holder of an exchange note as part of a hedging transaction,
"straddle," conversion transaction or other integrated transaction for
United States federal income tax purposes,
. a holder whose functional currency is not the United States dollar, or
. a holder who or that did not purchase the outstanding notes for cash at
their original issue date at their original offering price.
You should consult with your own tax advisor about the application of the
United States federal income and estate tax laws to your particular situation
as well as any consequences of the exchange of outstanding notes for exchange
notes and the ownership and disposition of exchange notes under the tax laws of
any state, local or foreign jurisdiction.
United States Federal Income Tax Consequences of the Exchange
Your acceptance of the exchange offer and the related exchange of your
outstanding notes for exchange notes will not be a taxable event for United
States federal income tax purposes. Your exchange notes will be treated as a
continuation of the outstanding notes. You will have the same tax basis and
holding period in the exchange notes as you had in the outstanding notes
immediately before the exchange.
United States Federal Tax Consequences to Non-U.S. Holders
If you are a non-U.S. holder, the following discussion describes the
material United States federal income and estate tax consequences of the
ownership and disposition of exchange notes that may be applicable to you. You
are a non-U.S. holder if you are a beneficial owner of an exchange note who or
that, for United States federal income tax purposes, is
. an individual other than a citizen or resident alien of the United
States,
. a corporation or partnership that is not created or organized in or
under the laws of the United States or any of its political subdivisions
(and, in the case of a partnership, is not treated as a United States
person under Treasury regulations),
. an estate other than an estate the income of which is subject to United
States federal income taxation regardless of its source, or
. a trust if no court within the United States is able to exercise primary
supervision over the trust's administration or one or more United States
persons do not have the authority to control all of the trust's
substantial decisions.
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Ownership
Subject to the discussion below concerning backup withholding, you will not
be subject to withholding of United States federal income tax on payments of
principal, interest and premium, if any, on the exchange notes, provided that,
in the case of interest, you satisfy the following conditions:
. you do not own actually or constructively, 10% or more of the total
combined voting power of all classes of Focal stock entitled to vote,
. you are not a controlled foreign corporation that is related, directly,
indirectly or constructively, to Focal through stock ownership, and
. you satisfy the certification requirements (described generally below)
set forth in Section 871(h) or Section 881(c) of the Internal Revenue
Code and the regulations thereunder.
If you cannot meet these conditions, you generally will be subject to U.S.
withholding tax at the rate of 30% on interest payments, unless you are
eligible for a reduced withholding tax rate under an applicable U.S. income tax
treaty.
You will fulfill the certification requirement referred to above if you
certify on Internal Revenue Service Form W-8BEN (or successor form), under
penalties of perjury, that you are not a United States person and provide your
name and address, and file the Form W-8BEN with Focal or its paying agent. If
an exchange note is held on your behalf by a securities clearing organization,
bank or other financial institution holding customers' securities in the
ordinary course of its trade or business, the certification requirement will be
fulfilled if the financial institution files with Focal or its paying agent a
statement, signed under penalties of perjury, that it has received the Form W-
8BEN from you (or from another intermediary financial institution acting on
your behalf) and furnishes Focal or its paying agent with a copy thereof. Under
current law, if you are a foreign partnership, you may furnish the Form W-8BEN
to Focal or its paying agent or to a financial institution holding an exchange
note on your behalf. However, for interest received after December 31, 2000, if
you are a foreign partnership, unless you have entered into a withholding
agreement with the Internal Revenue Service, you will be required, in addition
to providing an intermediary Form W-8BEN, to attach an appropriate
certification by each partner. A look-through rule will apply in the case of
tiered partnerships. Foreign partnerships and their partners should consult
their own tax advisors regarding possible additional certification and
reporting requirements.
If you are engaged in the conduct of a trade or business in the United
States, and if interest on an exchange note is effectively connected with the
conduct of that trade or business, you will be subject to regular United States
federal income tax on that interest on a net income basis in the same manner as
if you were a United States person. You will be exempt from the withholding tax
discussed above if you provide to Focal or its paying agent a properly executed
Internal Revenue Service Form W-8ECI (or successor form). In addition, if you
are a foreign corporation, you may be subject to a branch profits tax at the
rate of 30% (or such lesser rate as may be specified by an applicable U.S.
income tax treaty) on your effectively connected earnings and profits for the
taxable year, subject to certain adjustments. For purposes of the branch
profits tax, interest on an exchange note will be included in your effectively
connected earnings and profits if the interest is effectively connected with
the conduct of a trade or business in the United States.
Sale, Exchange, Redemption or Other Disposition
Subject to the discussion below concerning backup withholding, you will not
be subject to United States federal income tax, or to any withholding thereof,
on any gain realized on the sale, exchange, redemption, or other disposition of
an exchange note, unless:
. you are an individual who is present in the United States for 183 days
or more in the taxable year of the disposition and certain other
conditions are met, or
. the gain is effectively connected with the conduct by you of a trade or
business in the United States.
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If you are engaged in the conduct of a trade or business in the United
States, and if any gain realized on the sale, exchange, redemption, or other
disposition of an exchange note is effectively connected with the conduct of
that trade or business, you will be subject to regular United States federal
income tax on the gain on a net income basis in the same manner as if you were
a United States person. In addition, if you are a foreign corporation, you may
be subject to a branch profits tax at the rate of 30% (or such lesser rate as
may be specified by an applicable U.S. income tax treaty) on your effectively
connected earnings and profits for the taxable year, subject to certain
adjustments. For purposes of the branch profits tax, any gain recognized on the
sale, exchange, redemption or other disposition of an exchange note will be
included in your effectively connected earnings and profits if the gain is
effectively connected with the conduct of a trade or business in the United
States.
Estate Tax
If you are an individual non-U.S. holder and if you hold an exchange note at
the time of your death, the note will not be includible in your gross estate
for purposes of the United States federal estate tax, provided that, at the
time of your death:
. you do not own, actually or constructively, 10% or more of the total
combined voting power of all classes of Focal stock entitled to vote,
and
. payments of interest with respect to the exchange note, if received at
that time, would not have been effectively connected with the conduct of
your trade or business in the United States.
Backup Withholding and Information Reporting
Under current United States federal income tax law, you will not be subject
to backup withholding tax at the rate of 31% or to information reporting on
payments of interest if the certifications required by Section 871(h) or
Section 881(c) of the Internal Revenue Code and described generally above are
received, provided that neither Focal nor its paying agent has actual knowledge
that you are a United States person.
Under current Treasury Regulations, payments of the proceeds of the sale,
exchange, redemption or other disposition of an exchange note made to or
through a foreign office of a broker generally will not be subject to backup
withholding or information reporting. However, if a broker is a United States
person, a controlled foreign corporation for United States federal income tax
purposes, a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a specified
three-year period or, in the case of payments made after December 31, 2000, a
foreign partnership with certain connections to the United States, then
information reporting will be required unless the broker has in its records
documentary evidence that you, as payee, are not a United States person or that
otherwise establishes an exemption. Backup withholding may apply to any payment
that a broker is required to report if the broker has actual knowledge that
you, as payee, are a United States person. Payments to or through the United
States office of a broker will be subject to backup withholding and information
reporting unless you certify, under penalties of perjury, that you are not a
United States person or otherwise establish an exemption.
Any amounts withheld from a payment under the backup withholding rules will
be allowed as a credit against your United States federal income tax liability
and may entitle you to a refund, provided that the required information is
furnished to the Internal Revenue Service. You should consult your own tax
advisor regarding the application of the information reporting and backup
withholding requirements to your particular situation, the availability of an
exemption therefrom, and the procedure for obtaining an exemption, if
available.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired as a result of market-making
activities or other trading activities. Focal has agreed that, starting on the
expiration date and ending on the close of business 90 days after the
expiration date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
Focal 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 of 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, 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 90 days after the expiration date, Focal will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. Focal has agreed to pay all expenses incident to the exchange
offer (including the expenses of one counsel for the holders of the 2000 senior
notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the 2000 senior notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the exchange notes offered by this prospectus will be passed
upon for Focal by Jones, Day, Reavis & Pogue, Chicago, Illinois. Swidler Berlin
Shereff Friedman, LLP in Washington, D.C. will pass upon specific regulatory
legal matters for Focal. Certain legal matters relating to the offering of the
outstanding notes were passed upon for the initial purchasers by Paul,
Hastings, Janofsky & Walker LLP (a limited liability partnership including
professional corporations), New York, New York.
EXPERTS
The consolidated financial statements and schedules incorporated by
reference in this registration statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said reports.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement of which this prospectus forms a
part. This registration statement, including the attached exhibits and
schedules, contain additional relevant information about the exchange notes.
The rules and regulations of the Securities and Exchange Commission allow us to
omit some of the information included in the registration statement from this
prospectus.
In addition, we have filed reports, proxy statements and other information
with the Securities and Exchange Commission under the Securities Exchange Act.
You may read and copy any of this information at the following locations of the
Securities and Exchange Commission:
Public Reference Room New York Regional Office Chicago Regional
7 World Trade Center Office
Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison
Room 1024 New York, New York 10048 Street
Washington, D.C. 20549 Suite 1400
Chicago, Illinois
60661-2511
You may obtain information on the operation of the Securities and Exchange
Commission's Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities Exchange Act file number for our
reports is 333-49397.
The Securities and Exchange Commission also maintains an Internet Web site
that contains reports, proxy statements and other information regarding
issuers, like Focal, that file electronically with the Securities and Exchange
Commission. The address of that site is http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this prospectus. This means we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered to be a part of this prospectus, except
for any such information that is superseded by information included directly in
this document.
This prospectus incorporates by reference the documents listed below that we
have previously filed or will file with the Securities and Exchange Commission.
They contain important information about us and our financial condition.
. Our annual report on Form 10-K for our fiscal year ended December 31,
1999. This report contains our audited and consolidated financial
statements for us and our subsidiaries as of December 31, 1998 and 1999
and the years ended December 31, 1997, 1998 and 1999;
. The description of our common stock contained in our Registration
Statement on Form 8-A;
. All documents filed with the Securities and Exchange Commission by us
under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act
after the date of this prospectus and before the offering is terminated,
are considered to be a part of this prospectus, effective the date such
documents are filed.
In the event of conflicting information in these documents, the information
in the latest filed document should be considered correct.
You can obtain any of the documents listed above from the Securities and
Exchange Commission, through the Securities and Exchange Commission's Internet
Web site at the address described above, or directly from us, by requesting
them in writing or by telephone at the following address:
Focal Communications Corporation
200 North LaSalle Street, Suite 1100
Chicago, Illinois 60601
Attn: Secretary
Telephone: (312) 895-8400
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We will provide a copy of any of these documents without charge, excluding
any exhibits unless the exhibit is specifically listed as an exhibit to the
registration statement of which this prospectus forms a part. If you request
any documents from us, we will mail them to you by first class mail, or another
equally prompt means, within two business days after we receive your request.
You should make your request by , 2000 in order to ensure timely
delivery of these documents before the exchange offer expires.
The January 2000 indenture, which governs the outstanding notes and which
will govern the exchange notes, requires us to furnish the trustee with annual
reports containing consolidated financial statements audited by our independent
public accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
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GLOSSARY
Access charges--The charges paid by an IXC to a local exchange carrier for
the origination or termination of the IXC's customer's long distance calls.
Access line--A telephone line that connects a customer to the telephone
company's central office switching equipment.
Application service provider--A firm that offers a contractual service for
deploying, hosting and managing software from a central facility.
ATM (Asynchronous Transfer Mode)--High bandwidth, low-delay, connection-
oriented, packet-like switching and multiplexing technique requiring 53-byte,
fixed-sized cells.
Backbone--An element of the network infrastructure that provides high-
speed, high-capacity connections among the network's physical points of
presence, i.e., connection points and service centers. The backbone is used to
transport end user traffic across the metropolitan area and across the United
States.
Bandwidth--Refers to the maximum amount of data that can be transferred
through a computer's backbone or communication channel in a given time. It is
usually measured in Hertz, cycles per second, for analog communications and
bits per second for digital communications.
Broadband--A classification of the information capacity or bandwidth of a
communications channel that allows large quantities of data to be transmitted
or received simultaneously.
Carrier--A telephone service provider.
Central office--A carrier's facility where subscriber lines are joined to a
switching office.
Circuit--An electronic, radio or optical connection over which
communications may occur.
CLEC (competitive local exchange carrier)--A category of telephone service
provider that offers services similar to the former monopoly local telephone
company, as recently allowed by changes in telecommunications law and
regulation. A CLEC may also provide other types of telecommunications services
(long distance, Internet access, etc.)
CLEC certification--Granted by a state public service commission or public
utility commission, this allows a telecommunications service provider the
legal standing to offer local exchange telephone services in direct
competition with the ILEC and other CLECs. Such certifications are granted on
a state-by-state basis.
Colocation--A location where a carrier's or customer's equipment
interconnects with the network of a carrier inside the carrier's facility.
Colocation involves the placement of equipment, owned by customers or in some
cases competitors, in a common facility operated by a communication provider
or neutral party to provide more expedient interconnection between devices,
increase reliability and reduce cost of operations and service. A colocation
facility is a secure data center that houses networking and computer
equipment.
Content provider--A firm that delivers content, such as print, video or
audio, over the Internet.
Communications Act of 1934--Federal legislation that established rules for
broadcast and nonbroadcast communications, both wireless and wired telephony.
Copper line or loop--A pair of traditional copper telephone lines using
electric current to carry signals.
Data communications--Digital transmissions through wired or wireless
networks, usually linking computers.
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 and switching
technologies employ a sequence of these pulses to convey information, as
opposed to the continuously variable
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analog signal. The precise digital numbers minimize distortion, such as
graininess or "snow," in the case of video transmission, or static or other
background distortion in the case of audio transmission.
DMS-500--A digital central office switch manufactured by Nortel Networks,
that provides both local
exchange switching (also known as a "class 5" switch) and long distance
switching (also known as a "class 4" switch) in a single device.
DSL (Digital Subscriber Line)--A transmission technology enabling high-
speed access in the local copper loop, often for the last mile between the
network service provider--i.e., an incumbent carrier, competitive carrier or
an Internet service provider--and end user.
DSLAM (Digital Subscriber Line Access Multiplexer)--A multiplexer which
houses individual circuit cards used to provide DSL service.
DS-0, DS-1, DS-3--Standard telecommunications industry digital signal
formats, which are distinguishable by bit rate (the number of binary digits (0
and 1) transmitted per second). DS-0 service has a bit rate of up to 64
kilobits per second. DS-1 service has a bit rate of 1.544 megabits per second
and DS-3 service has a bit rate of 45 megabits per second. DS-0 is also
equivalent to one standard telephone line.
FCC (Federal Communications Commission)--The United States government
federal regulatory agency with the authority to regulate all interstate and
international communications media (i.e., radio, television, wire, etc.)
originating or terminating in the United States.
Fiber transport--A physical facility carrying optical signals over fiber
cable.
ILEC (incumbent local exchange carrier)--A company historically providing
local telephone service. Often refers to one of the RBOCs or GTE.
Interconnection--The physical and logical connection of two operators'
networks, thereby allowing users and customers of one system to connect or
communicate with users and customers of the other, or to access services
provided from the other system.
Interconnection agreement--A contract between an ILEC and a CLEC for the
interconnection of the ILEC's and CLEC's networks, for the purpose of mutual
passing of traffic between the networks, allowing customers of one of the
networks to call users served by the other network. These agreements set out
the financial and operational aspects of such interconnection.
IP (Internet Protocol)--The suite of data communications protocols, or
rules, upon which the Internet is based. IP enables a packet of information to
travel through multiple networks to get to its ultimate destination.
ISP (Internet Service Provider)--A company that provides its customers with
access to the Internet.
IXC (Interexchange Carrier)--A provider of telecommunications services
between exchanges, or cities; also called long distance carrier. A long
distance carrier may offer services over its own or another carrier's
facilities.
LAN or local area network--An intraoffice communication system usually used
to provide data transmission in addition to voice transmission. A network
allowing the interconnection and intercommunication of a group of computers,
primarily for the sharing of resources and exchange of information (e.g., e-
mail).
Local exchange--An area inside of which telephone calls are generally
completed without any toll or long distance charges. Local exchange areas are
defined by the state regulator of telephone services.
LNP (Local number portability)--A technique that allows local exchange
service customers of an ILEC to keep their existing telephone number, while
moving their service to a CLEC.
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Minutes of use--A measure of time during which a telecommunications circuit
is maintained.
Modem--An abbreviation of Modulator-Demodulator. An electronic signal-
conversion device used to convert digital signals from a computer to analog
form for transmission over the telephone network. At the transmitting end, a
modem working as a modulator converts the computer's digital signals into
analog signals that can be transmitted over a telephone line. At the receiving
end, another modem working as a demodulator converts analog signals back into
digital signals and sends them to the receiving computer.
MSA (metropolitan statistical area)--A contiguous, geographic area, which
has a population of at least 50,000, defined by the United States government as
having a substantial economic community of interest.
Multiplexing--An electronic or optical process that combines several lower
speed transmission signals into one higher speed signal.
Network--An integrated system composed of switching equipment and
transmission facilities designed to provide for the direction, transport and
recording of telecommunications traffic.
Network access point/metropolitan access exchange (NAP/MAE)--A junction
point for major Internet service providers to interconnect with each other and
exchange traffic across their networks. Network access points are also known as
Internet exchanges (IXs). Connection at one or more network access points
implies being connected to the greater Internet.
Packets--Discrete and logical groupings of information.
Peering--An arrangement whereby two autonomous networks exchange traffic,
generally using the IP protocol. When a backbone provider receives data traffic
that is not destined for one of its own customers, it must route it to another
backbone provider--either at a public network access point or a private peering
point--to complete the transmission on the Internet.
Private peering--Partly due to congestion at public network access points,
many ISPs formed private agreements with each other to interconnect with each
other directly via dedicated circuits.
Reciprocal Compensation--The compensation paid by one carrier to send
traffic to another carrier's network.
RBOC (Regional Bell Operating Company)--The four remaining local telephone
companies (formerly part of AT&T) established as a result of the AT&T
divestiture decree. These include BellSouth, Bell Atlantic, U S WEST and SBC.
Router--A device that accepts the Internet Protocol from a local area
network or another wide area network device and switches/routes Internet
Protocol packets across a network backbone. Some routers also provide protocol
conversion services to transfer Internet Protocol packets over frame relay,
Asynchronous Transfer Mode, and other backbone network services.
Switch--A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users. The DMS-500
by Nortel Networks is an example of a switch.
Switched services--Transmission of switched calls through the local switched
network.
T-1--A digital communications circuit operating at a speed of 1.5 Mbps, also
known as a DS-1 (digital signaling level one) and equivalent to 24 DS-0s.
Time Division Multiplexing--An electronic process that combines multiple
communications channels onto a single, higher-speed channel by interleaving
portions of each in a consistent manner over time.
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Transit--A form of traffic exchange between two networks where one network
will use the other network to transmit IP packets to their final destination.
In a transit relationship, should the final destination not exist on the
transit provider's network, the transit provider will use its own transit or
peering relationships to deliver the data to other networks.
Trunk or trunking--A circuit between two switches.
VARs (value-added resellers)--Organizations that purchase telecommunications
services on a wholesale basis, generally combine it with other products and
services, and sell the resulting package of services to an end user.
WAN (wide area network)--A remote computer communications system that is
networked to allow file sharing among geographically distributed work groups,
usually over a long distance. WANs typically use links provided by local
telephone companies.
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$275,000,000
Focal Communications Corporation
Offer to Exchange Its 11 7/8% Senior Notes due 2010,
Series B, for any and all of Its Outstanding 11 7/8%
Senior Notes due 2010, Series A
[FOCAL LOGO]
--------
PROSPECTUS
, 2000
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Delaware General Corporation Law. Focal has statutory authority to indemnify
the officers and directors. The applicable provisions of the DGCL state that,
to the extent such person is successful on the merits or otherwise, a
corporation may indemnify any person who was or is a party or who is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), 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 ("such Person"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by such Person, 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. In any threatened,
pending or completed action by or in the right of the corporation, a
corporation also may indemnify any such Person for costs actually and
reasonably incurred by him in connection with that action's defense or
settlement, 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; however, no
indemnification shall be made with respect to any claim, issue or matter as to
which such Person shall have been adjudged to be liable to the corporation,
unless and only to the extent that a court shall determine that such indemnity
is proper.
Under the applicable provisions of the DGCL, any indemnification shall be
made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct. Such determination shall be made:
(1) By the board of directors by a majority vote of a quorum consisting
of directors who are not parties to such action, suit or proceeding, even
if less than a quorum;
(2) By a committee of directors designated by a majority vote of
directors who are not parties to such action, suit or proceeding, even if
less than a quorum;
(3) If there are no such directors, or if the directors so direct, by
independent legal counsel in a written opinion; or
(4) By the stockholders.
Focal's certificate of incorporation provides for indemnification to the
full extent permitted by the laws of the State of Delaware against and with
respect to threatened, pending or completed actions, suits or proceedings
arising from or alleged to arise from, a party's actions or omissions as a
director, officer, employee or agent of Focal or of any subsidiary of Focal or
of any other corporation, partnership, joint venture, trust or other enterprise
which he has served in such capacity at the request of Focal if such acts or
omissions occurred or were or are alleged to have occurred, while said party
was a director or officer of Focal.
Item 21. Exhibits
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
1.1 Purchase Agreement with Salomon Smith Barney Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc. and Banc of America
Securities LLC, dated January 7, 2000.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
2.1 Plan of Reorganization and Agreement by and among Focal
Communications Corporation and its Subsidiaries, dated June 12,
1997. (Incorporated by reference to Exhibit No. 2.1 of Focal's
Registration Statement on Form S-4, originally filed with the
Securities and Exchange Commission on April 3, 1998, as amended
(Registration No. 333-49397) (the
"S-4"))
3.1 Form of Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit No. 3.3 of Focal's
Registration Statement on Form S-1, originally filed with the
Securities and Exchange Commission on May 7, 1999, as amended
(Registration No. 333-77995) (the "S-1"))
3.2 Form of Amended and Restated By-Laws. (Incorporated by reference
to Exhibit No. 3.5 of the S-1)
4.1 Indenture with Harris Trust and Savings Bank, dated February 18,
1998. (Incorporated by reference to Exhibit No. 4.1 of the S-4)
4.2 Initial Global 12.125% Senior Discount Note Due February 15, 2008,
dated February 18, 1998. (Incorporated by reference to Exhibit No.
4.2 of the S-4)
4.3 Stock Purchase Agreement with Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P., Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty and Robert C. Taylor Jr.,
dated November 27, 1996. (Incorporated by reference to Exhibit No.
4.5 of the S-4)
4.4 Amendment No. 1 to Stock Purchase Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor Jr., dated January 23, 1998. (Incorporated by reference to
Exhibit No. 4.6 of the S-4)
4.5 Amendment No. 2 to Stock Purchase Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of August 21, 1998. (Incorporated by
reference to Exhibit No. 4.8 to Focal's Quarterly Report on Form
10-Q for the period ending September 30, 1998, originally filed
with the Securities and Exchange Commission on November 16, 1998
(the "3rd Quarter 1998 10-Q"))
4.6 Vesting Agreement with Madison Dearborn Capital Partners, L.P.,
Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of November 27, 1996. (Incorporated by
reference to Exhibit No. 4.1 of the 3rd Quarter 1998 10-Q)
4.7 Vesting Agreement with Frontenac VI, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C. Taylor, Jr., dated as of
November 27, 1996. (Incorporated by reference to Exhibit No. 4.2
of the 3rd Quarter 1998 10-Q)
4.8 Vesting Agreement with Battery Ventures III, L.P., Brian F. Addy,
John R. Barnicle, Joseph Beatty and Robert C. Taylor, Jr., dated
as of November 27, 1996. (Incorporated by reference to Exhibit No.
4.3 of the 3rd Quarter 1998 10-Q)
4.9 Amendment No. 1 to Vesting Agreement and Consent as of August 21,
1998, between Focal Communications Corporation with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P., Battery
Ventures III, L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated as of August 21, 1998.
(Incorporated by reference to Exhibit No. 4.4 of the 3rd Quarter
1998 10-Q)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
4.10 Amendment No. 1 to Vesting Agreement and Consent as of August 21,
1998, between Focal Communications Corporation with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P., Battery
Ventures III, L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated as of August 21, 1998.
(Incorporated by reference to Exhibit No. 4.5 of the 3rd Quarter
1998 10-Q)
4.11 Amendment No. 1 to Vesting Agreement and Consent as of August 21,
1998, between Focal Communications Corporation with Madison
Dearborn Capital Partners, L.P., Frontenac VI, L.P., Battery
Ventures III, L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated as of August 21, 1998.
(Incorporated by reference to Exhibit No. 4.6 of the 3rd Quarter
1998 10-Q)
4.12 Form of Restricted Stock Agreement, dated September 30, 1998
between Focal Communications Corporation and each of Brian F.
Addy, John R. Barnicle, Joseph Beatty and Robert C. Taylor, Jr.
(Incorporated by reference to Exhibit No. 4.7 of the 3rd Quarter
1998 10-Q)
4.13 Stockholders Agreement with Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P., Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty and Robert C. Taylor, Jr.,
dated November 27, 1996. (Incorporated by reference to Exhibit No.
4.11 of the S-4)
4.14 Amendment No. 1 to Stockholders Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of July 7, 1998. (Incorporated by reference
to Exhibit No. 4.9 of the 3rd Quarter 1998 10-Q)
4.15 Amendment No. 2 to Stockholders Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of August 21, 1998. (Incorporated by
reference to Exhibit No. 4.10 of the 3rd Quarter 1998 10-Q)
4.16 Amendment No. 3 to Stockholders Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated February 16, 1999. (Incorporated by reference
to Exhibit No. 4.16 of Focal's Annual Report on Form 10-K for the
year ended December 31, 1998, originally filed with the Securities
and Exchange Commission on March 31, 1998 (the "1998 10-K"))
4.17 Amendment No. 4 to Stockholders Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated May 21, 1999. (Incorporated by reference to
Exhibit No. 4.27 of the S-1)
4.18 Executive Stock Agreement and Employment Agreement with Brian F.
Addy, dated November 27, 1996. (Incorporated by reference to
Exhibit No. 4.12 of the S-4) #
4.19 Executive Stock Agreement and Employment Agreement with John R.
Barnicle, dated November 27, 1996. (Incorporated by reference to
Exhibit No. 4.13 of the S-4) #
4.20 Executive Stock Agreement and Employment Agreement with Joseph A.
Beatty, dated November 27, 1996. (Incorporated by reference to
Exhibit No. 4.14 of the S-4) #
4.21 Executive Stock Agreement and Employment Agreement with Robert C.
Taylor, Jr., dated November 27, 1996. (Incorporated by reference
to Exhibit No. 4.15 of the S-4) #
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
4.22 Amendment No. 1 to Executive Employment Agreement and Consent with
Brian F. Addy, dated as of August 21, 1998. (Incorporated by
reference to Exhibit No. 4.11 of the 3rd Quarter 1998 10-Q) #
4.23 Amendment No. 1 to Executive Employment Agreement and Consent with
John R. Barnicle, dated as of August 21, 1998. (Incorporated by
reference to Exhibit No. 4.12 of the 3rd Quarter 1998 10-Q) #
4.24 Amendment No. 1 to Executive Employment Agreement and Consent with
Joseph Beatty, dated as of August 21, 1998. (Incorporated by
reference to Exhibit No. 4.13 of the 3rd Quarter 1998 10-Q) #
4.25 Amendment No. 1 to Executive Employment Agreement and Consent with
Robert C. Taylor, Jr., dated as of August 21, 1998. (Incorporated
by reference to Exhibit No. 4.14 of the 3rd Quarter 1998 10-Q) #
4.26 Registration Agreement with Madison Dearborn Capital Partners,
L.P., Frontenac VI, L.P., Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty and Robert C. Taylor, Jr.,
dated November 27, 1996. (Incorporated by reference to Exhibit No.
4.16 of the S-4)
4.27 Amendment No. 1 to Registration Agreement with Madison Dearborn
Capital Partners, L.P., Frontenac VI, L.P., Battery Ventures III,
L.P., Brian F. Addy, John R. Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of August 21, 1998. (Incorporated by
reference to Exhibit No. 4.15 of the 3rd Quarter 1998 10-Q)
4.28 Indenture with Harris Trust and Savings Bank, dated January 12,
2000.
4.29 Form of 11 7/8% Senior Note due January 15, 2010 No. 1 (CUSIP No.
344155AD8)
4.30 Form of 11 7/8% Senior Note due January 15, 2010 No. 2 (CUSIP No.
U3143AB4).
4.31 Exchange and Registration Agreement with Salomon Smith Barney
Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan
Stanley & Co. Incorporated, TD Securities (USA) Inc. and Banc of
America Securities LLC, dated January 12, 2000.
4.32 Restricted Shares Agreement with Michael L. Mael, effective as of
January 31, 2000. # +
4.33 Form of Exchange Agent Agreement with Harris Trust and Savings
Bank.
5.1 Opinion of Jones, Day, Reavis & Pogue.+
10.1 Interconnection Agreement with Ameritech Information Industry
Services, dated October 28, 1996. (Incorporated by reference to
Exhibit No. 10.1 of the S-4)
10.2 Interconnection Agreement with Ameritech Information Industry
Services, dated October 31, 1997. (Incorporated by reference to
Exhibit No. 10.2 of the S-4)
10.3 Interconnection Agreement with New York Telephone Company, dated
November 10, 1997. (Incorporated by reference to Exhibit No. 10.3
of the S-4)
10.4 Amended and Restated Interconnection Agreement with Ameritech
Information Industry Services, dated March 16, 1998. (Incorporated
by reference to Exhibit No. 10.4 of the 1998 S-4)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.5 Interconnection Agreement with Bell Atlantic-Pennsylvania, dated
April 27, 1998. (Incorporated by reference to Exhibit No. 10.26 of
the S-4)
10.6 Interconnection Agreement with Bell Atlantic-Delaware, dated April
27, 1998. (Incorporated by reference to Exhibit No. 10.25 of the
S-4)
10.7 Interconnection Agreement with Bell Atlantic-New Jersey, dated
April 27, 1998. (Incorporated by reference to Exhibit No. 10.24 of
the S-4)
10.8 Interconnection Agreement with GTE-California, dated June 12,
1998. (Incorporated by reference to Exhibit No. 10.23 of the S-4)
10.9 Interconnection Agreement with Pacific Bell, dated June 15, 1998.
(Incorporated by reference to Exhibit No. 10.22 of the S-4)
10.10 Interconnection Agreement with Bell Atlantic-District of Columbia,
dated October 1, 1998. (Incorporated by reference to Exhibit No.
10.1 to Focal's Quarterly Report on Form 10-Q for the period ended
March 31, 1999, originally filed with the Securities and Exchange
Commission on May 7, 1999, as amended. (the "1st Quarter 1999 10-
Q"))
10.11 Interconnection Agreement with Bell Atlantic-Maryland, dated
October 2, 1998. (Incorporated by reference to Exhibit No. 10.2 to
the 1st Quarter 1999 10-Q)
10.12 Interconnection Agreement with Bell Atlantic-Virginia, dated
October 2, 1998. (Incorporated by reference to Exhibit No. 10.3 to
the 1st Quarter 1999 10-Q)
10.13 Interconnection Agreement with U S WEST, dated January 15, 1999.
(Incorporated by reference to Exhibit No. 10.4 to the 1st Quarter
1999 10-Q)
10.14 Interconnection Agreement with Ameritech Information Industry
Services, on behalf of and as agent for Ameritech Michigan, dated
February 10, 1999. (Incorporated by reference to Exhibit No. 10.5
to the 1st Quarter 1999 10-Q)
10.15 Interconnection Agreement with Bell Atlantic-Massachusetts, dated
February 15, 1999. (Incorporated by reference to Exhibit No. 10.6
to the 1st Quarter 1999 10-Q)
10.16 First Amendment to the Interconnection Agreement with Ameritech
Information Industry Services, dated September 8, 1998.
(Incorporated by reference to Exhibit No. 10.1 of the 3rd Quarter
1998 10-Q)
10.17 Network Products Purchase Agreement with Northern Telecom Inc.,
dated January 21, 1997. (Incorporated by reference to Exhibit No.
10.5 of the S-4)*
10.18 Amendments No. 1 and No. 2 to Network Products Purchase Agreement
with Northern Telecom Inc., both dated March 6, 1998.
(Incorporated by reference to Exhibit No. 10.6 of the S-4)*
10.19 Amendment No. 3 to Network Products Purchase Agreement with
Northern Telecom Inc., dated March 25, 1999. (Incorporated by
reference to Exhibit No. 10.7 to the 1st Quarter 1999 10-Q)*
10.20 Software License with DPI/TFS, Inc., dated April 10, 1997.
(Incorporated by reference to Exhibit No. 10.17 of the S-4)*
10.21 Second Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated November 15, 1997. (Incorporated
by reference to Exhibit No. 10.9 of the S-4)
10.22 Lease Agreement for property located at 200 North LaSalle,
Chicago, IL, dated December 31, 1996. (Incorporated by reference
to Exhibit No. 10.7 of the S-4)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.23 First Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated May 14, 1997. (Incorporated by
reference to Exhibit No. 10.8 of the S-4)
10.24 Loan and Security Agreement with NTFC Capital Corporation, dated
December 30, 1998. (Incorporated by reference to Exhibit No. 10.17
of the 1998 10-K)*
10.25 Amendment No. 1 to Loan and Security Agreement with NTFC Capital
Corporation, dated as of April 15, 1999. (Incorporated by
reference to Exhibit No. 10.25 of the S-1)
10.26 Purchase Agreement with XCOM Technologies, Inc., dated January 6,
1999. (Incorporated by reference to Exhibit No. 10.8 to the 1st
Quarter 1999 10-Q)*
10.27 Third Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated March 2, 1998. (Incorporated by
reference to Exhibit No. 10.10 of the S-4)
10.28 Fourth Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated April 4, 1998. (Incorporated by
reference to Exhibit No. 10.18 of the S-4)
10.29 Fifth Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated October 14, 1998. (Incorporated
by reference to Exhibit No. 10.9 to the 1st Quarter 1999 10-Q)
10.30 Sixth Amendment to Lease Agreement for property located at 200
North LaSalle, Chicago, IL, dated February 18, 1999. (Incorporated
by reference to Exhibit No. 10.10 to the 1st Quarter 1999 10-Q)
10.31 Lease Agreement for property located at 32 Old Slip, New York, NY,
dated May 20, 1997. (Incorporated by reference to Exhibit No.
10.11 of the S-4)
10.32 Lease Agreement for property located at 650 Townsend Street, San
Francisco, CA, dated January 26, 1998. (Incorporated by reference
to Exhibit No. 10.12 of the S-4)
10.33 First Amendment to Lease Agreement for property located at 650
Townsend Street, San Francisco, CA, dated March 3, 1998.
(Incorporated by reference to Exhibit No. 10.11 to the 1st Quarter
1999 10-Q)
10.34 Second Amendment to Lease Agreement for property located at 650
Townsend Street, San Francisco, CA, dated June 16, 1998.
(Incorporated by reference to Exhibit No. 10.12 to the 1st Quarter
1999 10-Q)
10.35 Third Amendment to Lease Agreement for property located at 650
Townsend Street, San Francisco, CA, dated February 16, 1999.
(Incorporated by reference to Exhibit No. 10.13 to the 1st Quarter
1999 10-Q)
10.36 Lease Agreement for property located at 701 Market Street,
Philadelphia, Pennsylvania, dated March 10, 1998. (Incorporated by
reference to Exhibit No. 10.13 of the S-4)
10.37 Lease Agreement for property located at 1120 Vermont Avenue, NW,
Washington, D.C., dated as of May 4, 1998. (Incorporated by
reference to Exhibit No. 10.19 of the S-4)
10.38 First Amendment to Lease Agreement for property located at 1120
Vermont, NW, Washington, D.C., dated July 23, 1998. (Incorporated
by reference to Exhibit No. 10.6 of the 3rd Quarter 1998 10-Q)
10.39 Lease Agreement for property located at 1200 West Seventh Street,
Los Angeles, California, dated as of May 19, 1998. (Incorporated
by reference to Exhibit No. 10.20 of the 1998 S-4)
10.40 First Amendment to Lease Agreement for property located at 1200
West 7th Street, Los Angeles, CA, dated July 8, 1998.
(Incorporated by reference to Exhibit No. 10.5 of the 3rd Quarter
1998 10-Q)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.41 Lease Agreement for property located at 1511 6th Avenue, Seattle,
WA, dated August 7, 1998. (Incorporated by reference to Exhibit
No. 10.2 of the 3rd Quarter 1998 10-Q)
10.42 Lease Agreement for property located at 23800 West Ten Mile Road,
Southfield, MI, dated August 31, 1998. (Incorporated by reference
to Exhibit No. 10.3 of the 3rd Quarter 1998 10-Q)
10.43 Lease Agreement for property located at One Penn Plaza, New York,
NY, dated September 25, 1998. (Incorporated by reference to
Exhibit No. 10.4 of the 3rd Quarter 1998 10-Q)
10.44 Lease Agreement for property located at 1950 Stemmons Freeway,
Dallas, TX, dated December 15, 1998. (Incorporated by reference to
Exhibit No. 10.14 to the 1st Quarter 1999 10-Q)
10.45 Lease Agreement for property located at One Main Street,
Cambridge, MA, dated January 6, 1999. (Incorporated by reference
to Exhibit No. 10.15 to the 1st Quarter 1999 10-Q)
10.46 Lease Agreement for property located at 250 Williams Street,
Atlanta, GA, dated February 5, 1999. (Incorporated by reference to
Exhibit No. 10.16 to the 1st Quarter 1999 10-Q)
10.47 Lease Agreement for property located at Christopher Columbus Drive
& Washington Street, Jersey City, NJ, dated February 19, 1999.
(Incorporated by reference to Exhibit No. 10.17 to the 1st Quarter
1999 10-Q)
10.48 Employment Agreement with Renee M. Martin, dated March 20, 1998.
(Incorporated by reference to Exhibit No. 10.16 of the S-4) #
10.49 Amendment No. 1 to Executive Employment Agreement with Renee M.
Martin, dated as of August 21, 1998. (Incorporated by reference to
Exhibit No. 10.10 of the 3rd Quarter 1998 10-Q) #
10.50 1997 Nonqualified Stock Option Plan, amended and restated as of
August 21, 1998. (Incorporated by reference to Exhibit No. 10.7 of
the 3rd Quarter 1998 10-Q) #
10.51 Amendment to 1997 Nonqualified Stock Option Plan (amended and
restated as of August 21, 1998), dated as of May 21, 1999.
(Incorporated by reference to Exhibit No. 10.58 of the S-1) #
10.52 Form of Amended and Restated Stock Option Agreement. (Incorporated
by reference to Exhibit No. 10.33 of the 1998 10-K) #
10.53 1998 Equity and Performance Incentive Plan. (Incorporated by
reference to Exhibit No. 10.8 of the 3rd Quarter 1998 10-Q) #
10.54 1998 Equity Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit No. 10.9 of the 3rd Quarter 1998 10-Q) #
10.55 Agreement for Sale of Real Property between Focal Communications
Corporation and United Air Lines, Inc., dated August 13, 1998.
(Incorporated by reference to Exhibit No. 10.36 of the 1998 10-K)
10.56 IRU Agreement by and between Focal Financial Services, Inc. and
Level 3 Communications, LLC, dated April 28, 1999. (Incorporated
by reference to Exhibit No. 10.55 of the S-1)*
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.57 Private Line Service Agreement by and between Focal Communications
Corporation and WorldCom Technologies, Inc., dated May 4, 1999
(Incorporated by reference to Exhibit No. 10.56 of the S-1)*
10.58 Fiber Optic Network leased Fiber Agreement between Metromedia
Fiber Network Services, Inc. and Focal Financial Services, Inc.,
dated as of May 24, 1999. (Incorporated by reference to Exhibit
No. 10.57 of the S-1)*
10.59 Executive Employment Agreement with Michael L. Mael, dated as of
January 8, 2000. # +
12.1 Statement regarding Computation of Ratios.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Jones, Day, Reavis & Pogue. (included as part of its
opinion filed as Exhibit 5.1)+
24.1 Powers of Attorney.
25.1 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
* Portions of this exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment, and the
omitted portions have been filed separately with the Securities and Exchange
Commission.
# Management Contract or Compensatory Plan
+To be filed by amendment.
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the 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 Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, office 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.
The undersigned registrant hereby undertakes 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 this Registration Statement through
the date of responding to the request.
II-8
<PAGE>
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
this Registration Statement when it became effective.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective.
The undersigned registrant hereby undertakes (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
Registration Statement;
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement related to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on April 10, 2000.
Focal Communications Corporation
/s/ Robert C. Taylor, Jr.
By: _________________________________
Robert C. Taylor, Jr.
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 10, 2000.
<TABLE>
<CAPTION>
Signature Title(s)
--------- --------
<S> <C>
/s/ Robert C. Taylor, Jr. President, Chief Executive Officer and
___________________________________________ Director
Robert C. Taylor, Jr. (Principal Executive Officer)
/s/ John R. Barnicle Executive Vice President, Chief Operating
___________________________________________ Officer and Director
John R. Barnicle
/s/ Joseph A. Beatty Executive Vice President and Chief
___________________________________________ Financial Officer (Principal Financial
Joseph A. Beatty Officer)
/s/ Gregory J. Swanson Controller (Principal Accounting Officer)
___________________________________________
Gregory J. Swanson
/s/ James E. Crawford, III* Director
___________________________________________
James E. Crawford, III
/s/ John A. Edwardson* Director
___________________________________________
John A. Edwardson
/s/ Paul T. Finnegan* Director
___________________________________________
Paul T. Finnegan
/s/ Richard D. Frisbie* Director
___________________________________________
Richard D. Frisbie
/s/ James N. Perry, Jr.* Director
___________________________________________
James N. Perry, Jr.
/s/ Paul G. Yovovich * Director
___________________________________________
Paul G. Yovovich
</TABLE>
- --------
*Signed by Joseph A. Beatty pursuant to a power of attorney filed as an exhibit
to this registration statement.
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Location
------- ------------------- --------
<C> <S> <C>
1.1 Purchase Agreement with Salomon Smith Filed herewith
Barney Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan
Stanley & Co. Incorporated, TD
Securities (USA) Inc. and Banc of
America Securities LLC, dated January 7,
2000.
2.1 Plan of Reorganization and Agreement by Incorporated by reference
and among Focal Communications
Corporation and its Subsidiaries, dated
June 12, 1997.
3.1 Form of Amended and Restated Certificate Incorporated by reference
of Incorporation.
3.2 Form of Amended and Restated By-Laws. Incorporated by reference
4.1 Indenture with Harris Trust and Savings Incorporated by reference
Bank, dated February 18, 1998.
4.2 Initial Global 12.125% Senior Discount Incorporated by reference
Note Due February 15, 2008, dated
February 18, 1998.
4.3 Stock Purchase Agreement with Madison Incorporated by reference
Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures
III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C.
Taylor Jr., dated November 27, 1996.
4.4 Amendment No. 1 to Stock Purchase Incorporated by reference
Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor Jr., dated January
23, 1998.
4.5 Amendment No. 2 to Stock Purchase Incorporated by reference
Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated as of
August 21, 1998.
4.6 Vesting Agreement with Madison Dearborn Incorporated by reference
Capital Partners, L.P., Brian F. Addy,
John R. Barnicle, Joseph Beatty and
Robert C. Taylor, Jr., dated as of
November 27, 1996.
4.7 Vesting Agreement with Frontenac VI, Incorporated by reference
L.P., Brian F. Addy, John R. Barnicle,
Joseph Beatty and Robert C. Taylor, Jr.,
dated as of November 27, 1996.
4.8 Vesting Agreement with Battery Ventures Incorporated by reference
III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of November 27,
1996.
4.9 Amendment No. 1 to Vesting Agreement and Incorporated by reference
Consent as of August 21, 1998, between
Focal Communications Corporation with
Madison Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures
III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of August 21,
1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Location
------- ------------------- --------
<C> <S> <C>
4.10 Amendment No. 1 to Vesting Agreement and Incorporated by reference
Consent as of August 21, 1998, between
Focal Communications Corporation with
Madison Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures
III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of August 21,
1998.
4.11 Amendment No. 1 to Vesting Agreement and Incorporated by reference
Consent as of August 21, 1998, between
Focal Communications Corporation with
Madison Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures
III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C.
Taylor, Jr., dated as of August 21,
1998.
4.12 Form of Restricted Stock Agreement, Incorporated by reference
dated September 30, 1998 between Focal
Communications Corporation and each of
Brian F. Addy, John R. Barnicle, Joseph
Beatty and Robert C. Taylor, Jr.
4.13 Stockholders Agreement with Madison Incorporated by reference
Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures
III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C.
Taylor Jr., dated November 27, 1996.
4.14 Amendment No. 1 to Stockholders Incorporated by reference
Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated as of
July 7, 1998.
4.15 Amendment No. 2 to Stockholders Incorporated by reference
Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated as of
August 21, 1998.
4.16 Amendment No. 3 to Stockholders Incorporated by reference
Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated
February 16, 1999.
4.17 Amendment No. 4 to Stockholders Incorporated by reference
Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated May 21,
1999.
4.18 Executive Stock Agreement and Employment Incorporated by reference
Agreement with Brian F. Addy, dated
November 27, 1996. #
4.19 Executive Stock Agreement and Employment Incorporated by reference
Agreement with John R. Barnicle, dated
November 27, 1996. #
4.20 Executive Stock Agreement and Employment Incorporated by reference
Agreement with Joseph A. Beatty, dated
November 27, 1996. #
4.21 Executive Stock Agreement and Employment Incorporated by reference
Agreement with Robert C. Taylor, Jr.,
dated November 27, 1996. #
4.22 Amendment No. 1 to Executive Employment Incorporated by reference
Agreement and Consent with Brian F.
Addy, dated as of August 21, 1998. #
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Location
------- ------------------- --------
<C> <S> <C>
4.23 Amendment No. 1 to Executive Employment Incorporated by reference
Agreement and Consent with John R.
Barnicle, dated as of August 21, 1998. #
4.24 Amendment No. 1 to Executive Employment Incorporated by reference
Agreement and Consent with Joseph
Beatty, dated as of August 21, 1998. #
4.25 Amendment No. 1 to Executive Employment Incorporated by reference
Agreement and Consent with Robert C.
Taylor, Jr., dated as of August 21,
1998. #
4.26 Registration Agreement with Madison Incorporated by reference
Dearborn Capital Partners, L.P.,
Frontenac VI, L.P., Battery Ventures
III, L.P., Brian F. Addy, John R.
Barnicle, Joseph Beatty and Robert C.
Taylor Jr., dated November 27, 1996.
4.27 Amendment No. 1 to Registration Incorporated by reference
Agreement with Madison Dearborn Capital
Partners, L.P., Frontenac VI, L.P.,
Battery Ventures III, L.P., Brian F.
Addy, John R. Barnicle, Joseph Beatty
and Robert C. Taylor, Jr., dated as of
August 21, 1998.
4.28 Indenture with Harris Trust and Savings Filed herewith
Bank, dated January 12, 2000.
4.29 Form of 11 7/8% Senior Note due January Filed herewith
15, 2010 No. 1 (CUSIP No. 344155AD8).
4.30 Form of 11 7/8% Senior Note due January Filed herewith
15, 2010 No. 2 (CUSIP No. U3143AB4).
4.31 Exchange and Registration Agreement with Filed herewith
Salomon Smith Barney Inc., Donaldson,
Lufkin & Jenrette Securities
Corporation, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc.
and Banc of America Securities LLC,
dated January 12, 2000.
4.32 Restricted Shares Agreement with Michael To be filed by amendment
L. Mael, effective as of January 31,
2000. #
4.33 Form of Exchange Agent Agreement with Filed herewith
Harris Trust and Savings Bank.
5.1 Opinion of Jones, Day, Reavis & Pogue. To be filed by amendment
10.1 Interconnection Agreement with Ameritech Incorporated by reference
Information Industry Services, dated
October 28, 1996.
10.2 Interconnection Agreement with Ameritech Incorporated by reference
Information Industry Services, dated
October 31, 1997.
10.3 Interconnection Agreement with New York Incorporated by reference
Telephone Company, dated November 10,
1997.
10.4 Amended and Restated Interconnection Incorporated by reference
Agreement with Ameritech Information
Industry Services, dated March 16, 1998.
10.5 Interconnection Agreement with Bell Incorporated by reference
Atlantic-Pennsylvania, dated April 27,
1998.
10.6 Interconnection Agreement with Bell Incorporated by reference
Atlantic-Delaware, dated April 27, 1998.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Location
------- ------------------- --------
<C> <S> <C>
10.7 Interconnection Agreement with Bell Incorporated by reference
Atlantic--New Jersey, dated April 27,
1998.
10.8 Interconnection Agreement with GTE-- Incorporated by reference
California, dated June 12, 1998.
10.9 Interconnection Agreement with Pacific Incorporated by reference
Bell, dated June 15, 1998.
10.10 Interconnection Agreement with Bell- Incorporated by reference
Atlantic--District of Columbia, dated
October 1, 1998.
10.11 Interconnection Agreement with Bell- Incorporated by reference
Atlantic--Maryland, dated October 2,
1998.
10.12 Interconnection Agreement with Bell Incorporated by reference
Atlantic--Virginia, dated October 2,
1998.
10.13 Interconnection Agreement with U.S. Incorporated by reference
West, dated January 15, 1999
10.14 Interconnection Agreement with Ameritech Incorporated by reference
Information Industry Services, on behalf
of and as agent for Ameritech Michigan,
dated February 10, 1999.
10.15 Interconnection Agreement with Bell Incorporated by reference
Atlantic--Massachusetts, dated February
15, 1999.
10.16 First Amendment to the Interconnection Incorporated by reference
Agreement with Ameritech Information
Industry Services, dated September 8,
1998.
10.17 Network Products Purchase Agreement with Incorporated by reference
Northern Telecom Inc., dated January 21,
1997.*
10.18 Amendments No. 1 and No. 2 to Network Incorporated by reference
Products Purchase Agreement with
Northern Telecom Inc., both dated March
6, 1998.*
10.19 Amendment No. 3 to Network Products Incorporated by reference
Purchase Agreement with Northern Telecom
Inc., dated March 25, 1999.*
10.20 Software License with DPI/TFS, Inc., Incorporated by reference
dated April 10, 1997.*
10.21 Second Amendment to Lease Agreement for Incorporated by reference
property located at 200 North LaSalle,
Chicago, IL, dated November 15, 1997.
10.22 Lease Agreement for property located at Incorporated by reference
200 North LaSalle, Chicago, IL, dated
December 31, 1996.
10.23 First Amendment to Lease Agreement for Incorporated by reference
property located at 200 North LaSalle,
Chicago, IL, dated May 14, 1997.
10.24 Loan and Security Agreement with NTFC Incorporated by reference
Capital Corporation, dated December 30,
1998.*
10.25 Amendment No. 1 to Loan and Security Incorporated by reference
Agreement with NTFC Capital Corporation,
dated as of April 15, 1999.
10.26 Purchase Agreement with XCOM Incorporated by reference
Technologies, Inc., dated January 6,
1999.*
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Location
------- ------------------- --------
<C> <S> <C>
10.27 Third Amendment to Lease Agreement for Incorporated by reference
property located at 200 North LaSalle,
Chicago, IL, dated March 2, 1998.
10.28 Fourth Amendment to Lease Agreement for Incorporated by reference
property located at 200 North LaSalle,
Chicago, IL, dated April 4, 1998.
10.29 Fifth Amendment to Lease Agreement for Incorporated by reference
property located at 200 North LaSalle,
Chicago, IL, dated October 14, 1998.
10.30 Sixth Amendment to Lease Agreement for Incorporated by reference
property located at 200 North LaSalle,
Chicago, IL, dated February 18, 1999.
10.31 Lease Agreement for property located at Incorporated by reference
32 Old Slip, New York, NY, dated May 20,
1997.
10.32 Lease Agreement for property located at Incorporated by reference
650 Townsend Street, San Francisco, CA,
dated January 26, 1998.
10.33 First Amendment to Lease Agreement for Incorporated by reference
property located at 650 Townsend Street,
San Francisco, CA, dated March 3, 1998.
10.34 Second Amendment to Lease Agreement for Incorporated by reference
property located at 650 Townsend Street,
San Francisco, CA, dated June 16, 1998.
10.35 Third Amendment to Lease Agreement for Incorporated by reference
property located at 650 Townsend Street,
San Francisco, CA, dated February 16,
1999.
10.36 Lease Agreement for property located at Incorporated by reference
701 Market Street, Philadelphia,
Pennsylvania, dated March 10, 1998.
10.37 Lease Agreement for property located at Incorporated by reference
1120 Vermont Avenue, NW, Washington,
D.C., dated as of May 4, 1998.
10.38 First Amendment to Lease Agreement for Incorporated by reference
property located at 1120 Vermont, NW,
Washington, D.C., dated July 23, 1998.
10.39 Lease Agreement for property located at Incorporated by reference
1200 West Seventh Street, Los Angeles,
California, dated as of May 19, 1998.
10.40 First Amendment to Lease Agreement for Incorporated by reference
property located at 1200 West 7th
Street, Los Angeles, CA, dated July 8,
1998.
10.41 Lease Agreement for property located at Incorporated by reference
1511 6th Avenue, Seattle, WA, dated
August 7, 1998.
10.42 Lease Agreement for property located at Incorporated by reference
23800 West Ten Mile Road, Southfield,
MI, dated August 31, 1998.
10.43 Lease Agreement for property located at Incorporated by reference
One Penn Plaza, New York, NY, dated
September 25, 1998.
10.44 Lease Agreement for property located at Incorporated by reference
1950 Stemmons Freeway, Dallas, TX, dated
December 15, 1998.
10.45 Lease Agreement for property located at Incorporated by reference
One Main Street, Cambridge, MA, dated
January 6, 1999.
10.46 Lease Agreement for property located at Incorporated by reference
250 Williams Street, Atlanta, GA, dated
February 5, 1999.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Location
------- ------------------- --------
<C> <S> <C>
10.47 Lease Agreement for property located at Incorporated by reference
Christopher Columbus Drive & Washington
Street, Jersey City, NJ, dated February
19, 1999.
10.48 Employment Agreement with Renee M. Incorporated by reference
Martin, dated March 20, 1998. #
10.49 Amendment No. 1 to Executive Employment Incorporated by reference
Agreement with Renee M. Martin, dated as
of August 21, 1998. #
10.50 1997 Nonqualified Stock Option Plan, Incorporated by reference
amended and restated as of August 21,
1998. #
10.51 Amendment to 1997 Nonqualified Stock Incorporated by reference
Option Plan (amended and restated as of
August 21, 1998), dated as of May 21,
1999. #
10.52 Form of Amended and Restated Stock Incorporated by reference
Option Agreement. #
10.53 1998 Equity and Performance Incentive Incorporated by reference
Plan. #
10.54 1998 Equity Plan for Non-Employee Incorporated by reference
Directors. #
10.55 Agreement for Sale of Real Property Incorporated by reference
between Focal Communications Corporation
and United Air Lines, Inc., dated August
13, 1998.
10.56 IRU Agreement by and between Focal Incorporated by reference
Financial Services, Inc. and Level 3
Communications, LLC, dated April 28,
1999.*
10.57 Private Line Service Agreement between Incorporated by reference
Focal Communications Corporation and
WorldCom Technologies, Inc., dated May
4, 1999.*
10.58 Fiber Optic Network leased Fiber Incorporated by reference
Agreement between Metromedia Fiber
Network Services, Inc. and Focal
Financial Services, Inc., dated as of
May 24, 1999.*
10.59 Executive Employment Agreement with To be filed by amendment
Michael L. Mael, dated as of January 8,
2000. #
12.1 Statement regarding Computation of Filed herewith
Ratios.
21.1 Subsidiaries of the Registrant. Filed herewith
23.1 Consent of Arthur Andersen LLP. Filed herewith
23.2 Consent of Jones, Day, Reavis & Pogue. To be filed by amendment
(included as part of its opinion filed
as Exhibit 5.1)
24.1 Powers of Attorney. Filed herewith
25.1 Statement of Eligibility of Trustee. Filed herewith
99.1 Form of Letter of Transmittal. Filed herewith
99.2 Form of Notice of Guaranteed Delivery. Filed herewith
</TABLE>
- --------
* Portions of this exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment, and the
omitted portions have been filed separately with the Securities and Exchange
Commission.
#Management Contract or Compensatory Plan
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Exhibit 1.1
FOCAL COMMUNICATIONS CORPORATION
$275,000,000
11-7/8% Senior Notes due 2010
PURCHASE AGREEMENT
New York, New York
January 7, 2000
Salomon Smith Barney Inc.
Donaldson Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Focal Communications Corporation (the "Company"), a Delaware
corporation, proposes to issue and sell to you (the "Initial Purchasers"), an
aggregate of $275,000,000 in principal amount of its 11-7/8% Senior Notes due
2010 (the "Notes") subject to the terms and conditions set forth herein. The
Notes are to be issued under an indenture (the "Indenture") dated as of January
12, 2000 between the Company and Harris Trust and Savings Bank, as trustee (the
"Trustee").
The sale of the Notes to the Initial Purchasers will be made without
registration of the Notes under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereunder in
compliance with Rule 144A under the Securities Act. The Initial Purchasers have
advised the Company that the Initial Purchasers will offer and sell the Notes
purchased by them hereunder in accordance with Section 4 hereof on the terms set
forth in the Final Memorandum (as defined below) as soon as the Initial
Purchasers deem advisable after this Purchase Agreement (the "Agreement") has
been executed and delivered.
<PAGE>
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum, dated January 3, 2000 (the "Preliminary
Memorandum") and a final offering memorandum, dated January 7, 2000 (the "Final
Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets
forth certain information concerning the Company and the Notes. The Company
hereby confirms that it has authorized the use of the Preliminary Memorandum and
the Final Memorandum, and any amendment or supplement thereto, in connection
with the offer and sale of the Notes by the Initial Purchasers.
The holders of the Notes will be entitled to the benefits of the
Exchange and Registration Agreement dated the Closing Date (as defined herein)
among the Company and the Initial Purchasers (the "Registration Agreement") in
the form of Exhibit A attached hereto.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, each of the Initial Purchasers as set forth below in this
Section 1.
(a) The Preliminary Memorandum, at the date thereof did not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Final Memorandum at the
date hereof and at all times subsequent hereto up to and including the
Closing Date, does not, and will not (and, together with any amendment or
supplement thereto, at the date thereof and at the Closing Date, will not),
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to the
information contained in or omitted from the Preliminary Memorandum, or the
Final Memorandum, or any amendment or supplement thereto, in reliance upon
and in conformity with information furnished in writing to the Company by
or on behalf of the Initial Purchasers specifically for inclusion therein.
(b) Neither the Company, nor any of its Affiliates (as defined in Rule
501(b) of Regulation D of the Securities Act ("Regulation D")), nor any
person acting on its or their behalf has, directly or indirectly, (i) made
offers or sales of any security, or solicited offers to buy any security,
under circumstances that would require the registration of the Notes under
the Securities Act or (ii) has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) or in any
manner or action involving a public offering within the meaning of Section
4(2) of the Act in connection with the offering of the Notes (provided that
no representation is made as to the Initial Purchasers or any person acting
on their behalf).
(c) Assuming (i) that the representations and warranties of the
Initial Purchasers in Section 4 hereof are true and (ii) compliance by the
Initial Purchasers with the covenants set forth in Section 4 hereof, it is
not necessary in connection with the offer, sale and delivery of the Notes
in the manner contemplated by this Agreement and the Final Memorandum or in
connection with the initial resale of the Notes by the Initial Purchasers
in accordance with this
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Agreement and the Final Memorandum to register the Notes under the
Securities Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act").
(d) The Notes satisfy the eligibility requirements set forth in Rule
144A(d)(3) under the Securities Act.
(e) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf has engaged in any directed selling efforts
(as defined in Regulation S under the Securities Act ("Regulation S")) with
respect to the Notes, and each of them has complied with the offering
restrictions requirement of Regulation S (provided that no representation
is made as to the Initial Purchasers or any person acting on their behalf).
(f) The Company reasonably believes that there is no substantial U.S.
market interest (as defined in Regulation S) in the Notes.
(g) The Company agrees to permit the Notes to be designated PORTAL
eligible securities and will pay the requisite fees related thereto.
(h) The Company is not and, after giving effect to the offering and
sale of the Notes and the application of the proceeds thereof as described
in the Final Memorandum, will not be required to register as an "investment
company" as defined in the Investment Company Act of 1940, as amended.
(i) The Company has not paid or agreed to pay to any person any
compensation for soliciting another to purchase any Notes (except as
contemplated by this Agreement and as disclosed in the Final Memorandum).
(j) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with
any offering of the Notes.
(k) The information provided by the Company pursuant to Section 5(k)
hereof will not, at the date thereof, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Each of the Company and its subsidiaries (as hereinafter defined)
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is incorporated or
organized with requisite corporate power and authority to own or lease, as
the case may be, and to operate its properties and to conduct its business
as described in the Final Memorandum, and is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification, except to the extent that
the failure to be so qualified or in good standing would not have a
Material Adverse Effect (as hereinafter defined).
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(m) All the issued and outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued and are fully paid
and nonassessable, and, except as otherwise set forth in the Final
Memorandum, are owned by the Company, either directly or through wholly
owned subsidiaries, free and clear of any security interests, claims, liens
or encumbrances.
(n) The Company is a holding company which derives all of its revenues
from the operations of its subsidiaries. Except as set forth on Schedule
II, the Company does not have any investment in any person other than its
investments in its subsidiaries.
(o) Neither the Company nor any of its subsidiaries is in violation of
its articles or by-laws or in default in the performance of any indenture
or other agreement or instrument to which it is a party or by which it is
bound or to which it or any of its properties is subject, which default or
defaults individually or in the aggregate would have a Material Adverse
Effect.
(p) Except as otherwise set forth in the Final Memorandum, the (i)
issuance and sale of the Notes to the Initial Purchasers by the Company
pursuant to this Agreement, (ii) execution, delivery and performance of
this Agreement, the Registration Agreement and the Indenture by the
Company, (iii) compliance by the Company with all the provisions hereof and
thereof and (iv) consummation on the Closing Date of the transactions
contemplated hereby and thereby by the Company do not require any consent,
permission, authorization, approval or order of, or filing or registration
with or notice to, any court, regulatory body, administrative agency or
other governmental body (except as may be required under blue sky laws of
the various states of the United States and those consents, permissions,
authorizations, approvals, orders, filings, registrations or notices which
have been obtained or made, as the case may be, or may be obtained or made,
as the case may be, pursuant to the Registration Agreement) and do not and
will not conflict with, or constitute a breach or a violation of any of the
terms or provisions of, or a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any subsidiary under, (i) the articles, by-laws or other
governing documents of the Company or any subsidiary, (ii) any material
statute, rule or regulation applicable to the Company or any subsidiary or
any order of any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary or any of their respective
properties, (iii) any agreement or instrument relating to borrowed money to
which the Company or any subsidiary is a party or by which the Company or
any subsidiary is bound or to which any of their respective properties is
subject, or (iv) any other material agreement or instrument to which the
Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of their respective properties is
subject.
(q) (i) There are no restrictions (other than restrictions which have
been waived) on the corporate power and capacity of the Company to enter
into this Agreement, the Indenture and the Registration Agreement, to
execute and sell the Notes, or to carry out its obligations hereunder and
thereunder; (ii) the execution
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<PAGE>
and delivery of this Agreement, the Indenture and the Registration
Agreement and the consummation on the Closing Date of the transactions
contemplated herein and therein have been duly authorized by all necessary
corporate action on the part the Company; (iii) this Agreement has been
duly executed and delivered by and constitutes a valid and binding
obligation of the Company and is enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other laws relating to
or affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity); (iv) when duly executed and delivered by
the Company and the other parties thereto, each of the Indenture and the
Registration Agreement will constitute valid and binding obligations of the
Company and will be enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other laws relating to or affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity).
(r) The authorized capital stock of the Company as of January 7, 2000
is as set forth in the Final Memorandum under "Capitalization"; all the
issued and outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable.
(s) The Notes have been duly authorized for issuance and sale by the
Company to the Initial Purchasers and will, upon execution and delivery of
the Indenture, and when issued, executed and delivered in accordance with
the Indenture, and paid for in accordance with the terms of this Agreement,
constitute valid and binding obligations of the Company enforceable against
the Company in accordance with their terms and be entitled to the benefits
of the Indenture, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other laws relating to
or affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(t) The statements in the Final Memorandum under the headings "Risk
Factors--Reciprocal Compensation--Reciprocal compensation represents a
substantial portion of our revenues; a greater than expected decrease in
reciprocal compensation revenues could have a material adverse effect on
us", "Risk Factors--Regulation--We are subject to significant regulation
that could change in a manners adverse to us", "Risk Factors--Relationship
with ILECs--Our reliance on ILEC interconnection and changes to our
agreements with the ILECs could have a material adverse effect on us",
"United States Federal Tax Considerations for Non-U.S. Holders of Common
Stock", "Business--Regulation" and "Business--Legal and Administrative
Proceedings" fairly and accurately summarize in all material respects the
matters therein described.
(u) No permit, consent, approval, license, authorization, or order of,
or filing, registration or qualification with any court or governmental
agency or body
5
<PAGE>
is required in connection with the execution, delivery and performance by
the Company of this Agreement, the issuance and sale of the Notes or the
consummation by the Company of the other transactions contemplated herein,
except such as may be required under the Securities Act or pursuant to
other applicable requirements in connection with the Registration
Agreement, and such as may be required under the state securities or blue
sky laws of any jurisdiction in connection with the purchase and
distribution of the Notes by the Initial Purchasers in the manner
contemplated herein and in the Final Memorandum.
(v) The execution, delivery and performance of this Agreement, the
issue and sale of the Notes, the consummation by the Company of the
transactions herein contemplated and the fulfillment of the terms hereof by
the Company will not conflict with, result in a breach or violation of, or
result in the imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
(i) the charter or by-laws of the Company or any of its subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which the Company or any of its subsidiaries is a
party or bound or to which its or their property is subject, and that is
material to the Company and its subsidiaries, taken as a whole, or (iii)
any statute, law, rule, regulation, ordinance, judgment, requirement, order
or decree applicable to the Company or any of its subsidiaries, including,
without limitation, the Communications Act of 1934, as amended, including
the Telecommunications Act of 1996, as amended (collectively referred to as
the "Telecommunications Act"), and the rules and regulations of the Federal
Communications Commission (the "FCC"), of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its subsidiaries or any of
its or their assets or properties.
(w) The consolidated historical financial statements and schedules of
the Company and its consolidated subsidiaries incorporated by reference in
the Final Memorandum present fairly in all material respects the financial
condition, results of operations and cash flows of the Company as of the
dates and for the periods indicated, comply as to form in all material
respects with the applicable accounting requirements of the Act and have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under the
caption "Selected Consolidated Financial and Operating Data" in the Final
Memorandum present fairly, on the basis stated in the Final Memorandum, the
information included therein.
(x) There is (i) no action, suit, investigation or proceeding by or
before any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries or its or their
property pending or, to the best knowledge of the Company, threatened and
(ii) no local, state, or federal law, statute, ordinance, regulation,
requirement, judgment or court decree (including without limitation, the
Telecommunications Act and the rules and regulations of the FCC) or order
that has been adopted, enacted or issued by any governmental agency or to
the best of the Company's knowledge, that has been proposed by any
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<PAGE>
governmental body, that (a) could reasonably be expected to have a material
adverse effect on the performance by the Company of this Agreement or the
consummation by the Company of any of the transactions contemplated hereby
or (b) could reasonably be expected to have a material adverse effect on
the financial condition, prospects, results of operations, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business (a
"Material Adverse Effect"), except as set forth in or contemplated by the
Final Memorandum (exclusive of any supplement thereto not consented to in
writing by the Initial Purchasers.)
(y) Each of the Company and its subsidiaries (i) owns or leases all
material properties as are necessary to the conduct of its operations as
presently conducted, (ii) has good and marketable title to all of the
properties and assets described in the Final Memorandum as owned by it,
free and clear of all liens, charges, encumbrances and restrictions, except
such as are described in the Final Memorandum or as would not have a
Material Adverse Effect, and (iii) has peaceful and undisturbed possession
under all material leases to which it is a party as lessee.
(z) Neither the Company nor any of its subsidiaries is in violation of
or default under (i) any provision of its charter or bylaws, (ii) the terms
of any indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is
subject and that is material to the Company and its subsidiaries taken as a
whole, or (iii) any state, local or federal statute (including, but not
limited to, the Telecommunications Act and the rules and regulations of the
FCC), law, rule, regulation, ordinance, judgment, order, decision or decree
of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or such
subsidiary or any of its properties, as applicable, including, but not
limited to, the FCC and any state authority having jurisdiction over the
Company or its subsidiaries or over their respective assets or properties,
except for such noncompliance or violations which would not have a Material
Adverse Effect.
(aa) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered
their report with respect to the audited consolidated financial statements
and schedules incorporated by reference in the Final Memorandum, are
independent public accountants with respect to the Company within the
meaning of the Act and the applicable published rules and regulations
thereunder.
(bb) There are no transfer taxes or other similar fees or charges
under federal law or the laws of any state, or any political subdivision
thereof, required to be paid in connection with the execution and delivery
of this Agreement or the issuance by the Company or sale by the Company of
the Notes to the Initial Purchasers.
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(cc) The Company has filed in a timely manner all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not have a Material Adverse Effect, except as set forth in or
contemplated in the Final Memorandum (exclusive of any supplement thereto
not consented to in writing by the Underwriters)) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being
contested in good faith or as would not have a Material Adverse Effect,
except as set forth in or contemplated in the Final Memorandum (exclusive
of any supplement thereto not consented to in writing by the Initial
Purchasers.)
(dd) No labor problem or dispute with the employees of the Company or
any of its subsidiaries exists or, to the Company's knowledge, is
threatened or imminent (including, without limitation, any unfair labor
practice complaint against the Company or any of its subsidiaries before
the National Labor Relations Board, any state or local labor relations
board or any foreign labor relations board), and the Company is not aware
of any existing or imminent labor disturbance by the employees of any of
its or its subsidiaries' principal suppliers, contractors or customers, in
each case that could have a Material Adverse Effect, except as set forth in
or contemplated in the Final Memorandum (exclusive of any supplement
thereto not consented to in writing by the Initial Purchasers.)
(ee) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; all material policies of insurance insuring the Company or any
of its subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and its
subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no material claims by
the Company or any of its subsidiaries under any such policy or instrument
as to which any insurance company is denying liability or defending under a
reservation of rights clause; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect, except as
set forth in or contemplated in the Final Memorandum (exclusive of any
supplement thereto not consented to in writing by the Initial Purchasers.)
(ff) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or
any other subsidiary of the Company, except as provided by laws regulating
the payment of dividends by a subsidiary to a parent, as otherwise
described in or contemplated by the Final Memorandum.
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(gg) The Company and its subsidiaries possess all licenses,
certificates, permits, authorizations, approvals, franchises and other
rights from, and have made all declarations and filings (including but not
limited to tariffs and annual filing with the appropriate federal, state,
local or foreign regulatory authorities ("Authorizations") (including,
without limitation, the FCC) necessary to conduct their respective
businesses as presently conducted by them in all material respects, and
neither the Company nor any such subsidiary has any reason to believe that
any regulatory authority is considering limiting, modifying, suspending or
revoking any such Authorization, except to the extent that, if the subject
of an unfavorable decision, ruling or finding, such action or actions,
individually or in the aggregate, would not have a Material Adverse Effect,
except as set forth in or contemplated in the Final Memorandum (exclusive
of any supplement thereto not consented to in writing by the Initial
Purchasers.) All such Authorizations are in full force and effect, and each
of the Company and its subsidiaries is in compliance with the terms and
conditions thereof and with the rules and regulations of regulatory bodies
having jurisdiction with respect thereto except for such failure to be in
full force and effect or non-compliance that would not have a Material
Adverse Effect.
(hh) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(ii) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of, and the Company has not, directly or
indirectly, bid for, purchased or attempted to induce any person to bid for
or purchase, any security of the Company to facilitate the sale or resale
of the Notes (provided that no representation is made as to the Initial
Purchasers or any person acting on their behalf).
(jj) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received and are in compliance with all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) have
not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants and have not been
named as a "potentially responsible party" under the Comprehensive
Environmental
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Response, Compensation, and Liability Act of 1980, as amended, except where
such non-compliance with Environmental Laws, failure to receive required
permits, licenses or other approvals, liability or being named a
"potentially responsible party" would not, individually or in the
aggregate, have a Material Adverse Effect or as set forth in or
contemplated in the Final Memorandum (exclusive of any supplement thereto
not consented to in writing by the Initial Purchasers).
(kk) The costs and liabilities associated with the effect of
Environmental Laws on the business, operations and properties of the
Company and its subsidiaries (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws, or any permit, license or approval, any
related constraints on operating activities and any potential liabilities
to third parties) could not reasonably be expected, singly or in the
aggregate, to have a Material Adverse Effect, except as set forth in or
contemplated in the Final Memorandum (exclusive of any supplement thereto
not consented to in writing by the Initial Purchasers).
(ll) Neither the Company nor any of its subsidiaries has any defined
benefit plans.
(mm) The subsidiaries listed on Exhibit B attached hereto (the
"Material Subsidiaries") are the only "significant subsidiaries" of the
Company as defined by Rule 1-02 of Regulation S-X.
(nn) The Company and its subsidiaries own, possess, license or have
other rights to use or can acquire, on reasonable terms, all material
patents, patent rights, trade and service marks, trade names, copyrights,
licenses, trade secrets, know-how, and unpatented and/or unpatentable
proprietary confidential information (collectively, the "Intellectual
Property") necessary for the conduct of the Company's business as now
conducted or as proposed in the Final Memorandum to be conducted, except
where the failure to own, possess, license or have other rights to use or
the inability to acquire on reasonable terms would not have a Material
Adverse Effect. Except as set forth in the Final Memorandum, (a) to the
knowledge of the Company, there are no rights of third parties to any such
Intellectual Property other than rights that would not have a Material
Adverse Effect ; (b) to the knowledge of the Company there is no material
infringement by third-parties of any such Intellectual Property other than
infringement that would not have a Material Adverse Effect; (c) there is no
pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others (i) challenging the Company's rights in or to
any such Intellectual Property, (ii) challenging the validity or scope of
any such Intellectual Property, or (iii) that the Company infringes or
otherwise violates any Intellectual Property rights of others, and (iv) the
Company is unaware of any facts which would form a reasonable basis for any
such claim, in each case set forth in clauses (i) through (iv) above which,
if successful, could have a Material Adverse Effect; and (d) the Company
neither owns nor licenses any patents.
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(oo) The Company and its subsidiaries have reviewed their operations
to evaluate the extent to which their respective businesses or operations
will be affected by the risk that the computer hardware and software used
by them may be unable to recognize and properly execute date-sensitive
functions involving certain dates prior to and any dates after December 31,
1999 (the "Year 2000 Problem"), and reasonably believes that such risk will
not have a Material Adverse Effect. The description of the Company's action
in respect of the Year 2000 Problem contained in the Final Memorandum
fairly and accurately summarizes in all material respects the matters
therein described.
(pp) The Company has filed in a timely manner each document or report
required to be filed by it pursuant to the Exchange Act and the rules and
regulations thereunder; each such document or report at the time it was
filed, conformed to the requirements of the Exchange Act and the rules and
regulations thereunder; and none of such documents or reports, as so
amended contained an untrue statement of any material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading.
(qq) Since the date of the most recent financial statements
incorporated by reference in the Final Memorandum, there has been no
Material Adverse Effect, except as set forth in or contemplated by the
Final Memorandum.
Any certificate signed by any officer of the Company and delivered to the
Initial Purchasers or counsel for the Initial Purchasers in connection with the
offering of the Notes shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each of the Initial Purchasers.
2. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, the respective
principal amount of Notes set forth opposite such Initial Purchaser's name in
Schedule I hereto. The Initial Purchasers agree to pay the Company an amount
equal to 99.28% of the aggregate principal amount of the Notes, plus accrued
interest, if any, from January 12, 2000 to the Closing Date. The Company agrees
to pay to the Initial Purchasers a commission equal to 2.50% of the aggregate
principal amount of the Notes, which commission may be offset against the
Initial Purchasers' obligations to pay the purchase price.
3. Delivery and Payment. Delivery of and payment for the Notes shall
be made at 9:00 AM, New York City time, on January 12, 2000 or such later date
as the Initial Purchasers shall designate, which date and time may be postponed
by agreement between the Initial Purchasers and the Company or as provided in
Section 9 hereof (such date and time of delivery and payment for the Notes being
herein called the "Closing Date"). Delivery of the Notes shall be made to the
Initial Purchasers for the respective accounts of the several Initial Purchasers
against payment by the several Initial Purchasers through Salomon Smith Barney
Inc. of the purchase price thereof to or upon the order of the Company by wire
transfer in immediately available U.S. funds or such other manner of payment as
may be agreed by the Company and the Initial Purchasers not less than two
business days prior to the Closing Date. Delivery of the Notes shall be made at
such location as the Initial Purchasers shall reasonably designate at least one
business day in advance of the Closing Date and payment for the Notes shall be
made at the office of Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago,
Illinois 60601.
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Certificates for the Notes shall be registered in such names and in such
denominations as the Initial Purchasers may request not less than two full
business days in advance of the Closing Date.
The Company agrees to have the certificates for the Notes available
for inspection by the Initial Purchasers in Chicago, Illinois, at the offices of
Jones, Day, Reavis & Pogue, not later than 1:00 PM on the business day prior to
the Closing Date.
4. Offering of Notes.
(a) Each Initial Purchaser (i) represents and warrants to and agrees
with the Company that it, its Affiliates and any person acting on its or its
Affiliates' behalf, have not solicited and will not solicit any offer to buy or
offer to sell the Notes by means of any form of general solicitation or general
advertising (within the meaning of Regulation D) or in any manner involving a
public offering within the meaning of Section 4(2) of the Securities Act, except
pursuant to a registered public offering as provided in the Registration
Agreement or, with respect to Notes sold in reliance on Regulation S, by means
of any directed selling efforts, (ii) acknowledges that it is purchasing the
Notes pursuant to a private sale exemption from registration under the
Securities Act and that the Notes have not been registered under the Securities
Act and may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
or pursuant to an effective registration statement under the Securities Act,
(iii) severally and not jointly, represents and warrants to and agrees with the
Company that:
(1) it has not offered or sold, and will not offer or sell, any
Notes except (A) to those it reasonably believes to be qualified
institutional buyers (as defined in Rule 144A under the
Securities Act) and that, in connection with each such sale, it
has taken or will take reasonable steps to ensure that the
purchaser of such Notes is aware that such sale is being made in
reliance on Rule 144A, or (B) in accordance with the restrictions
set forth in Exhibit C hereto.
(2) it is a qualified institutional buyer (as defined in Rule
144A) with such knowledge and experience in financial and
business matters as are necessary to evaluate the merits and
risks of an investment in the Notes, it believes it has received
all of the information it considers necessary or appropriate for
deciding whether to make an investment in the Notes, and will
offer the Notes for resale only upon the terms and conditions set
forth in this Agreement and in the Final Memorandum;
and (iv) represents and warrants that:
(1) it has not offered or sold, and prior to the expiry of six
months from the Closing Date will not offer or sell, any Notes to
persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or
disposing of investments, whether as principal or agent, for
purposes of their businesses or otherwise in circumstances which
have not resulted
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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.
(2) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of the United
Kingdom with respect to anything done by them in relation to the
Notes in, from or otherwise involving the United Kingdom.
(3) it has only issued or passed on and will only issue or pass
on, in the United Kingdom, any document received by it in
connection with the issue or sale of the Notes, if that person is
of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisement) (Exemptions) Order 1996 (as
amended) or is a person to whom the document may otherwise
lawfully be issued or passed on.
(b) Each Initial Purchaser understands that the Company and, for the
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 6(a) hereof, counsel for the Company and Virginia counsel for the
Company will rely upon the accuracy and truth of the foregoing representations
and agreements and each Initial Purchaser hereby consents to such reliance.
(c) Each Initial Purchaser represents, warrants, and agrees with
respect to offers and sales outside the United States that:
(i) it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public
offering of the Notes, or possession or distribution of the Final
Memorandum or any other offering or publicity material relating
to the Notes, in any country or jurisdiction where action for
that purpose is required;
(ii) it will comply with all applicable laws and regulations in
each jurisdiction in which it acquires, offers, sells or delivers
Notes or has in its possession or distributes the Final
Memorandum or any such other material, in all cases at its own
expense; and
(iii) the Notes have not been and will not be registered under
the Securities Act and may not be offered or sold with 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 Securities Act.
5. Agreements. The Company agrees with each Initial Purchaser that:
(a) The Company will furnish to each Initial Purchaser and its
counsel, without charge, during the period referred to in paragraph (c)
below, as many copies of the Final Memorandum and any amendments and
supplements thereto as it may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to the
offering of the Notes.
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(b) Except as set forth in paragraph (c) of this Section 5, the
Company will not amend or supplement the Final Memorandum prior to the
completion of the sale of the Notes by the Initial Purchasers without prior
consent of the Initial Purchasers, which consent will not be unreasonably
withheld.
(c) If at any time prior to the completion of the sale of the Notes by
the Initial Purchasers (as determined by the Initial Purchasers), any event
occurs as a result of which the Final Memorandum, as then amended or
supplemented, would include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it should be necessary to amend or supplement the Final Memorandum to
comply with applicable law, the Company will promptly notify the Initial
Purchasers of the same and, subject to the requirements of paragraph (b) of
this Section 5, will prepare and provide, at its own expense, to the
Initial Purchasers pursuant to paragraph (a) of this Section 5 an amendment
or supplement which will correct such statement or omission or effect such
compliance.
(d) The Company will take such action as the Initial Purchasers may
reasonably request to qualify the Notes for sale by the Initial Purchasers
in the manner contemplated by the Registration Agreement and under the
securities or blue sky laws of the United States as the Initial Purchasers
may designate and will maintain such qualifications in effect so long as
required for the sale of the Notes by the Initial Purchasers.
(e) The Company will not, and will not permit any of its Affiliates
to, resell any Notes that have been acquired by any of them except for any
such Notes resold in a transaction registered under the Securities Act or
pursuant to an exemption therefrom.
(f) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf will, directly or indirectly, make offers or
sales of any security, or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act), under
circumstances that would require the registration of the Notes under the
Securities Act, except as contemplated in the Registration Agreement.
(g) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf will engage in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with any offer or sale of the Notes in the United States, except
pursuant to a registered public offering as provided in the Registration
Agreement.
(h) Neither the Company, nor any of its Affiliates, nor any person
acting on its or their behalf will engage in any directed selling efforts
(as defined in Regulation S) with respect to the Notes, except pursuant to
a registered public offering as provided in the Registration Agreement, and
the Company, its Affiliates and each person acting on its or their behalf
will comply with the offering restrictions requirement of Regulation S.
Terms used in this paragraph have the meanings given to them by Regulation
S.
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(i) The Company will cooperate with the Initial Purchasers and use
its reasonable best efforts to permit the Notes to be eligible for
clearance and settlement through The Depository Trust Company.
(j) The Company will not, until 90 days following the date of the
Final Memorandum, without the prior written consent of Salomon Smith Barney
Inc., offer, sell or contract to sell, grant any option to purchase or
otherwise dispose of, directly or indirectly, or announce the offering of,
any debt securities or any securities exchangeable for debt securities or
any securities exchangeable for debt securities issued or guaranteed by the
Company (other than the Notes or pursuant to a registered public offering
as provided in the Registration Agreement or except as may be required by
the indenture dated as of February 18, 1998 between the Company and the
Trustee), or enter into any agreement to do any of the foregoing. The
Company will not at any time offer, sell or contract to sell, grant any
option to purchase or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act or the safe harbor of Regulation S thereunder to cease to be
applicable to the offer and sale of the Notes as contemplated by this
Agreement and the Final Memorandum.
(k) The Company will furnish copies of all information, documents or
other reports required to be filed with the Securities and Exchange
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act to the
holders of the Notes at the time the Company is required to file the same
with the Trustee under the Indenture and will make such information,
documents or other reports available to prospective investors who request
it in writing. This covenant is intended to be for the benefit of the
holders of the Notes, and prospective investors in the Notes.
(l) The Company will not be or become an open-end investment company,
unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the
Investment Company Act.
(m) The Company shall include information substantially in the form
set forth in Exhibit D in each Final Memorandum.
(n) The Company will apply the net proceeds from the sale of the
Notes in the manner specified under the caption "Use of Proceeds" in the
Final Memorandum.
(o) Neither the Company nor any of its subsidiaries will take,
directly or indirectly, any action which is designed to or which
constitutes or which might reasonably be expected to cause or result in any
act prohibited by Regulation M.
(p) The Notes will bear the legend set forth in Exhibit C until such
legend shall no longer be necessary or advisable because the Notes are no
longer subject to the restrictions of transfer described therein.
(q) The Company and each of its subsidiaries will do and perform all
things required by it prior to or after the Closing Date and to satisfy all
conditions precedent on its part prior to delivery of the Notes.
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6. Conditions to the Obligations of the Initial Purchasers. The
obligations of the Initial Purchasers to purchase the Notes shall be subject to
the continued accuracy of the representations and warranties on the part of the
Company contained herein at the date and time that this Agreement is executed
and delivered by the parties hereto (the "Execution Time"), and at the Closing
Date to the accuracy of the statements of the Company made in any certificates
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) The Company shall have requested and caused each of Jones, Day,
Reavis & Pogue, counsel for the Company, and Swidler Berlin Shereff
Friedman, LLP, Virginia counsel for the Company, to have furnished to the
Initial Purchasers their respective opinions, each dated the Closing Date
and addressed to the Initial Purchasers, to the effect set forth in
Exhibits E-1 and E-2 hereto, respectively.
(b) The Company shall have requested and caused Swidler Berlin
Shereff Friedman, LLP, regulatory counsel for the Company, to have
furnished to the Initial Purchasers their opinion, dated the Closing Date
and addressed to the Initial Purchasers, to the effect set forth in
Exhibit F hereto.
(c) The Representatives shall have received from Paul, Hastings,
Janofsky & Walker LLP, counsel for the Underwriters, such opinion or
opinions, dated the Closing Date and addressed to the Representatives, with
respect to the issuance and sale of the Notes, the Indenture, the Final
Memorandum (together with any supplement thereto) and other related matters
as the Initial Purchasers may reasonably require, and the Company shall
have furnished to such counsel such documents as they may require for the
purpose of enabling them to pass upon such matters.
(d) Each of the following conditions shall have been satisfied and the
Company shall have furnished to the Initial Purchasers a certificate of the
Company, signed by each of the Chief Executive Officer and the Chief
Financial Officer of the Company or such other duly authorized officers of
the Company, dated the Closing Date, to the effect that the signatories
thereto have carefully examined the Final Memorandum, any amendment or
supplement to the Final Memorandum and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date,
and the Company has complied in all material respects with all the
agreements and satisfied in all material respects all the conditions
on its part to be performed or satisfied hereunder at or prior to the
Closing Date;
(ii) since the date of the most recent financial statements
incorporated by reference in the Final Memorandum, there has been no
Material Adverse Change, whether or not arising from transactions in
the ordinary course of business, except as set forth in or
contemplated by the Final Memorandum (exclusive of any amendment or
supplement thereto); and
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(iii) the sale of the Notes hereunder has not been enjoined
(temporarily or permanently).
(e) At the Execution Time and at the Closing Date, Arthur Andersen
LLP shall have furnished to the Initial Purchasers a letter or letters,
dated respectively as of the Execution Time and as of the Closing Date, in
form and substance satisfactory to the Initial Purchasers, addressed to the
Initial Purchasers confirming that they are independent accountants within
the meaning of the Securities Act and the applicable published rules and
regulations thereunder and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma information incorporated
by reference in the Final Memorandum and reported on by them comply as
to form in all material respects with generally accepted accounting
principles;
(ii) based upon a reading of the latest unaudited consolidated
financial statements made available by the Company; their limited
review in accordance with the standards established by the American
Institute of Certified Public Accountants ("AICPA") of the unaudited
interim financial information for the date covered by such financial
statements for the period; carrying out certain specified procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter; such specified
procedures would include, but are not limited to, a reading of minutes
of the shareholders' and directors' meetings (and any meetings of
committees of the Board of Directors) of the Company, and its
subsidiaries; and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events subsequent
to December 31, 1998, nothing has come to their attention that causes
them to believe that:
(1) any unaudited financial statements incorporated by
reference in the Final Memorandum do not comply as to form in all
material respects with accounting requirements of the Securities
Act and with the published rules and regulations of the
Commission; and any unaudited financial statements are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited
financial statements incorporated by reference in the Final
Memorandum; or
(2) with respect to the period subsequent to December 31,
1998, there were any changes, at January 7, 2000, in the long-
term obligations of the Company and its subsidiaries or capital
stock of the Company or decreases in the consolidated assets or
shareholders' equity of the Company as compared with the amounts
shown on the December 31, 1998 consolidated balance sheet
incorporated by reference in the Final Memorandum, or for the
period from December 31, 1998 to January 7, 2000 there were any
decreases, as compared with the corresponding period in the
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preceding year, in net sales, operating expenses, operating
income or income (loss) before income taxes and extraordinary
items or in total, of the Company, except in all instances for
changes or decreases set forth in such letter, in which case the
letter shall be accompanied by an explanation by the Company as
to the significance thereof unless said explanation is not deemed
necessary by the Initial Purchasers; and
(iii) they have performed certain other specified procedures as
a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company) set forth in the Final
Memorandum is mathematically accurate and agrees with the accounting
records of the Company and its subsidiaries, in each case, excluding
any questions of legal interpretation.
All references in this Section 6(e) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the date of the
letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Final Memorandum, there shall not have
been (i) any change, decrease or increase specified in the letter or
letters referred to in paragraph (e) of this Section 6 or (ii) any change,
or any development involving a prospective change, in or affecting the
business, proposed business or properties of the Company and its
subsidiaries the effect of which, in any case referred to in clause (i) or
(ii) above, is, in the judgment of the Initial Purchasers, so material and
adverse as to make it impractical or inadvisable to market the Notes as
contemplated by the Final Memorandum.
(g) On or prior to the Closing Date, the Registration Agreement, in
form and substance satisfactory to the Company and its counsel and the
Initial Purchasers and their counsel, shall have been executed and shall
have been delivered to you and the Trustee.
(h) On or prior to the Closing Date, the Company and the Trustee
shall have entered into and delivered the Indenture and the Initial
Purchasers shall have received a counterpart, conformed as executed,
thereof. The Indenture shall be in full force and effect.
(i) Prior to the Closing Date, the Company shall have furnished to
the Initial Purchasers such further information, certificates and documents
as the Initial Purchasers may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Initial Purchasers and Paul, Hastings, Janofsky & Walker
LLP, this Agreement and all obligations of the Initial Purchasers hereunder may
be canceled at, or at any time prior to, the Closing Date by the Initial
Purchasers. Notice of such cancellation shall be given to the Company in writing
or by telephone or telegraph confirmed in writing.
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The documents required to be delivered by this Section 6 will be
delivered at the office of Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago,
Illinois 60601, on the Closing Date.
7. Reimbursement of Expenses.
If the sale of the Notes provided for herein is not consummated
because any condition to the obligations of the Initial Purchasers set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Initial Purchasers in payment
for the Notes on the Closing Date, the Company will reimburse the Initial
Purchasers severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Notes.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, the directors, officers,
employees and agents of each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Securities Act, the Exchange Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Memorandum or the Final
Memorandum or any information provided by the Company to any holder or
prospective investor in Notes pursuant to Section 5(k), or in any amendment
thereof 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, in the light of the circumstances
under which they were made, not misleading, and agree to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in the Preliminary
Memorandum or the Final Memorandum, or in any amendment thereof or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Initial Purchaser specifically for
inclusion therein, it being understood that the only such information is that
described in Section 8(b); provided, further that the foregoing indemnity
agreement with respect to any Preliminary Memorandum shall not inure to the
benefit of any Initial Purchaser from whom the person asserting any such losses,
claims, damages or liabilities purchased Notes, or any person controlling, or
any director, officer, employee or agent of, such Initial Purchaser, if a copy
of the Final Memorandum (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Initial Purchaser to such person, at or prior to the
written confirmation of the sale of the Notes to such person, if the Final
Memorandum (as so amended and supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities and if the Company has
previously furnished
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copies thereof in sufficient quantity to such Initial Purchaser. This indemnity
agreement will be in addition to any liability which the Company otherwise have.
(b) Each Initial Purchaser, severally and not jointly, agrees to
indemnify and hold harmless the Company, its directors, its officers, employees
and agents, and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Initial Purchaser, but only with
reference to written information relating to such Initial Purchaser furnished to
the Company by or on behalf of such Initial Purchaser specifically for inclusion
in the Preliminary Memorandum or the Final Memorandum (or in any amendment or
supplement thereto). This indemnity agreement will be in addition to any
liability which the Initial Purchasers may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and under the heading "Plan of Distribution" in the Preliminary Memorandum
and the Final Memorandum constitute the only information furnished in writing by
or on behalf of the Initial Purchasers for inclusion in the Preliminary
Memorandum or the Final Memorandum (or in any amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense, which counsel,
together with one local counsel in each jurisdiction, shall act on behalf of all
the indemnified parties in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for the
fees and expenses of any separate counsel retained by the indemnified party or
parties except as set forth below); provided, however, that such counsel shall
be reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be
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sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, for any reason, the Company, on the one hand, and the
Initial Purchasers, on the other hand, agree to contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Initial
Purchasers may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and by the Initial
Purchasers, on the other hand, from the offering of the Notes; provided,
however, that in no case shall any Initial Purchaser be responsible for any
amount in excess of the purchase discount or commission applicable to the Notes
purchased by such Initial Purchaser hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company, on
the one hand, and the Initial Purchasers, on the other hand, shall contribute in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and of the Initial Purchasers in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from the offering
(before deducting expenses), and benefits received by the Initial Purchasers
shall be deemed to be equal to the total purchase commissions (before deducting
expenses), in each case as set forth on the cover page of the Final Memorandum.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or the
Initial Purchasers. The Company and the Initial Purchasers agree that it would
not be just and equitable if contribution were determined by pro rata allocation
or any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls an
Initial Purchaser within the meaning of either the Securities Act or the
Exchange Act and each director, officer, employee and agent of an Initial
Purchaser shall have the same rights to contribution as such Initial Purchaser,
and each person who controls the Company within the meaning of either the
Securities Act or the Exchange Act and each officer, director, employee and
agent of the Company shall have the same rights to contribution as the Company,
subject in each case to the applicable terms and conditions of this
paragraph (d).
9. Default by an Initial Purchaser. If any one or more Initial
Purchasers shall fail to purchase and pay for any of the Notes agreed to be
purchased by such Initial Purchaser hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Initial Purchasers shall be obligated severally to take
up and pay for (in the respective proportions which the principal amount of
Notes set forth opposite their names in Schedule I hereto bears to the aggregate
principal amount of Notes set forth opposite the names of all the remaining
Initial Purchasers) the Notes which the defaulting Initial
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<PAGE>
Purchaser or Initial Purchasers agreed but failed to purchase; provided,
however, that in the event that the aggregate principal amount of Notes which
the defaulting Initial Purchaser or Initial Purchasers agreed but failed to
purchase shall exceed 10% of the aggregate principal amount of Notes set forth
in Schedule I hereto, the remaining Initial Purchasers shall have the right to
purchase all, but shall not be under any obligation to purchase any, of the
Notes, and if such non-defaulting Initial Purchasers do not purchase all the
Notes, this Agreement will terminate without liability to any non-defaulting
Initial Purchaser or the Company. In the event of a default by any Initial
Purchaser as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding seven days, as the non-defaulting Initial
Purchasers shall determine in order that the required changes in the Final
Memorandum or in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting Initial Purchaser of
its liability, if any, to the Company or any non-defaulting Initial Purchaser
for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
the absolute discretion of the Initial Purchasers, by notice given to the
Company prior to delivery of and payment for the Notes, if prior to such time
(i) trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") shall have been suspended or limited or minimum
prices shall have been established on either of such Exchanges or Nasdaq, (ii) a
general moratorium on commercial banking activities in New York or the United
States shall have been declared by the relevant authorities or (iii) there shall
have occurred any outbreak or escalation of hostilities, declaration by the
United States of a national emergency or war or other calamity or crisis the
effect of which on financial markets is such as to make it, in the judgment of
the Initial Purchasers, impracticable or inadvisable to proceed with the
offering or delivery of the Notes as contemplated by the Final Memorandum.
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Initial Purchasers, the Company or
any of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Notes. The provisions
of Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Initial Purchasers, will be
mailed, delivered or telegraphed and confirmed to them, care of Salomon Smith
Barney Inc., at Seven World Trade Center, New York, New York 10048 (telephone:
(212) 783-7000, facsimile: (212) 783-4799), attention: Stephen M. Winningham,
with a copy to Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York,
New York 10022 (telephone: (212) 318-6400, facsimile (212) 319-4090), attention:
William F. Schwitter; or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 200 N. LaSalle, Chicago, Illinois 60601
(telephone: (312) 895-8400; facsimile: (312) 895-8403), attention: Joseph A.
Beatty, Executive Vice President and Chief Financial Officer, with a copy to
Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago, Illinois 60601 (telephone:
(312) 782-3939, facsimile (312) 782-8585), attention: Elizabeth C. Kitslaar.
22
<PAGE>
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers, directors, employees and agents and controlling persons referred to in
Section 8 hereof, and, except as expressly set forth in Section 5(k) hereof, no
other person will have any right or obligation hereunder.
14. Governing Law. This Agreement will be governed by and construed
in accordance with the internal laws of the State of New York without regard to
principles of conflict of laws.
15. Business Day. For purposes of this Agreement, "business day"
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in the City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
23
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the Initial Purchasers.
Very truly yours,
Focal Communications Corporation
By /s/ John R. Barnicle
------------------------------
Name: John R. Barnicle
Title: Director, Executive Vice
President and Chief
Operating Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Donaldson Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
By: Salomon Smith Barney Inc.
By /s/ Robert F. Doherty
----------------------------
Name: Robert F. Doherty
Title: Director
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount
of Notes
Initial Purchasers to be Purchased
------------------ ----------------
<S> <C>
Salomon Smith Barney Inc. ................................... $137,500,000
Donaldson, Lufkin & Jenrette Securities Corporation ......... $ 55,000,000
Morgan Stanley & Co. Incorporated ........................... $ 41,250,000
TD Securities (USA) Inc. .................................... $ 27,500,000
Banc of America Securities LLC .............................. $ 13,750,000
------------
Total ....................................................... $275,000,000
============
</TABLE>
25
<PAGE>
SCHEDULE II
COMPANY INVESTMENTS
(other than Company Subsidiaries)
Mantiss Information Corporation 6.72 shares of Series A Preferred Stock
650 Townsend LLC 50% interest
26
<PAGE>
EXHIBIT A
FORM OF EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
A-1
<PAGE>
FOCAL COMMUNICATIONS CORPORATION
11-7/8% Senior Notes due 2010
[FORM OF EXCHANGE AND REGISTRATION AGREEMENT]
New York, New York
January , 2000
Salomon Smith Barney Inc.
Donaldson Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Focal Communications Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell (the "Initial Placement") to you (the
"Initial Purchasers"), upon the terms set forth in a Purchase Agreement, dated
January 7, 2000 (the "Purchase Agreement") among the Initial Purchasers and the
Company, its 11-7/8% Senior Notes due 2010 (the "Notes"). As an inducement to
the Initial Purchasers to enter into the Purchase Agreement and in satisfaction
of a condition to your obligations thereunder, the Company agrees with you, (i)
for your benefit and (ii) for the benefit of the holders from time to time of
the Notes and the Transfer Restricted Notes (as defined herein) (including you)
(each of the foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
A-2
<PAGE>
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the preamble hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 90-day period following
the consummation of the Registered Exchange Offer, exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement
of the Company on an appropriate form under the Act with respect to the
Registered Exchange Offer, 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.
"Exchanging Dealer" means any Holder (which may include the Initial
Purchasers) which is a broker-dealer, electing to exchange Notes acquired for
its own account as a result of market-making activities or other trading
activities, for New Notes.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Notes, dated as of
January 12, 2000, between the Company and Harris Trust and Savings Bank, as
trustee, as the same may be amended from time to time in accordance with the
terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
"Initial Purchasers" has the meaning set forth in the preambles
hereto.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of notes registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering.
"New Notes" means notes of the Company identical in all material
respects to the Transfer Restricted Notes (except that the transfer restrictions
and registration rights provisions will be modified or eliminated, as
appropriate), to be issued under the Indenture or the New Note Indenture.
"New Note Indenture" means an indenture between the Company and the
New Note Trustee, identical in all material respects with the Indenture.
"New Note Trustee" means a bank or trust company reasonably
satisfactory to the Initial Purchasers, as trustee with respect to the New Notes
under the New Note Indenture; provided that initially the Trustee shall serve as
trustee with respect to the New Notes under the New Note Indenture unless
prohibited from so acting by applicable laws.
A-3
<PAGE>
"Notes" has the meaning set forth in the preamble hereto.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Transfer Restricted Notes or the New Notes,
covered by such Registration Statement, and all amendments and supplements to
the Prospectus, including post-effective amendments.
"Preliminary Memorandum" has the meaning set forth in the Purchase
Agreement.
"Purchase Agreement" has the meaning set forth in the preambles
hereto.
"Registered Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Transfer Restricted
Notes, a like principal amount of the New Notes.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Transfer
Restricted Notes or the New Notes pursuant to the provisions of this Agreement,
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.
"Restricted Holder" means (i) a holder that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act or (ii) a holder
who has arrangements or understandings with any person to participate in the
Registered Exchange Offer for the purpose of distributing New Notes.
"Shelf Registration" means a registration effected pursuant to Section
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to the provisions of Section 3 hereof which covers some
or all of the Transfer Restricted Notes or New Notes, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, 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.
"Transfer Restricted Note" means each Note until (i) the date on which
such Note has been exchanged by a person other than a broker-dealer or a
Restricted Holder for a New Note in the Registered Exchange Offer that is freely
transferable under the Act, (ii) following the exchange by a broker-dealer in
the Registered Exchange Offer of such Note for a New Note, the date on which
such New Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the Prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Act and disposed of in accordance with the
Shelf Registration Statement, or (iv) the date on which such Note is distributed
to the public pursuant to Rule 144 under the Act or is saleable pursuant to Rule
144(k) under the Act.
"Trustee" means the trustee with respect to the Notes under the
Indenture.
A-4
<PAGE>
"Underwriter" means any underwriter of notes in connection with an
offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Notes by Exchanging
Dealers; Private Exchange. (a) The Company shall prepare and, not later than 90
days following the Closing Date shall file with the Commission, the Exchange
Offer Registration Statement with respect to the Registered Exchange Offer. The
Company shall use its reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Act within 210 days of the
Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Transfer Restricted Notes for New Notes (assuming that such
Holder is not a Restricted Holder) to trade such New Notes from and after their
receipt without any limitations or restrictions under the Act and without
material restrictions under the securities laws of at least two-thirds of the
several states of the United States.
(c) In connection with the Registered 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 Registered 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) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
(i) accept for exchange all Transfer Restricted Notes tendered and
not validly withdrawn pursuant to the Registered Exchange Offer; provided
that the Company shall only accept Transfer Restricted Notes of a Holder
who has represented that any New Notes to be received by such Holder will
be acquired in the ordinary course of such Holder's business, such Holder
has no arrangements with any other person to participate in the
distribution of the New Notes, and such Holder is not an Affiliate of the
Company, or if such Holder is an Affiliate of the Company, that such Holder
will comply, to the extent applicable, with the registration and prospectus
delivery requirements of the Act;
(ii) deliver to the Trustee for cancellation or notation of
reduction in principal amount all Transfer Restricted Notes so accepted for
exchange; and
(iii) cause the Trustee or the New Note Trustee, as the case may be,
promptly to authenticate and deliver to each Holder of Transfer Restricted
Notes, New Notes equal in principal amount to the Transfer Restricted Notes
of such Holder so accepted for exchange.
A-5
<PAGE>
(e) The Initial Purchasers and the Company acknowledge that, pursuant
to interpretations by the Commission's staff of Section 5 of the Act, and in the
absence of an applicable exemption therefrom, each Exchanging Dealer is required
to deliver a Prospectus in connection with a sale of any New Notes received by
such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange for
Transfer Restricted Notes acquired for its own account as a result of market-
making activities or other trading activities. Accordingly, the Company shall:
(i) include the information substantially in the form set forth in
Annex A hereto on the cover of the Exchange Offer Registration Statement;
the information set forth in Annex B hereto in the forepart of the Exchange
Offer Registration Statement in a section setting forth details of the
Registered Exchange Offer; the information substantially in the form set
forth in Annex C hereto in the underwriting or plan of distribution section
of the Prospectus forming a part of the Exchange Offer Registration
Statement; and the information substantially in the form set forth in Annex
D hereto in the letter of transmittal delivered pursuant to the Registered
Exchange Offer; and
(ii) use its reasonable best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the
Exchange Offer Registration Period for delivery by Exchanging Dealers in
connection with sales of New Notes received pursuant to the Registered
Exchange Offer, as contemplated by Section 4(h) below.
The Company shall be deemed not to have used its reasonable best
efforts to keep the Exchange Offer Registration Statement continuously
effective during the requisite period if it voluntarily takes any action
that would result in Holders of notes covered thereby not being able to
offer and sell such notes during that period, unless (i) such action is
required by applicable law or (ii) such action is taken by the Company in
good faith and for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or divestiture
of assets, so long as the Company promptly thereafter complies with the
requirements of Section 4(k) hereof, if applicable.
(f) In the event that any Initial Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Transfer Restricted Notes constituting any portion of an allotment
remaining unsold after 30 days following the date hereof, at the request of such
Initial Purchaser, the Company shall issue and deliver to such Initial Purchaser
or the party purchasing New Notes registered under a Shelf Registration
Statement as contemplated by Section 3 hereof from such Initial Purchaser, in
exchange for such Transfer Restricted Notes, a like principal amount of New
Notes. The Company shall seek to cause the CUSIP Service Bureau to issue the
same CUSIP number for such New Notes as for New Notes issued pursuant to the
Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof; (ii) for any
other reason the Exchange Offer Registration Statement is not declared effective
within 210 days after the Closing Date; (iii) the Registered Exchange Offer is
not consummated (it being understood that, for purposes of this clause (iii) and
clause (iii) of Section 5 hereof, "consummated" shall mean that the Company has
offered the New Notes in exchange for surrender of the Transfer Restricted Notes
pursuant to the Registered Exchange Offer, kept the Registered Exchange Offer
open for the period required by Section 2(c)(ii) hereof and fulfilled all of its
other obligations hereunder in connection with the Registered Exchange Offer)
within 240 days of the Closing Date; (iv) any Initial Purchaser so requests with
respect to
A-6
<PAGE>
Transfer Restricted Notes constituting any portion of an allotment remaining
unsold after 30 days following the date hereof; (v) any Holder (other than an
Initial Purchaser or a Restricted Holder) does not receive freely tradeable New
Notes in the Registered Exchange Offer (it being understood that, for purposes
of this clause (v), (x) the requirement that a Holder deliver a Prospectus
containing the information required by Items 507 and/or 508 of Regulation S-K
under the Act in connection with sales of New Notes acquired in exchange for
such Transfer Restricted Notes shall result in such New Notes being not "freely
tradeable" but (y) the requirement that an Exchanging Dealer deliver a
Prospectus in connection with sales of New Notes acquired in the Registered
Exchange Offer in exchange for Transfer Restricted Notes acquired as a result of
market-making activities or other trading activities shall not result in such
New Notes being not "freely tradeable"), the following provisions shall apply:
(a) The Company shall, at its cost, as promptly as practicable (but in
no event more than 90 days after so required or requested pursuant to this
Section 3), file with the Commission and thereafter shall use its reasonable
best efforts to cause to be declared effective under the Act a Shelf
Registration Statement relating to the offer and sale of the Transfer Restricted
Notes or the New Notes, as applicable, by the Holders from time to time in
accordance with the methods of distribution elected by such Holders and set
forth in such Shelf Registration Statement; provided, that with respect to New
Notes received by an Initial Purchaser in exchange for Transfer Restricted Notes
constituting any portion of an allotment remaining unsold after 30 days
following the date hereof, 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) with respect thereto, and any such Exchange
Offer Registration Statement, as so amended, shall be referred to herein as, and
governed by the provisions herein applicable to, a Shelf Registration Statement.
(b) The Company shall 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 (or any shorter period under Rule 144(k) under the Securities Act) from
the date the Shelf Registration Statement is declared effective by the
Commission (or until one year after such effective date if such Shelf
Registration Statement is filed at the request of an Initial Purchaser) or such
shorter period that will terminate when all the Transfer Restricted Notes or New
Notes, as applicable, covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company shall be deemed not
to have used its reasonable best efforts to keep the Shelf Registration
Statement effective during the requisite period if it voluntarily takes any
action that would result in Holders of notes covered thereby not being able to
offer and sell such notes during that period, unless (i) such action is required
by applicable law, or (ii) such action is taken by the Company in good faith and
for valid business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long as the
Company promptly thereafter complies with the requirements of Section 4(k)
hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you and to each Holder, prior to the
filing thereof with the Commission, a copy of any Shelf Registration Statement
and any Exchange Offer Registration Statement, and each amendment thereof and
each amendment or supplement, if any, to the Prospectus included therein and
shall use its reasonable best efforts to reflect in
A-7
<PAGE>
each such document, when so filed with the Commission, such comments as you or
any Holder reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement and
any amendment thereto and any Prospectus forming part thereof and any amendment
or supplement thereto complies in all material respects with the Act and the
rules and regulations thereunder, (ii) any 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 Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of Notes covered thereby, and, if requested
by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has been
filed with the Commission and when the Registration Statement or any post-
effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus included therein or for
additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of Notes covered thereby, and, in the case
of an Exchange Offer Registration Statement, any Exchanging Dealer which has
provided in writing to the Company a telephone or facsimile number and address
for notices, and, if requested by you or any such Holder or Exchanging Dealer,
confirm such advice in writing:
(i) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Notes included therein for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of such
date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made).
(d) The Company shall use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of Notes included within
the coverage of any Shelf Registration Statement, without charge, at least one
copy of such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements
A-8
<PAGE>
and schedules, and, if the Holder so requests in writing, all exhibits
(including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Notes included within the coverage of any Shelf Registration
Statement, without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Notes in connection with the offering
and sale of the Notes covered by the Prospectus or any amendment or supplement
thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, any documents incorporated by reference therein, and,
if the Exchanging Dealer so requests in writing, all exhibits (including those
incorporated by reference).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies of
the Prospectus included in such Exchange Offer Registration Statement and any
amendment or supplement thereto as such Exchanging Dealer may reasonably request
if required by applicable law for delivery by such Exchanging Dealer in
connection with a sale of New Notes received by it pursuant to the Registered
Exchange Offer; and the Company consents to the use of the Prospectus or any
amendment or supplement thereto by any such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
Notes pursuant to any Registration Statement, the Company shall register or
qualify or cooperate with the Holders of Notes included therein and their
respective counsel in connection with the registration or qualification of such
Notes for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing and do any and
all other acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the Notes covered by such Registration Statement;
provided, however, that the Company will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process or to taxation in
any such jurisdiction where it is not then so subject.
(j) The Company shall cooperate with the Holders of Transfer
Restricted Notes to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Notes to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as Holders may request at least two business days
prior to sales of Notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
4(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to the
related Prospectus or file any other required document so that, as thereafter
delivered to purchasers of the Notes included therein, the Prospectus will not
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the Transfer
Restricted Notes or
A-9
<PAGE>
New Notes, as the case may be, registered under such Registration Statement, and
provide the applicable trustee with printed certificates for such Transfer
Restricted Notes or New Notes, in a form eligible for deposit with The
Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its note holders as soon as practicable after the effective date of
the applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture or the New Note Indenture,
as the case may be, to be qualified under the Trust Indenture Act in a timely
manner.
(o) The Company may require each Holder of Notes to be sold pursuant
to any Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of such Notes as the Company may from
time to time reasonably require for inclusion in such Registration Statement,
and may exclude from any such registration the Notes of any such holder who
fails to furnish such information within 10 days after such request; provided
that such Shelf Registration Statement is declared effective by the Commission
within 60 days after such 10-day period.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority Holders
reasonably request in writing should be included therein and shall make all
required filings of such Prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such Prospectus supplement
or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements (including underwriting agreements) and take all
other appropriate actions in order to expedite or facilitate the registration or
the disposition of the Transfer Restricted Notes, and in connection therewith,
if an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those set forth
in Section 7 (or such other provisions and procedures acceptable to the Company
and the Majority Holders and the Managing Underwriters, if any, with respect to
all parties to be indemnified pursuant to Section 7).
(r) In the case of any Shelf Registration Statement, the Company shall
(i) subject to the requesting Holder entering into a reasonable confidentiality
agreement, make reasonably available for inspection by the Holders of Notes to
be registered thereunder, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney, accountant or other
agent retained by the Holders or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries; (ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by the Holders or any such
underwriter, attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence examinations;
provided, however, that any information provided pursuant to clause (i) or
clause (ii) hereof that is designated in writing by the Company, in good faith,
as confidential at the time of delivery of such information shall be kept
confidential by the Holders or any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public generally
or through a third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders of Notes
registered thereunder and the underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in primary underwritten
offerings and covering matters set forth in the
A-10
<PAGE>
Purchase Agreement; (iv) 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 and the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten offerings; (v) obtain
"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 to each
selling Holder of Notes registered thereunder and the underwriters, if any, in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with primary underwritten offerings; and (vi)
deliver such documents and certificates as may be reasonably requested by the
Majority Holders and the Managing Underwriters, if any, including those to
evidence compliance with Section 4(k) and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 4(r) shall be performed at (A) the effectiveness of such
Registration Statement and each post-effective amendment thereto and (B) each
closing under any underwriting or similar agreement as and to the extent
required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by any Initial
Purchaser, and any attorney, accountant or other agent retained by such Initial
Purchaser, all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries; (ii) cause the
Company's officers, directors and employees to supply all relevant information
reasonably requested by such Initial Purchaser or any such attorney, accountant
or agent in connection with any such Registration Statement as is customary for
similar due diligence examinations; provided, however, that any information
provided pursuant to clause (i) or (ii) hereof that is designated in writing by
the Company, in good faith, as confidential at the time of delivery of such
information shall be kept confidential by such Initial Purchaser or any such
attorney, accountant or agent, unless such disclosure is made in connection with
a court proceeding or required by law, or such information becomes available to
the public generally or through a third party without an accompanying obligation
of confidentiality; (iii) make such representations and warranties to such
Initial Purchaser, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings and covering those
matters set forth in the Purchase Agreement; (iv) obtain opinions of counsel to
the Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to such Initial Purchaser and its
counsel, addressed to such Initial Purchaser, covering such matters as are
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Initial Purchaser or its
counsel; (v) obtain "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 to such Initial Purchaser, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with primary underwritten offerings, or if requested by such Initial Purchaser
or its counsel in lieu of a "cold comfort" letter, an agreed-upon procedures
letter under Statement on Auditing Standards No. 35, covering matters requested
by such Initial Purchaser or its counsel; and (vi) deliver such documents and
certificates as may be reasonably requested by such Initial Purchaser or its
counsel, including those to evidence compliance with Section 4(k) and with
conditions customarily contained in underwriting agreements. The foregoing
actions set forth in clauses (iii), (iv), (v), and (vi) of this Section 4(s)
shall be performed at the close of the Registered Exchange Offer and the
effective date of any post-effective amendment to the Exchange Offer
Registration Statement.
A-11
<PAGE>
5. Additional Interest Under Certain Circumstances. In the event
that (i) the Exchange Offer Registration Statement has not been filed with the
Commission on or prior to the 90th day following the date hereof; (ii) the
Exchange Offer Registration Statement has not been declared effective prior to
the 210th day following the date hereof; (iii) either the Registered Exchange
Offer has not been consummated or the Shelf Registration Statement has not been
declared effective on or prior to the 240th day following the date hereof; or
(iv) after the Shelf Registration Statement has been declared effective, such
Registration Statement thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Notes or New Notes in accordance with and
during the periods specified in Section 3(b) hereof (because either (A) any
event occurs as a result of which the related prospectus forming part of such
Registration Statement would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading or (B) it
shall be necessary to amend such Registration Statement or supplement the
related prospectus, to comply with the Securities Act or the Exchange Act or the
respective rules thereunder) without, in the case of (A) or (B), being succeeded
promptly by an amendment or supplement to the Registration Statement or related
prospectus or additional registration statement filed and declared effective
(each such event referred to in clauses (i) through (iv) a "Registration
Default"), interest ("Additional Interest") will accrue on the Transfer
Restricted Notes and the New Notes (in addition to the stated interest on the
Transfer Restricted Notes and the New Notes) from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Additional Interest will be
payable in cash semiannually in arrears on the January 15 and July 15 of each
year, beginning on January15 or July15 immediately succeeding a Registration
Default, at a rate per annum equal to 0.50% during the 90-day period immediately
following the occurrence of any Registration Default increasing by a rate per
annum equal to 0.25% at the end of each subsequent 90-day period. In no event
shall such rate per annum exceed 1.50% in the aggregate regardless of the number
of Registration Defaults.
6. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith. Notwithstanding the
foregoing, the holders of the Notes being registered shall pay all agency or
brokerage fees and commissions and underwriting discounts and commissions
attributable to the sale of such Notes and the fees and disbursements of any
counsel or other advisors or experts retained by such holders (severally or
jointly), other than the counsel and experts specifically referred to above,
transfer taxes on resale of any of the Notes by such holders and any advertising
expenses incurred by or on behalf of such holders in connection with any offers
they may make.
7. Indemnification and Contribution. (a) In connection with any
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of Notes covered thereby (including each Initial Purchaser and, with
respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of either
the Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or
A-12
<PAGE>
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 agrees to reimburse each such indemnified party, as incurred,
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such Holder
specifically for inclusion therein; provided, further, that the foregoing
indemnity agreement with respect to any Preliminary Memorandum shall not inure
to the benefit of any Initial Purchaser from whom the person asserting any such
losses, claims, damages or liabilities purchased Notes, or any person
controlling, or any director, officer, employee or agent of, such Initial
Purchaser, if a copy of the Final Memorandum (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Initial Purchaser to such person, at or
prior to the written confirmation of the sale of the Notes to such person, if
the Final Memorandum (as so amended and supplemented) would have cured the
defect giving rise to such losses, claims, damages or liabilities and if the
Company has previously furnished copies thereof in sufficient quantity to such
Initial Purchaser. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined herein) of, as provided in Section 7(d), any underwriters of Notes
registered under a Shelf Registration Statement, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the Initial Purchaser and the selling Holders
provided in this Section 7(a) and shall, if requested by any Holder, enter into
an underwriting agreement reflecting such agreement, as provided in Section 4(q)
hereof.
(b) Each Holder of Notes covered by a Registration Statement
(including each Initial Purchaser and, with respect to any Prospectus delivery
as contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees
to indemnify and hold harmless (i) the Company, (ii) each of its directors,
officers, employees and agents, and (iii) each person who controls the Company
within the meaning of either the Act or the Exchange Act to the same extent as
the foregoing indemnity from the Company to each such Holder, but only with
reference to written information relating to such Holder furnished to the
Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any such Holder may otherwise have.
In addition, the Company may require, as a condition to including any
Notes in any Shelf Registration Statement filed pursuant to this Agreement and
to entering into any underwriting agreement with respect thereto, that the
Company shall have received an undertaking reasonably satisfactory to it from
the holder of such Notes and from each underwriter named in any such
underwriting agreement agreeing to indemnify the persons named above in this
Section 7(b) on substantially the same basis as that of the indemnification
provided in this Section 7(b).
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event,
A-13
<PAGE>
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel limited,
however, to the reasonable fees, costs and expenses of one counsel and one local
counsel if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 7 is unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, or liabilities referred to
therein for any reason, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall have a joint and several obligation
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
no case shall any Initial Purchaser or any subsequent Holder of any Note or New
Note be responsible, in the aggregate, for any amount in excess of the purchase
discount or commission applicable to such Note, or in the case of a New Note,
applicable to the Note which was exchangeable into such New Note, as set forth
on the cover page of the Final Memorandum, nor shall any underwriter be
responsible for any amount in excess of the underwriting discount or commission
applicable to the Notes purchased by such underwriter under the Registration
Statement which resulted in such Losses. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the indemnifying
party and the indemnified party shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of such indemnifying party, on the one hand, and such indemnified party,
on the other hand, in connection with the statements or omissions which resulted
in such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the sum of the total net
proceeds from the Initial Placement (before deducting expenses) as set forth on
the cover page of the Final Memorandum. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and benefits
received by any other Holder
A-14
<PAGE>
shall be deemed to be equal to the value of receiving Transfer Restricted Notes
or New Notes, as applicable, registered under the Act. Benefits received by any
underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement which resulted in such Losses. Relative fault shall
be determined by reference to whether any alleged untrue statement or omission
relates to information provided by the indemnifying party, on the one hand, or
by the indemnified party, on the other hand. The parties agree that it would not
be just and equitable if contribution were determined by pro rata allocation or
any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 7, each person who controls a Holder within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, and each director, officer, employee and agent of the Company
shall have the same rights to contribution as the Company, subject in each case
to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force and effect,
regardless of any investigation made by or on behalf of any Holder or the
Company or any of the officers, directors or controlling persons referred to in
Section 7 hereof, and will survive the sale by a Holder of Notes covered by a
Registration Statement.
8. Miscellaneous. (a) No Inconsistent Agreements. The Company has not,
as of the date hereof, entered into, nor shall it, on or after the date hereof,
enter into, any agreement with respect to its Notes that is inconsistent with
the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof (other than agreements which the parties thereto have waived
such conflicting or inconsistent provisions with respect to this Agreement and
the Notes).
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, qualified, 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 the
Holders of at least a majority of the then outstanding aggregate principal
amount of Transfer Restricted Notes (or, after the consummation of any Exchange
Offer in accordance with Section 2 hereof, of New Notes); provided that, with
respect to any matter that directly or indirectly affects the rights of any
Initial Purchaser hereunder, the Company shall obtain the written consent of
each such Initial Purchaser against which such amendment, qualification,
supplement, waiver or consent is to be effective. Notwithstanding the foregoing
(except the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Notes are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by the Majority Holders, determined on the basis of Notes
being sold rather than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 8(c),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Note
A-15
<PAGE>
Registrar (as defined in the Indenture) under the Indenture, with a copy in
like manner to Salomon Smith Barney Inc.;
(2) if to you, initially at the respective addresses set forth in the
Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly given
when received.
The Initial Purchasers or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties, including,
without the need for an express assignment or any consent by the Company
thereto, subsequent Holders of Transfer Restricted Notes and/or New Notes. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Transfer Restricted Notes and/or New Notes and any such Holder may specifically
enforce the provisions of this Agreement as if an original party hereto.
(e) 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.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without regards to
principles of conflicts of law.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Transfer Restricted
Notes or New Notes is required hereunder, Transfer Restricted Notes or New
Notes, as applicable, held by the Company shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[Remainder of Page Intentionally Blank]
A-16
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
FOCAL COMMUNICATIONS CORPORATION
By:_____________________________________
Name:
Title:
The foregoing Agreement is
hereby accepted as of the
date first written above
SALOMON SMITH BARNEY INC.
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
TD SECURITIES (USA) INC.
BANC OF AMERICA SECURITIES LLC
By: SALOMON SMITH BARNEY INC.
By:________________________________
Name:
Title:
A-17
<PAGE>
ANNEX A
Each broker-dealer that receives New 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 New 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 Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Transfer Restricted Notes where such New Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date (as defined herein) and ending on the close of business 90 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."
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<PAGE>
ANNEX B
Each broker-dealer that receives New Notes for its own account in
exchange for Transfer Restricted Notes, where such Transfer Restricted Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
A-19
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
--------------------
Each broker-dealer that receives New 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 New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Transfer
Restricted Notes where such Transfer Restricted Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until ____________, 2000, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus./1/
The Company will not receive any proceeds from any sale of New Notes
by broker-dealers. New 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 New 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 New Notes. Any broker-dealer that
resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the
- ----------------
/1/ In addition, the legend required by Item 502(e)of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus and, if
applicable, any additional information required by Items 507 and/or 508 of
Regulation S-K.
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<PAGE>
Act and any profit of any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Act.
A-21
<PAGE>
ANNEX D
Rider A
- -------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------
Address:
----------------------------------------------------------------
-------------------------------------------------------------------------
Rider B
- -------
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
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Transfer Restricted Notes, it represents that
the Transfer Restricted Notes to be exchanged for New Notes were acquired by it
as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; 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 Securities Act.
A-22
<PAGE>
EXHIBIT B
SUBSIDIARIES
Focal Communications Corporation of New York
Focal Communications Corporation of the Mid-Atlantic
Focal Communications Corporation of New Jersey
Focal Communications Corporation of Virginia
Focal Communications Corporation of Massachusetts
Focal Communications Corporation of Florida
Focal Communications Corporation of Illinois
Focal Communications Corporation of Pennsylvania
Focal Communications Corporation of Michigan
Focal Communications Corporation of California
Focal Communications Corporation of Washington
Focal Communications Corporation of Ohio
Focal Telecommunications Corporation
Focal Communications Corporation of Texas
Focal Communications Corporation of Missouri
Focal Communications Corporation of Georgia
Focal Communications Corporation of Colorado
Focal Communications Corporation of Wisconsin
Focal Financial Services, Inc.
Focal International Corp.
B-1
<PAGE>
EXHIBIT C
Selling Restrictions for Offers and
Sales outside the United States
(1)(a) The Notes have not been and will not be registered under the
Securities Act and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except in accordance with Regulation
S under the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Each Initial Purchaser represents and agrees
that, it has offered and sold the Notes, and will offer and sell the Notes, (i)
as part of its initial distribution at any time and (ii) otherwise until 40 days
after the later of the commencement of the offering and the Closing Date, only
in accordance with Rule 903 of Regulation S. Accordingly, each Initial Purchaser
represents and agrees that neither it, nor any of its affiliates nor any person
acting on its or their behalf has engaged or will engage in any directed selling
efforts in the United States with respect to the Notes, and that it and they
have complied and will comply with the offering restrictions requirement of
Regulation S. Each Initial Purchaser agrees that, at or prior to the
confirmation of sale of Notes (other than a sale of Notes pursuant to Section
4(a)(1)(A) of the Agreement to which this is an exhibit), it shall have sent to
each distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Notes from it during the restricted period a
confirmation or notice to substantially the following effect:
"The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of their initial distribution at any time or (ii)
otherwise until 40 days after the later of the commencement of the offering
and January 7, 2000, except in either case in accordance with Regulation S,
Rule 144A or other exemption from registration under the Securities Act.
Terms used above have the meanings given to them by Regulation S."
(b) Each Initial Purchaser also represents and agrees that it has not
entered and will not enter into any contractual arrangement with any distributor
with respect to the distribution of the Notes, except with its affiliates or
with the prior written consent of the Company.
C-1
<PAGE>
(c) Terms used in this Section have the meanings given to them by
Regulation S.
C-2
<PAGE>
EXHIBIT D
NOTICE TO INVESTORS
Offers and Sales by the Initial Purchasers
- ------------------------------------------
The Notes have not been registered under the Securities Act and may
not be offered or sold in the United States to, or for the account or benefit
of, U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Notes are being offered and
sold only (1) in the United States to qualified institutional buyers ("Qualified
Institutional Buyers") under Rule 144A under the Securities Act in a private
sale exempt from the registration requirements of the Securities Act and (2)
outside the United States to non-U.S. persons ("foreign purchasers") in reliance
upon Regulation S under the Securities Act.
Investor Representations and Restrictions on Resale
- ---------------------------------------------------
Each purchaser of the Notes will be deemed to have represented and
agreed as follows:
(1) it is acquiring the Notes for its own account or for an account
with respect to which it exercises sole investment discretion, and that it
or such account is a Qualified Institutional Buyer, an Institutional
Accredited Investor acquiring the Notes for investment purposes and not for
distribution, or a foreign purchaser outside the United States;
(2) it acknowledges that the Notes have not been registered under the
Securities Act or any other applicable securities laws and may not be sold
or otherwise transferred except as permitted below;
(3) it understands and agrees (x) that such Notes are being offered
only in a transaction not involving any public offering within the meaning
of the Securities Act, and (y) that (A) if within two years after the date
of original issuance of the Notes or, if within three months after it
ceases to be an affiliate (within the meaning of Rule 144 under the
Securities Act) of the Company, it decides to resell, pledge or otherwise
transfer such Notes on which the applicable legend as set forth below
appears, such Notes may be resold, pledged or transferred only (i) to the
Company, (ii) so long as such Note is eligible for resale
D-1
<PAGE>
pursuant to Rule 144A under the Securities Act, to a person whom the seller
reasonably believes is a Qualified Institutional Buyer that purchases for
its own account or for the account of a Qualified Institutional Buyer to
whom notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A under the Securities Act (as indicated by the box
checked by the transferor on the Certificate of Transfer on the reverse of
the Note if such Note is not in book-entry form), (iii) in an offshore
transaction in accordance with Regulation S (as indicated by the box
checked by the transferor on the Certificate of Transfer on the reverse of
the Note if such Note is not book-entry form), (iv) to an Institutional
Accredited Investor (as indicated by the box checked by the transferor on
the Certificate of Transfer on the reverse of the Note if such Note is not
in book-entry form) who has certified to the Company and the Trustee for
the Notes that such transferee is an Institutional Accredited Investor and
is acquiring the Notes for investment purposes and not for distribution,
(v) pursuant to an exemption from the registration under the Securities Act
provided by Rule 144 (if applicable) under the Securities Act, or (vi)
pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state
of the United States, (B) the purchaser will, and each subsequent holder is
required to, notify any purchaser of Notes from it of the resale
restrictions referred to in (A) above, if then applicable, and (C) with
respect to any transfer of Notes by an Institutional Accredited Investor,
such holder will deliver to the Company and the Trustee such certificates
and other information as they may reasonably require to confirm that the
transfer by it complies with the foregoing restrictions; and
(4) with respect to the Notes, it understands that the notification
requirement referred to in (3) above will be satisfied, in the case only of
transfers by physical delivery of certificated Notes other than a global
certificate, by virtue of the fact that the following legend will be placed
on the Notes unless otherwise agreed by the Company:
D-2
<PAGE>
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS NOTE, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY
NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE
SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY
HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT
ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER,
IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS
NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A,
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS NOTE), (4) TO AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE)
THAT IS ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION, AND A CERTIFICATE IN THE FORM ATTACHED TO THIS NOTE IS
DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (5)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR
HOLDING THIS NOTE AGREES THAT IT WILL FURNISH TO THE COMPANY AND THE
TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY
REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE COMPLIES WITH
THE FOREGOING
D-3
<PAGE>
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, REPRESENTS
AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS
HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR
(3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
(OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE
902 UNDER) REGULATION S UNDER THE SECURITIES ACT.";
(5) (i) it is able to fend for itself in the transactions contemplated
by this offering memorandum; (ii) has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of its prospective investment in the Notes; and (iii) has the
ability to bear the economic risks of its prospective investment and can
afford the complete loss of such investment;
(6) it has received a copy of this offering memorandum and
acknowledges that it has had access to such financial and business matters
and has been afforded the opportunity to ask questions of the Company and
receive answers thereto, as it deemed necessary in connection with its
decision to purchase the Notes;
(7) you acknowledge that prior to any proposed transfer of Notes in
certificated form or of beneficial interests in a Global Note (in each case
other than pursuant to an effective registration statement), you or the
holder of beneficial interests in a Global Note, as the case may be, may be
required to provide certifications and other documentation relating to the
manner of such transfer and submit such certifications and other
documentation as provided in the indenture;
(8) It shall not sell or otherwise transfer Notes to, and each
purchaser represents and covenants that it is not acquiring the Notes for
or on behalf of, any pension or welfare plan (as defined in Section 3 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
or plan (as defined in Section 4975 of the Code) (collectively, a "Benefit
Plan"), except that such a purchase for or on behalf of a Benefit Plan
shall be permitted:
(a) to the extent such purchase is made by or on behalf of a bank
collective investment fund, within the meaning of Prohibited
Transaction Class Exemption 91-38 issued by the Department of
D-4
<PAGE>
Labor ("PTCE 91-38"), and the purchase and holding of the Notes
is exempt under PTCE 91-38;
(b) to the extent such purchase is made by or on behalf of an
insurance company pooled separate account, within the meaning of
Prohibited Transaction Class Exemption 90-1 issued by the
Department of Labor ("PTCE 90-1"), maintained by the purchaser,
and the purchase and holding of the Notes is exempt under PTCE
90-1;
(c) to the extent of such purchase is made by or on behalf of an
"investment fund" (within the meaning Part V of Prohibited
Transaction Class Exemption 84-14 issued by the Department of
Labor ("PTCE 8-14")) in which the Benefit Plan has an interest,
and which is managed by a qualified professional asset manager,
as such term is used in PTCE 84-14 and the purchase and holding
of the Notes is exempt under PTCE 84-14;
(d) to the extent such Benefit Plan is a governmental or church plan
(as defined in Section 3 of ERISA) which is not subject to the
prohibited transaction rules of ERISA or the Code;
(e) to the extent that such purchase is made by or on behalf of an
insurance company general account, as such term is defined in
Prohibited Transaction Class Exemption 95-60 issued by the
Department of Labor on July 12, 1995 ("PTCE 95-60") and such
purchase and holding of the Notes is exempt under the provisions
of PTCE 95-60; or
(f) to the extent that such purchase is made using assets of such a
Benefit Plan which are subject to the discretionary authority or
control of an "in-house asset manager," as that term is defined
in Prohibited Transaction Class Exemption 96-23 issued by the
Department of Labor on April 10, 1996 ("PTCE 9-23"), and such
purchase and holding of the Notes is exempt under PTCE 96-23.
(9) you acknowledge that the trustee for the Notes will not be
required to accept for registration of transfer any Notes, except upon
presentation of evidence satisfactory to us and to the trustee that you
have complied with the restrictions set forth herein; and
(10) it understands that the Company, the Initial Purchasers and
others will rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements and agrees that if any of
the acknowledgments,
D-5
<PAGE>
representations and warranties deemed to have been made by it by its
purchase of Notes are no longer accurate, it shall promptly notify the
Company and the Initial Purchasers. If it is acquiring the Notes as a
fiduciary or agent for one or more investor accounts, it represents that it
has sole investment discretion with respect to each such account and it has
full power to make the foregoing acknowledgments, representations and
agreements on behalf of such account.
D-6
<PAGE>
EXHIBIT E-1
FORM OF JDR&P OPINION
E-1-1
<PAGE>
[FORM OF JDR&P OPINION]
January ___, 2000
Salomon Smith Barney Inc.
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
TD Securities (USA) Inc.
Banc of America Securities, LLC
c/o Salomon Smith Barney, Inc.
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
We have acted as counsel to Focal Communications Corporation, a Delaware
corporation ("Focal"), in connection with: (a) the negotiation and execution of
the Purchase Agreement dated January 7, 2000 (the "Purchase Agreement") by and
between Focal and you (the "Initial Purchasers") relating to the sale of Focal's
11-7/8% Senior Notes due 2010 (the "Senior Notes") and (b) the final offering
memorandum (the "Final Memorandum"), dated January 7, 2000 which describes the
terms of the Senior Notes, the terms of Focal's offering of the Senior Notes,
and Focal and its business. This letter is being furnished to you pursuant to
Section 6(a) of the Purchase Agreement. Capitalized terms used but not defined
in this letter have the meanings given to such terms in the Purchase Agreement.
In rendering the opinions expressed herein, we have assumed without any
independent investigation: (a) that the signatures on all documents examined by
us are genuine and 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 (other than if such
person is or was an officer of Focal), (b) the authenticity of all documents
submitted to us as originals, and the conformity to authentic original documents
of all documents submitted to us as certified, conformed or photostatic copies,
and (c) the correctness of public files, records and certificates of, or
furnished by, governmental or regulatory agencies or authorities. With your
permission, we have relied as to matters of fact upon certificates of officers
of Focal, and have not independently verified the accuracy of the statements
contained in such certificates.
In addition, in rendering our opinions below regarding good standing, we
have relied exclusively upon certificates of public officials of the relevant
jurisdictions. In rendering the opinion in paragraph (a) (viii) below with
respect to pending litigation, we have reviewed only those matters that
potentially involve loss contingencies and that Focal has referred to us for
E-1-2
<PAGE>
Salomon Smith Barney Inc., et al.
January ___, 2000
legal representation and with respect to which we have given substantive
attention subsequent to December 31, 1998. We have identified those matters by
making inquiry of lawyers presently in our firm who, according to our records,
have been engaged in legal services on behalf of Focal during that period and by
examining certain current records that we maintain for our internal operations.
In that process we have not undertaken any independent review of documents or
records (other than the identification of lawyers and matters through current
records referenced in the preceding sentence) concerning Focal that are in our
possession.
(a) We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and, subject to the
qualifications, assumptions and limitations set forth herein, we are of the
opinion that:
(i) Focal is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Final Memorandum (references in this
letter to the Final Memorandum being taken to mean the Final
Memorandum as amended or supplemented), and is duly qualified to
transact business and is in good standing in each jurisdiction listed
in Schedule 1.
(ii) Each of the subsidiaries of Focal listed on Schedule 2 (the
"Listed Subsidiaries") is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation and
has the corporate power and authority to own its property and to
conduct its business as described in the Final Memorandum, and is duly
qualified to transact business and is in good standing in each
jurisdiction listed in Schedule 2.
(iii) The Purchase Agreement respecting the Senior Notes has
been duly authorized, executed and delivered by Focal.
(iv) The Indenture has been duly authorized, executed and
delivered by Focal and (assuming the due authorization, execution and
delivery thereof by the Trustee) constitutes a valid and binding
agreement of Focal, enforceable against Focal 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 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).
(v) The Senior Notes have been duly authorized by Focal, and when
executed by Focal and when duly authenticated by the Trustee in the
manner provided for in the Indenture (assuming the due authorization,
execution and
E-1-3
<PAGE>
Salomon Smith Barney Inc., et al.
January ___, 2000
delivery of the Indenture by the Trustee) and delivered upon payment
of the purchase price therefor, will constitute valid and binding
obligations of Focal entitled to the benefits of the Indenture,
enforceable against Focal 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 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).
(vi) The Registration Rights Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of,
Focal, enforceable against Focal in accordance with its terms except
as: (a) the enforceability thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar
laws affecting creditors' rights generally, (b) the availability of
equitable remedies may be limited by equitable principles of general
applicability (regardless of whether enforcement is considered in a
proceeding in equity or at law), and (c) the rights to indemnification
and contribution thereunder may be limited by state or federal
securities laws or the policies underlying such laws.
(vii) The execution and delivery by Focal of, and the performance
by Focal of its obligations under, the Purchase Agreement, the
Indenture, the Registration Rights Agreement and the Senior Notes will
not: (A) result in a breach or default by Focal or any Listed
Subsidiary under any indenture, mortgage, loan agreement or other
agreement or instrument by which Focal or such Listed Subsidiary is
bound or to which Focal or Listed Subsidiary is a party, and, in each
such case, which (i) is set forth on Schedule 3 hereto and (ii) Focal
has certified to us is material to Focal and the Listed Subsidiaries
on a consolidated basis, (B) conflict with or result in any default
under the Certificate of Incorporation or the By-laws of Focal, or (C)
result in the violation by Focal or a Listed Subsidiary of any
statute, rule or regulation of any court or governmental agency or
body applicable to Focal or such Listed Subsidiary, or any order of
any court or government agency or body known to us by which Focal or
such Listed Subsidiary is bound, and no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required under applicable law to be obtained by
Focal as of the Closing Date for the performance by Focal or any
Listed Subsidiary of their obligations under the Purchase Agreement,
the Indenture, the Registration Rights Agreement or the Senior Notes,
except that (x) with respect to the Act and the rules and regulations
promulgated thereunder, our opinion is limited to the matters
expressed in paragraphs (a)(ix) and (b) below, it being understood
that you have not requested and we are not expressing any
E-1-4
<PAGE>
Salomon Smith Barney Inc., et al.
January ___, 2000
opinion as to any state securities or "blue sky" laws, and (y) with
respect to the opinion set forth in clause (A) or (C) of this
paragraph (vii), we express no opinion with respect to any conflict,
default or violation (I) not readily ascertainable from the face of
any indenture, loan agreement, agreement, decree or order, (II)
arising under or based upon any cross-default provision insofar as it
relates to a default under any indenture, loan agreement or agreement
not described on Schedule 3 to this opinion, or (III) arising under or
based upon any covenant of a financial or numerical nature or
requiring computation.
(viii) Except as disclosed in the Final Memorandum, we are not
acting as counsel for Focal in any pending litigation that potentially
involves a loss contingency in which Focal is a party, which would be
required to be disclosed pursuant to Item 103 of Regulation S-K, and,
to our knowledge, none of such pending litigation disclosed in the
Final Memorandum seeks to enjoin or prevent Focal from performing its
obligations under the Purchase Agreement, the Indenture, the
Registration Rights Agreement, or the Senior Notes.
(ix) Assuming (A) the accuracy of the representations and
warranties of Focal set forth in Section 1 of the Purchase Agreement,
(B) the due performance by Focal of the agreements set forth in
Section 5 of the Purchase Agreement, (C) the accuracy of the
representations and warranties made by the Initial Purchasers in
Section 4 of the Purchase Agreement and the due performance by the
Initial Purchasers of the agreements set forth in Section 4 of the
Purchase Agreement (including all exhibits thereto), (D) compliance by
the Initial Purchasers with the offering and transfer procedures and
restrictions described in the Purchase Agreement and the Final
Memorandum, (E) the accuracy of the representations and warranties
made in accordance with this Agreement and the Final Memorandum by
purchasers to whom the Initial Purchasers initially resell Notes, and
(F) the sale of the Senior Notes takes place as described in the Final
Memorandum under the caption "Plan of Distribution," it is not
necessary in connection with the offer, sale and delivery of the
Senior Notes to the Initial Purchasers under the Purchase Agreement or
in connection with the initial resale of such Senior Notes by the
Initial Purchasers in accordance with Section 4 of the Purchase
Agreement to register the Senior Notes under the Securities Act of
1933 or to qualify the Indenture under the Trust Indenture Act of
1939, as amended, it being understood that no opinion is hereby
expressed as to any subsequent resale of any Senior Notes.
(x) Focal is not, and after giving effect to the application of
the proceeds of the offering as described in the Final Memorandum will
not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
E-1-5
<PAGE>
Salomon Smith Barney Inc., et al.
January ___, 2000
(b) We have participated in the preparation of the Final Memorandum (the
documents incorporated into the Final Memorandum by reference having previously
been prepared and filed by Focal without our participation). From time to time
we have had discussions with officers, directors, and employees of Focal, Arthur
Andersen LLP, the independent accountants who examined certain of the financial
statements of Focal and its consolidated subsidiaries included or incorporated
by reference in the Final Memorandum and your representatives concerning the
information contained in the Final Memorandum. We have not independently
verified and are not passing upon, and do not assume any responsibility for, the
accuracy, completeness, or fairness of the information contained or incorporated
by reference in the Final Memorandum, except as to the sections in the Final
Memorandum referred to in the following paragraph. Based upon the participation
and discussions described above, however, no facts have come to our attention
that cause us to believe that the Final Memorandum (except for the Regulatory
Matters (as defined below) or the Excluded Information (as defined below), as to
which we express no opinion), as of the date of the Final Memorandum or as of
the date hereof, contained or contains any untrue statement of a material fact
or omitted or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) We are further of the opinion that the statements contained in the
Final Memorandum under the captions "Descriptions of the Notes" and "Notice to
Investors," insofar as they constitute a summary of the legal matters or
documents referred to therein, fairly summarize such matters, and that the
statements contained in the Final Memorandum under the caption "United States
Federal Tax Considerations to Non-U.S. Holders" insofar as such statements
purport to summarize the provisions and matters of law referred to therein are
fair summaries of such matters of law.
With respect to the opinions and views set forth herein, it is understood
that you are not requesting and we express no opinion or view as to (1)
Regulatory Matters (as defined below) or the matters (including, without
limitation, laws, regulations, contracts (including interconnection agreements),
franchises, proceedings and other arrangements) described or of the type
described under the headings, "Risk Factors--Internet-Related Reciprocal
Compensation--Our entitlement to reciprocal compensation for Internet traffic
is subject to uncertainties that could adversely affect us," "Risk Factors--
Regulation--We are subject to significant regulation that could change in a
manner adverse to us," "Risk Factors--Relationship with ILECs--Our reliance on
ILEC interconnection and changes to our agreements with the ILECs could have a
material adverse effect on us," "Risk Factors--Competition--We compete in the
telecommunications industry with participants that have greater resources, a
more established network and a broader customer base than we do,"
"Risk Factors--Franchises and Rights-of-Way--Our ability to develop networks
will be adversely affected if we cannot obtain necessary permits and
rights-of-way," "Business--Competition," "Business--Regulation," and the
second paragraph under "Business--Legal and Administrative Proceedings" in the
Final Memorandum of (2) international and United States federal, state and local
statutes and regulations and contracts
E-1-6
<PAGE>
Salomon Smith Barney Inc., et al.
January ___, 2000
(including interconnection agreements), franchises, proceedings and other
arrangements, relating to telecommunications regulatory matters (collectively,
"Regulatory Matters").
In rendering the opinions set forth in paragraph (a)(iv), (v) and (vi)
regarding the validity, binding effect or enforcability of any provision in the
agreements or instruments described therein, we express no opinion as to any
provision:
(a) relating to forum selection to the extent that any relevant action or
proceeding does not arise out of or relate to such document or to the extent
that the enforceability of any such provision is to be determined by any court
other than a court of the State of New York; or
(b) relating to choice of governing law to the extent that the
enforceability of any such provision is to be determined by any court other than
a court in the State of New York.
With respect to the 1940 Act and the rules and regulations promulgated
thereunder, our opinion is limited to the matters expressed in paragraph (a)(x)
above. With respect to the opinion set forth in paragraph (a)(x) above, (i) we
have relied solely upon the facts set forth in a certificate of the Company's
Treasurer and our review and analysis of the information referred to therein,
(ii) we have reviewed Focal's unconsolidated balance sheet as of November 30,
1999 and have not reviewed or analyzed any information later than that date, and
(iii) we have assumed that Focal has received and will invest at least 78% of
the net proceeds (which Focal has advised us is a percentage consistent with
Focal's historical investment practice) of the Senior Notes in checking or
savings account, government securities (as that term is defined in the 1940 Act)
or commercial paper maturing less than 90 days from the date of its purchase by
Focal.
In rendering the opinions set forth herein, we express no opinion as to (A)
the application of laws other than (i) the laws of the State of New York, (ii)
the corporate laws of the State of Delaware, and (iii) the federal laws of the
United States of America, or (B) the statutes administered by, the rules and
regulations of, or matters within the purview of the Federal Communications
Commission, any comparable state governmental authority or agency, or any state
public utility commission or comparable state authority or agency. As used in
this opinion, the term "Excluded Information" means the operating statistics,
financial statements, financial schedules and other financial data included in
or incorporated by reference into the Final Memorandum.
With your consent, we have not expressed any opinion or view with respect
to matters relating to Focal Communications Corporation of Virginia, which
matters are covered by the opinion, dated of even date herewith, of Swidler
Berlin Shereff Friedman, LLP, special Virginia counsel to Focal.
E-1-7
<PAGE>
Salomon Smith Barney Inc., et al.
January ___, 2000
This Opinion Letter is furnished to you for your exclusive use solely in
connection with the Purchase Agreement and the Final Memorandum and may not be
relied upon by any other person or for any other purpose without our prior
written consent.
Very truly yours,
JONES, DAY, REAVIS & POGUE
E-1-8
<PAGE>
EXHIBIT E-2
FORM OF SBSF OPINION
E-2-1
<PAGE>
[FORM OF SBSF OPINION]
January 12, 2000
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Re: Focal Communications Corporation of Virginia
Ladies and Gentlemen:
We have acted as special Virginia counsel for Focal Communications
Corporation of Virginia, a Virginia corporation (the "Company"), in connection
with the issuance and sale by Focal Communications Corporation, a Delaware
corporation ("Focal"), of $275,000,000 [__]% Senior Notes Due 2010 pursuant to
the Purchase Agreement dated January 7, 2000 among Focal, Salomon Smith Barney
Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc., Banc of America Securities LLC, c/o
Salomon Smith Barney Inc. ("Purchase Agreement").
This opinion is being delivered to you at the request of the Company and
Focal pursuant to Section 6(a) of the Purchase Agreement. Capitalized terms used
herein and not defined herein have the respective meanings ascribed to such
terms in the Purchase Agreement.
In this limited capacity, and for purposes of this opinion, we have
examined the following documents:
1. the Purchase Agreement,
2. the Final Offering Memorandum,
3. the Articles of Incorporation of the Company, as certified by the
State Corporation Commission of the Commonwealth of Virginia on July 21, 1999,
and a certificate of the Secretary of the Company that there have been no
amendments thereto ("Articles of Incorporation"),
E-2-2
<PAGE>
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
January 12, 2000
Page 2
4. the Bylaws of the Company, certified by the Secretary of the Company
as presently being in effect (the "Bylaws"),
5. the minutes of the Company, certified by the Secretary of the Company
as being true and correct,
6. the stock ledger of the Company, certified by the Secretary of the
Company as being true and correct, and
7. a certificate of John R. Barnicle, Executive Vice President and Chief
Operating Officer of the Company (the "Declaration").
In rendering the opinions expressed below, we have assumed with your
permission and without independent investigation: (i) the genuineness of all
signatures; (ii) that where any signature purports to have been made in a
corporate, governmental, fiduciary, or other capacity, the person who affixed
such signature to such document had the power and authority to do so; (iii) the
authenticity of all documents submitted to us as originals; (iv) the conformity
to authentic original documents of all documents submitted to us as certified,
conformed, or photostatic copies; (v) that the documents, instruments and
agreements shown to us are complete and no modifications to any thereof exist;
(vi) that the representations and warranties as to factual matters made by Focal
in the Purchase Agreement are true and complete; (vii) that each individual who
executes any document, instrument or agreement is legally competent to do so;
and (viii) that each party, other than the Company, that has executed or will
execute a document, instrument or agreement to which the Company is a signatory
has all requisite power and authority and has duly and validly taken all
necessary action to execute and deliver such documents, instruments and
agreements and to perform the transactions contemplated thereby, that all such
documents, instruments and agreements have been duly and validly executed and
delivered by such party and that all such documents, instruments and agreements
are legal, binding and enforceable obligations of such party. We have also
assumed, without independent inquiry, that there are no agreements or
understandings between or among the Company or Focal and other parties other
than those disclosed in the Purchase Agreement that would expand, modify or
otherwise affect the terms of the Purchase Agreement or the rights or
obligations thereunder of the parties thereto, and that those documents
accurately and completely set forth the agreement of all parties thereto.
As to matters of fact, we have relied upon, and assumed the accuracy,
completeness and genuineness of the Declaration. We have no knowledge that any
such factual matters are untrue, but we have performed no investigation or
verification of such factual matters.
E-2-3
<PAGE>
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
January 12, 2000
Page 3
Whenever our opinion herein is indicated to be based on our knowledge, or
otherwise based on information known to us, it signifies that during the course
of our representation of the Company, no information has come to the attention
of lawyers in this firm whom we reasonably believe should be consulted in
connection with the execution and delivery of the Purchase Agreement and the
transactions contemplated thereby, which gave such lawyers actual knowledge
inconsistent with such opinion.
This opinion is given as of the date hereof, and we assume no obligation to
notify you of any changes in this opinion as a result of any facts that may come
to our attention in the future, nor do we assume any obligation to update or
supplement this opinion to reflect any facts or circumstances which may
hereafter occur or come to our attention.
Except as otherwise stated in this paragraph, this opinion does not relate
to any law other than the laws of the Commonwealth of Virginia as currently in
effect. To the extent that laws other than the foregoing are applicable with
respect to matters set forth in this opinion, we have assumed that such laws are
either identical to, or would be applied in a manner consistent with, the laws
of the Commonwealth of Virginia. Without limiting the generality of the
foregoing, we express no opinion with respect to compliance or noncompliance
with state securities and Blue Sky laws, rules and regulations, with the
antifraud provisions of state and federal securities laws, rules and regulations
or with any state or federal telecommunications laws.
Based upon the assumptions and qualifications set forth in this letter, it
is our opinion as of the date hereof that:
1. Based solely on the good standing certificate issued by the State
Corporation Commission of the Commonwealth of Virginia, the Company is validly
existing as a corporation in good standing under the laws of the Commonwealth of
Virginia. The Company has the corporate power and authority necessary to own or
lease, as the case may be, its properties and conduct its business as it is now
conducted. Based solely on the Declaration, the Commonwealth of Virginia is the
only jurisdiction in which the ownership, lease or operation of property or the
conduct of the Company's business has heretofore required such qualification.
2. To our knowledge, based solely on the Declaration and our review of
the minute books and stock ledgers of the Company, and assuming that the Company
has taken the actions with respect to its capital stock authorized by the
minutes set forth in such minute books and has taken no action inconsistent
therewith or action other than authorized by such minute books, (a) all of the
issued and outstanding shares of capital stock of the Company are owned of
record by Focal Communications Corporation of the Mid-Atlantic ("Mid-Atlantic"),
and (b) assuming further that
E-2-4
<PAGE>
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
January 12, 2000
Page 4
Mid-Atlantic has not taken any action to pledge, assign or otherwise encumber or
transfer any interest in or to the shares of the capital stock of the Company
owned of record by it, such shares are not subject to any adverse claim (as
defined in Section 8-302 of the Virginia Uniform Commercial Code), except as
disclosed in the Final Offering Memorandum.
3. The performance of the Purchase Agreement by Focal and the
consummation by Focal of the transactions contemplated thereby will not (a)
result in a breach or default by the Company under any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument by which the Company
is bound or to which the Company is a party and, in each such case, which (i) is
set forth on Annex A hereto and (ii) Focal has certified to us is material to
Focal and all of its Material Subsidiaries on a consolidated basis, (b) conflict
with or result in any default under the Articles of Incorporation or the Bylaws
or (c) result in the violation by the Company of any statute, rule or regulation
of the Commonwealth of Virginia or of any governmental agency or body of the
Commonwealth of Virginia applicable to the Company, or any order of any court or
governmental agency or body of the Commonwealth of Virginia known to us by which
the Company is bound.
The opinions expressed in this letter are subject in all respects to the
following additional qualifications: (1) this opinion is limited to the
transactions that are being consummated on the date hereof pursuant to the
Purchase Agreement and does not address any transaction that may take place
after the date hereof, and (2) no opinion is rendered as to matters not
specifically referred to herein or as to any fact or circumstance that hereafter
may come to our attention or any change in law that hereafter may occur, and
under no circumstances are you to infer from anything stated or not stated
herein any opinion with respect to such matters.
This opinion is given solely for your benefit and you may rely upon this
opinion in connection with the Purchase Agreement upon the understanding that we
are not assuming any professional responsibility to any other person. This
opinion may not be relied upon by any other person and this opinion may not be
used, disclosed, quoted, filed with a governmental agency or otherwise referred
to without our express prior written consent. The opinions expressed in this
letter are limited to the matters expressly set forth herein, and no other
opinions should be inferred beyond the matters expressly stated herein.
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
E-2-5
<PAGE>
EXHIBIT F
FORM OF SBSF OPINION
F-1
<PAGE>
[FORM OF SBSF OPINION]
January 12, 2000
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Re: Focal Communications Corporation ____% Senior Notes Due 2010
Ladies and Gentlemen:
We have acted as special U.S. telecommunications regulatory counsel to
Focal Communications Corporation, a Delaware corporation, and its operating
subsidiaries listed in Attachment A (collectively the "Company"). This opinion
is being delivered to you pursuant to Section 6(b) of the Purchase Agreement
dated January 7, 2000 entered into among the Company, Salomon Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc. and Banc of America Securities LLC as
representatives of the Initial Purchasers (the "Purchase Agreement"). Each
capitalized term used but not defined herein shall have the meaning ascribed to
it in the Purchase Agreement.
Our opinion is limited to certain U.S. telecommunications regulatory
matters specifically related to the Communications Act of 1934, as amended,
including amendments made by the Telecommunications Act of 1996, 47 U.S.C. (S)
151 et seq., and the rules, regulations and orders of the Federal Communications
Commission ("FCC") (collectively the "Communications Act"), and state statutes
governing intrastate telecommunications (in those states (the "States") listed
in Appendix A), and the rules, regulations and orders of comparable state
regulatory commissions ("State Commissions") with primary regulatory
jurisdiction over the intrastate telecommunications services of the Company
(collectively "State Telecommunications Laws"). We express no opinion and assume
no responsibility as to the applicability of any other U.S., state, local,
foreign, supranatural or regional laws or regulations, including, but not
limited to, laws governing the corporate organization, authority to transact
business or tax liability of the Company, its subsidiaries or joint ventures.
However, we note that we are today providing a separate opinion with respect to
Focal Communications Corporation of Virginia.
F-2
<PAGE>
Salomon Smith Barney
Donaldson, Lufkin and Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
January 12, 2000
Page 2
In this limited capacity, and for the purposes of this opinion, we have
reviewed sections of the Company's Final Offering Memorandum dated January 7,
2000, under the captions "Risk Factors - Internet-Related Reciprocal
Compensation - Our entitlement to reciprocal compensation for Internet traffic
is subject to uncertainties that could adversely affect us," "Risk Factors -
Regulation - We are subject to significant regulation that could change in a
manner adverse to us," "Risk Factors - Relationship with ILECs - Our reliance on
ILEC interconnections and changes to our agreements with the ILECs could have a
material adverse effect on us," "Risk Factors - Competition - We compete in the
telecommunications industry with participants that have greater resources, a
more established network and a broader customer base than we do," "Risk Factors-
Franchises and Rights-of-Way - Our ability to develop networks will be adversely
affected if we cannot obtain necessary permits and rights-of-way," "Business -
Competition," "Business - Regulation," and the first and second paragraphs under
"Business - Legal and Administrative Proceedings," the Officer's Certificate
attached hereto as Appendix C (the "Certificate"), the Licenses (as hereinafter
defined) issued to the Company by the FCC and the State Commissions, and the
Purchase Agreement. In our review of such documents and such other documents as
we have deemed necessary or appropriate to form the basis for the opinions
hereinafter expressed, we have assumed without independent investigation (i) the
genuineness of all signatures; (ii) that where any signature purports to have
been made in a corporate, governmental, fiduciary, or other capacity, the person
who affixed such signature to such document had authority to do so; (iii) the
authenticity of all documents submitted to us as originals; (iv) the conformity
to authentic original documents of all documents submitted to us as certified,
conformed, or photostatic copies; and (v) the conformity of all provisions,
terms, and conditions contained in documents submitted to us in draft form with
the provisions, terms, and conditions contained in the executed final versions
of such documents. We have also assumed, without independent inquiry, that there
are no agreements or understandings between or among the Company and other
parties (other than those disclosed in the Purchase Agreement and the Final
Offering Memorandum) that would expand, modify, or otherwise affect the terms of
the Final Offering Memorandum or the rights or obligations thereunder of the
parties thereto, and that those documents accurately and completely set forth
the agreement of all parties thereto.
Although we have acted as special U.S. telecommunications regulatory
counsel in specific telecommunications regulatory matters to the Company, we
draw your attention to the fact that we have not undertaken any on-site or other
physical inspections of its business or properties, and we have not
independently verified the manner in which its business is operated.
In connection with this opinion as to matters of fact, we have relied upon
the representations and warranties of the Company and the Company's officers set
out in the Purchase Agreement, the Final Offering Memorandum and the
Certificate. We have not undertaken any independent investigation to verify any
such matters, and our opinion is therefore, as to such factual matters,
F-3
<PAGE>
Salomon Smith Barney
Donaldson, Lufkin and Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
January 12, 2000
Page 3
based solely upon such representations and warranties. Whenever in this opinion
we limit our opinion to "to our knowledge," our statements are based solely on
the Certificate and any information that actually became known to the
telecommunications attorneys of this firm who are regularly involved in
representing the Company in the course of their performance of such
representation, and during a review of the publicly available files of the FCC
and the State Commission Certificates. Wherever in our opinion we state that the
Company has filed a tariff at the FCC or any of the State Commissions, we
express no opinion whatsoever concerning whether, and to what extent, such
tariff reflects its current actual rates and services or complies with the
specific format, rate structure, and other tariff rules of the FCC or State
Commissions.
For purposes of this opinion, we have made such examination of the
Communications Act and the State Telecommunications Laws as we have deemed
necessary. In the course of developing this opinion, we have examined only
actions and approvals arising out of, relating to, or taken pursuant to the
provisions of the Communications Act and State Telecommunications Laws. We have
not undertaken to determine the existence of any actions, approvals or
proceedings, whether outstanding, pending or threatened, before persons or
entities other than the FCC or the State Commissions.
This opinion is given as of the date hereof, and we assume no obligation to
notify you of any changes in this opinion as a result of any facts that may come
to our attention in the future, nor do we assume any obligation to update or
supplement this opinion to reflect any facts or circumstances which may
hereafter occur or come to our attention, or to assess the likelihood or effect
of any event, including any proceeding or appeal which hereafter may be
initiated by or before the FCC, any State Commission, or any federal or state
court or government agency, or any changes in laws, rules or regulations, or the
interpretation of such, which may hereafter occur, or of any material changes in
the terms of the transactions contemplated in the Purchase Agreement.
F-4
<PAGE>
Salomon Smith Barney
Donaldson, Lufkin and Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
January 12, 2000
Page 4
On the basis of the foregoing, and subject to the assumptions, limitations
and exceptions set forth herein, we are of the opinion that:
1. To our knowledge, Appendix A attached hereto accurately and completely
lists all of the certifications and authorizations held by the Company
which have been issued by the FCC or the State Commissions. The Company has
the certificates and authorizations, if any, required by the Communications
Act and the State Telecommunications Laws (collectively the "Licenses") for
the provision of telecommunications services as described in the Final
Offering Memorandum.
2. To our knowledge: (i) the Licenses are validly issued; and (ii) the
Licenses are in full force and effect and are not subject to conditions
outside of the ordinary course.
3. Based solely on the Certificate, the Company has filed the regulatory
tariffs (the "Tariffs") described in Appendix B attached hereto. To our
knowledge, such Tariffs are in full force and effect and there is no
outstanding notice of suspension, cancellation or termination, or any
threatened suspension, cancellation or termination with respect to such
Tariffs. Based solely on the Certificate, the Company has not received any
notice, and is not subject to any restrictions or conditions applicable to
its Tariffs, that limit or would limit the operations of the Company (other
than restrictions or conditions generally applicable to Tariffs of that
type).
4. To our knowledge, the Company is not subject to any pending or threatened
complaint, investigation or proceeding or litigation before the FCC or any
State Commission, or any appeals in any state or federal court relating
thereto, based on any alleged violation by the Company in connection with
its provision of or failure to provide telecommunications service, or
before any state or federal court arising out of alleged violations of or
disputes under the Communications Act or State Telecommunications Laws.
5. The Company has the consents or approvals, if any, of the FCC and each
State Commission required for the consummation of the transactions
contemplated by the Purchase Agreement.
F-5
<PAGE>
Salomon Smith Barney
Donaldson, Lufkin and Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
January 12, 2000
Page 5
6. Neither the execution and delivery of the Purchase Agreement by the
Company, nor the issuance and sale of the Notes contemplated therein by the
Company nor the performance by the Company of its obligations under the
Purchase Agreement will violate the Communications Act or the State
Telecommunications Laws applicable to the Company.
7. Based solely upon a review of our files, the public files of the FCC and
telephonic contact with State Commissions, and to our knowledge, except as
disclosed in the Final Offering Memorandum: (1) the Company is not a party
to any complaint, action or other proceeding pending at the FCC or any of
the State Commissions, (ii) Appendix A includes all applications on behalf
of the Company or with respect to the Licenses that are now pending before
the FCC and/or State Commissions; and (iii) the Company has not been the
subject of any final adverse order, decree or ruling of the FCC or any of
the State Commissions (including any notice of forfeiture which has been
paid).
8. The statements in the Final Offering Memorandum under the captions of "Risk
Factors - Internet-Related Reciprocal Compensation - Our entitlement to
reciprocal compensation for Internet traffic is subject to uncertainties
that could adversely affect us," "Risk Factors - Regulation - We are
subject to significant regulation that could change in a manner adverse to
us," "Risk Factors - Relationship with ILECs - Our reliance on ILEC
interconnections and changes to our agreements with the ILECs could have a
material adverse effect on us," "Risk Factors - Competition - We compete in
the telecommunications industry with participants that have greater
resources, a more established network and a broader customer base than we
do," "Risk Factors - Franchises and Rights-of-Way - Our ability to develop
networks will be adversely affected if we cannot obtain necessary permits
and rights-of-way," "Business - Competition," "Business - Regulation," and
the first and second paragraphs under "Business - Legal and Administrative
Proceedings," insofar as such statements constitute a summary of the legal
matters, documents or proceedings of the FCC and State Commissions with
respect to telecommunications matters referred to therein, are accurate in
all material respects, and fairly summarize the matters therein described.
F-6
<PAGE>
Salomon Smith Barney
Donaldson, Lufkin and Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
January 12, 2000
Page 6
No facts have come to the attention of those telecommunications attorneys
of this firm who are regularly involved in representing the Company to cause us
to believe, and we have no reason to believe, that as of the Closing Date, the
statements in the Final Offering Memorandum under the captions "Risk Factors -
Internet-related Reciprocal Compensation - Our entitlement to reciprocal
compensation for Internet traffic is subject to uncertainties that could
adversely affect us," "Risk Factors - Regulation - We are subject to significant
regulation that could change in a manner adverse to us," "Risk Factors -
Relationship with ILECs - Our reliance on ILEC interconnections and changes to
our agreements with the ILECs could have a material adverse effect on us," "Risk
Factors - Competition - We compete in the telecommunications industry with
participants that have greater resources, a more established network and a
broader customer base than we do," "Risk Factors - Franchises and Rights-of-
Way - Our ability to develop networks will be adversely affected if we cannot
obtain necessary permits and rights-of-way," "Business - Competition"
"Business -Regulation," and the first and second paragraphs under "Business -
Legal and Administrative Proceedings," contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
The opinions expressed in this letter are subject in all respects to the
following additional qualifications: (a) this opinion addresses only the
transactions that are being consummated on the date hereof and does not address
any transaction that may take place after the Closing Date; (b) any action that
would transfer de facto (actual) or de jure (legal) control of the Company is
subject to the requirement for prior approval from the FCC and/or State
Commissions; (c) no opinion is rendered as to matters not specifically referred
to herein or as to any fact or circumstance that hereafter may come to our
attention or any change in law that hereafter may occur, and under no
circumstances are you to infer from anything stated or not stated herein any
opinion with respect to such matters; (d) all opinions expressed in this letter
are limited solely to the effect of the Communications Act and State
Telecommunications Laws as presently in effect on the telecommunications
business of the Company, and we express no opinion as to the effect of any other
federal, state, local, foreign, supranational or regional statute or equitable
doctrine or common law or of the regulations of any other agency or
administrative body; (e) other than as expressly stated in numbered paragraphs
(1) through (8), no opinion is rendered as to the compliance of the Company in
the past or in the future with any or all conditions or other requirements of
the FCC and the State Commissions contained in the orders, if any, authorizing
the operations of the Company or otherwise imposed by statute, rule, regulation
or policy, and we assume no obligation to ensure that the Company complies with
such conditions or requirements; (f) we express no opinion as to the effect of
any failure by the Company to comply with any conditions or requirements of the
FCC and State Commissions; and (g) we express no opinion with respect to any
parties or entities other than the Company. We are admitted to the District of
Columbia Bar and, with respect to any matters
F-7
<PAGE>
Salomon Smith Barney
Donaldson, Lufkin and Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
January 12, 2000
Page 7
concerning the State Telecommunications Laws, we draw your attention to the fact
that the members of the firm involved in the preparation of this opinion letter,
although generally familiar with the State Telecommunications Laws, are not
admitted to all of the bars of the States in which the State Commissions are
located.
This opinion is given solely for the benefit of, and may be relied upon
only by, the Lenders in connection with the transactions contemplated under the
Loan Agreement. No other person has the right to rely upon it, nor may it be
quoted, used, relied upon, redelivered, or referred to by any governmental
agency or any other person or entity, without the prior written consent of this
firm.
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
F-8
<PAGE>
Exhibit 4.28
FOCAL COMMUNICATIONS CORPORATION
$275,000,000
11.875% SENIOR NOTES DUE 2010
_____________
INDENTURE
Dated as of January 12, 2000
_____________
HARRIS TRUST AND SAVINGS BANK,
Trustee
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act of 1939, as
amended, and the Indenture, dated as of January 12, 2000
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
(S)310(a)(1).......................... 7.10
(a)(2)................................ 7.10
(a)(3)................................ N.A.
(a)(4)................................ N.A.
(a)(5)................................ 7.10
(b)................................... 7.08; 7.10
(c)................................... N.A.
(S)311(a)............................. 7.11
(b)................................... 7.11
(c)................................... N.A.
(S)312(a)............................. 7.06(a); 7.06(b)
(b)................................... 7.06(c)
(c)................................... 7.06(d)
(S)313(a)............................. 7.06(e)
(b)................................... 7.06(f)
(c)................................... 7.06(e), 7.06(f)
(d)................................... 7.06(g)
(S)314(a)............................. 4.18; 4.19
(b)................................... 4.18(b)
(c)(1)................................ 10.03
(c)(2)................................ 10.03
(c)(3)................................ N.A.
(d)................................... N.A.
(e)................................... 10.04
(f)................................... 4.19
(S)315(a)............................. 7.01(b)
(b)................................... 7.05
(c)................................... 7.01(c)
(e)................................... 6.10
(S)316(a)............................. 2.10(c)
(a)(1)(A)............................. 6.05
(a)(1)(B)............................. 6.04
(a)(2)................................ N.A.
(b)................................... 6.07
(c)................................... 9.05
(S)317(a)(1).......................... 6.03(b)
(a)(2)................................ 6.08
(b)................................... 2.07(b)
(S)318(a)............................. 10.01
</TABLE>
_________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Definitions and Other Provisions of General Application......... 1
SECTION 1.01. Definitions.......................................... 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.... 20
SECTION 1.03. Rules of Construction................................ 20
SECTION 1.04. Form of Documents Delivered to Trustee............... 21
SECTION 1.05. Acts of Holders...................................... 21
SECTION 1.06. Satisfaction and Discharge........................... 22
ARTICLE II The Notes....................................................... 22
SECTION 2.01. Form and Dating...................................... 22
SECTION 2.02. Form of Face of Note................................. 23
SECTION 2.03. Form of Reverse of Note.............................. 27
SECTION 2.04. Form of Trustee's Certificate of Authentication...... 38
SECTION 2.05. Execution and Authentication......................... 38
SECTION 2.06. Note Registrar and Paying Agent...................... 39
SECTION 2.07. Paying Agent To Hold Money in Trust.................. 40
SECTION 2.08. Registration, Registration of Transfer and Exchange.. 40
SECTION 2.09. Replacement Notes.................................... 45
SECTION 2.10. Outstanding Notes.................................... 46
SECTION 2.11. Temporary Notes...................................... 46
SECTION 2.12. Cancellation......................................... 47
SECTION 2.13. Payment of Interest; Interest Rights Preserved....... 47
SECTION 2.14. Authorized Denominations............................. 48
SECTION 2.15. Computation of Interest.............................. 48
SECTION 2.16. Persons Deemed Owners................................ 48
SECTION 2.17. CUSIP Numbers........................................ 48
SECTION 2.18. Holder Lists......................................... 48
ARTICLE III Redemption...................................................... 49
SECTION 3.01. Notice to Trustee.................................... 49
SECTION 3.02. Selection of Notes To Be Redeemed.................... 49
SECTION 3.03. Notice of Redemption................................. 49
SECTION 3.04. Effect of Notice of Redemption....................... 50
SECTION 3.05. Deposit of Redemption Price.......................... 50
SECTION 3.06. Notes Redeemed in Part............................... 50
ARTICLE IV Covenants....................................................... 51
SECTION 4.01. Payment of Notes..................................... 51
SECTION 4.02. Maintenance of Office or Agency...................... 51
SECTION 4.03. Money for the Note Payments To Be Held in Trust...... 51
SECTION 4.04. Corporate Existence.................................. 52
SECTION 4.05. Maintenance of Property.............................. 52
SECTION 4.06. Payment of Taxes and Other Claims.................... 52
SECTION 4.07. Repurchase at the Option of Holders upon a Change of
Control............................................ 52
SECTION 4.08. Limitation on Asset Sales............................ 55
SECTION 4.09. Limitation on Consolidated Indebtedness.............. 59
SECTION 4.10. Reserved............................................. 61
</TABLE>
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SECTION 4.11. Limitation on Restricted Payments................... 62
SECTION 4.12. Limitation on Liens................................. 64
SECTION 4.13. Limitation on Sale and Leaseback Transactions....... 65
SECTION 4.14. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries............... 65
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries........................... 66
SECTION 4.16. Transactions with Affiliates........................ 67
SECTION 4.17. Restricted and Unrestricted Subsidiaries............ 68
SECTION 4.18. Reports............................................. 68
SECTION 4.19. Statement of Compliance; Notice of Default or Event
of Default........................................ 69
ARTICLE V Amalgamation, Consolidation, Merger, Conveyance, Lease or
Transfer..................................................... 69
SECTION 5.01. Merger, Consolidation or Sale of Assets............. 69
SECTION 5.02. Successor Corporation Substituted................... 70
ARTICLE VI Defaults and Remedies.......................................... 70
SECTION 6.01. Events of Default................................... 70
SECTION 6.02. Acceleration........................................ 72
SECTION 6.03. Other Remedies...................................... 73
SECTION 6.04. Waiver of Past Defaults............................. 73
SECTION 6.05. Control by Majority................................. 74
SECTION 6.06. Limitation on Suits................................. 74
SECTION 6.07. Rights of Holders To Receive Payment................ 75
SECTION 6.08. Trustee May File Proofs of Claim.................... 75
SECTION 6.09. Priorities.......................................... 75
SECTION 6.10. Undertaking for Costs............................... 76
SECTION 6.11. Waiver of Stay or Extension Laws.................... 76
SECTION 6.12. Trustee May Enforce Claims Without Possession
of the Notes...................................... 76
SECTION 6.13. Restoration of Rights and Remedies.................. 76
SECTION 6.14. Rights and Remedies Cumulative...................... 77
SECTION 6.15. Delay or Omission Not Waiver........................ 77
ARTICLE VII Trustee........................................................ 77
SECTION 7.01. Duties of Trustee................................... 77
SECTION 7.02. Rights of Trustee................................... 78
SECTION 7.03. Individual Rights of Trustee........................ 79
SECTION 7.04. Trustee's Disclaimer................................ 79
SECTION 7.05. Notice of Defaults.................................. 79
SECTION 7.06. Preservation of Information; Reports by Trustee to
Holders........................................... 79
SECTION 7.07. Compensation and Indemnity.......................... 80
SECTION 7.08. Replacement of Trustee.............................. 81
SECTION 7.09. Successor Trustee by Merger......................... 83
SECTION 7.10. Eligibility; Disqualification....................... 83
SECTION 7.11. Preferential Collection of Claims Against Company... 84
</TABLE>
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ARTICLE VIII Defeasance................................................... 84
SECTION 8.01. Company's Option To Effect Legal Defeasance or
Covenant Defeasance............................... 84
SECTION 8.02. Legal Defeasance and Discharge...................... 84
SECTION 8.03. Covenant Defeasance................................. 85
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance..... 85
SECTION 8.05. Deposited United States Dollars and U.S. Government
Obligations To Be Held in Trust; Miscellaneous
Provisions........................................ 86
SECTION 8.06. Reinstatement....................................... 87
ARTICLE IX Amendments................................................... 87
SECTION 9.01. Without Consent of Holders.......................... 87
SECTION 9.02. With Consent of Holders............................. 88
SECTION 9.03. Effect of Supplemental Indentures................... 89
SECTION 9.04. Compliance with Trust Indenture Act................. 89
SECTION 9.05. Revocation and Effect of Consents and Waivers....... 89
SECTION 9.06. Notation on or Exchange of Notes.................... 89
SECTION 9.07. Trustee To Execute Supplemental Indentures.......... 90
ARTICLE X Miscellaneous................................................ 90
SECTION 10.01. Trust Indenture Act Controls....................... 90
SECTION 10.02. Notices............................................ 90
SECTION 10.03. Certificate and Opinion as to Conditions Precedent. 90
SECTION 10.04. Statements Required in Certificate or Opinion..... 91
SECTION 10.05. Rules by Trustee, Paying Agent and Note Registrar. 91
SECTION 10.06. Payments on Business Days.......................... 91
SECTION 10.07. Governing Law; Jurisdiction........................ 91
SECTION 10.08. No Recourse Against Others......................... 91
SECTION 10.09. Successors......................................... 91
SECTION 10.10. Counterparts....................................... 91
SECTION 10.11. Table of Contents; Headings........................ 92
SECTION 10.12. Severability....................................... 92
SECTION 10.13. Further Instruments and Acts....................... 92
</TABLE>
ANNEX A FORM OF REGULATION S CERTIFICATE
ANNEX B FORM OF RESTRICTED SECURITIES CERTIFICATE
ANNEX C FORM OF UNRESTRICTED SECURITIES CERTIFICATE
ANNEX D FORM OF CLEARING SYSTEM CERTIFICATE
ANNEX E FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP
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INDENTURE, dated as of January , 2000, between FOCAL COMMUNICATIONS
CORPORATION ("Company"), a Delaware corporation having its principal office at
200 N. LaSalle, Chicago, Illinois 60601, and Harris Trust and Savings Bank, an
Illinois banking corporation, as trustee hereunder (the "Trustee"), having its
corporate trust office at 311 West Monroe Street, Chicago, Illinois 60606.
RECITALS
WHEREAS, the Company has duly authorized the issuance of $275,000,000
aggregate principal amount of its 11.875% Senior Notes due 2010 ("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.
WHEREAS, all things necessary to make the Notes, when executed by the
Company and authenticated and delivered by the Trustee hereunder, duly issued by
the Company, the valid obligations of the Company, and to make this Indenture
(as defined herein) a valid instrument of the Company, in accordance with its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration
of the premises and the purchase of the Notes by the Holders (as defined herein)
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Notes, as follows:
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.0 Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person; provided that such
Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such other Person merging
with or into or becoming a Subsidiary of such specified Person.
"Act" when used with respect to any Holder, has the meaning set forth in
Section 1.05(a).
<PAGE>
"Additional Interest" has the meaning set forth in the form of Note
contained in Section 2.03.
"Additional Interest Payment Date" has the meaning set forth in Section
2.13.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person; provided that each Unrestricted Subsidiary shall be deemed to be an
Affiliate of the Company and of each other Subsidiary of the Company; provided
further that neither the Company nor any of its Restricted Subsidiaries shall be
deemed to be Affiliates of each other. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling," "under
common control with" and "controlled by"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of Voting Stock, by agreement or otherwise.
"Affiliate Transaction" has the meaning set forth in Section 4.16.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Note or beneficial interest therein, the rules and procedures
of the Depositary for such Note, Euroclear and Cedel, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Asset Sale" means any transfer, conveyance, sale, lease or other
disposition by the Company or any of its Restricted Subsidiaries (including an
amalgamation, consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to any Person (other than the Company or any other
Restricted Subsidiary) in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary, but excluding a disposition by a
Restricted Subsidiary to the Company or a Significant Restricted Subsidiary or
by the Company to a Significant Restricted Subsidiary) of (i) shares of Capital
Stock or other ownership interests of a Subsidiary of the Company (other than as
permitted by Section 4.15 or pursuant to an amalgamation, merger or
consolidation of a Restricted Subsidiary into the Company or any Restricted
Subsidiary), (ii) substantially all of the assets of the Company or any
Restricted Subsidiary representing a division or line of business (other than as
part of a Permitted Investment) or (iii) other assets or rights of the Company
or any of its Restricted Subsidiaries outside of the ordinary course of business
and, in each case, that is not governed by Article V of this Indenture; provided
that "Asset Sale" shall not include (i) sales or other dispositions of
inventory, receivables and other current assets in the ordinary course of
business or sales or other dispositions of equipment that has become worn-out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or a Restricted Subsidiary, (ii) contemporaneous
exchanges by the Company or any Restricted Subsidiary of Telecommunications
Assets for other Telecommunications Assets in the ordinary course of business;
provided that the applicable Telecommunications Assets received by the Company
or such Restricted Subsidiary have at least substantially equal Fair Market
Value to the Company or such Restricted Subsidiary (as evidenced by a Board
Resolution), and (iii) the sale or other disposition of any assets (a) with a
Fair Market Value (as certified in an Officers' Certificate) not in excess of
$1,000,000 or (b) that constitute Restricted Payments which are permitted under
Section 4.11.
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"Asset Sale Offer" has the meaning set forth in Section 4.08(c).
"Asset Sale Payment Date" has the meaning set forth in Section 4.08(d)(ii).
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present value
(discounted at a rate consistent with accounting guidelines, as determined in
good faith by the responsible accounting officer of such Person) of the payments
during the remaining term of the lease (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 a penalty (in which case the payments during the
remaining term shall include such penalty).
"Average Life" means, as of any date, with respect to any debt security or
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund or
mandatory redemption payment requirements) of such debt security or Disqualified
Stock multiplied in each case by (b) the amount of such principal or redemption
payment, by (ii) the sum of all such principal or redemption payments.
"Bankruptcy Law" has the meaning set forth in Section 6.01(f).
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors.
"Board Resolution" means a copy of a resolution, certified by the Secretary
of the Company to have been a duly adopted resolution of the Board of Directors
and to be in full force and effect on the date of such certification, and
delivered to the Trustee within 60 days of adoption thereof.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the City of New York, New
York or in the City of Chicago, Illinois are authorized or obligated by law,
executive order or regulation to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal Property which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person prepared in accordance with GAAP, and the maturity
thereof shall be the date of the last payment of rent or any amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without payment of a penalty. The principal amount of such obligation
shall be the capitalized amount that would appear on the face of a balance sheet
of such Person in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
participation or other equivalents of an equity interest (however designated) in
such
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Person and any rights (other than Indebtedness convertible into an equity
interest), warrants or options to subscribe for or acquire an equity interest in
such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received in respect of such sale by such Person in the
form of cash and Eligible Cash Equivalents.
"Cedel" means Cedel Bank, S.A. (or any successor securities clearing
agency).
"Change of Control" shall be deemed to occur if (i) the sale, conveyance,
transfer or lease of all or substantially all of the assets of the Company to
any "Person" or "group" (as such term is used in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(i) under
the Exchange Act), other than any Permitted Holder or any Restricted Subsidiary,
shall have occurred, (ii) any "Person" or "group" (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act including any group acting
for the purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(i) under the Exchange Act), other than any Permitted
Holder, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the total voting power of all classes of the
Voting Stock of the Company (including any warrants, options or rights to
acquire such Voting Stock), calculated on a fully diluted basis, (iii) at any
time after a Public Market shall exist, during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors (together with (a) any directors whose election or appointment by the
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of a majority 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 and (b) any
directors elected pursuant to the terms of any shareholders' agreement among the
Company's shareholders) cease for any reason to constitute a majority of the
Board of Directors then in office or (iv) the merger, amalgamation or
consolidation of the Company with or into another Person or the merger of
another Person with or into the Company shall have occurred, and the securities
of the Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of the
Company are changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or exchanged for,
in addition to any other consideration, securities of the surviving corporation
that represent immediately after giving effect to such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
corporation.
"Change of Control Offer" has the meaning set forth in Section 4.07(a).
"Change of Control Payment Date" has the meaning set forth in Section
4.07(b)(ii).
"Change of Control Purchase Price" has the meaning set forth in Section
4.07(a).
"Change of Control Redemption" has the meaning set forth in Section
4.07(e).
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<PAGE>
"Change of Control Redemption Date" has the meaning set forth in Section
4.07(e).
"Change of Control Redemption Purchase Price" has the meaning set forth in
Section 4.07(e).
"clearing agency" has the meaning set forth in Section 3(a)(23) of the
Exchange Act.
"Commission" means the United States 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, the body
performing such duties at such time.
"Common Stock" means, with respect to the Company, the Common Stock, $.01
par value, of the Company.
"Company" means the party named as such in the preamble to this Indenture
until a successor replaces it pursuant to the applicable provisions hereof and,
thereafter, means such successor.
"Company Order" means a written order signed in the name of the Company by
(i) its Chairman of the Board, President, Executive Vice President, Chief
Financial Officer or a Vice Chairman and (ii) a Vice President, its Treasurer,
an Assistant Treasurer, its Corporate Secretary or an Assistant Secretary.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased, to the extent deducted in arriving at Consolidated Net
Income, by the sum of (i) Consolidated Interest Expense of the Company and its
Restricted Subsidiaries for such period, (ii) Consolidated Income Tax Expense of
the Company and its Restricted Subsidiaries for such period, (iii) the
consolidated depreciation and amortization expense of the Company and its
Restricted Subsidiaries for such period, (iv) any non-cash expense related to
the issuance to employees of the Company or any Restricted Subsidiary of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, (v) any
charge related to any premium or penalty paid in connection with redeeming or
retiring any Indebtedness prior to its stated maturity and (vi) any non-cash
expense related to a purchase accounting adjustment not requiring an accrual or
reserve and separately disclosed in the Company's consolidated statement of
operations and deficit, and decreased by the amount of any non-cash item that
increases such Consolidated Net Income, all as determined on a consolidated
basis in accordance with GAAP; provided that (a) there shall be excluded from
the Consolidated Cash Flow Available for Fixed Charges (if positive) of any
Restricted Subsidiary (calculated separately for such Restricted Subsidiary in
the same manner as provided above for the Company) that is subject to a
restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restriction and (b) (1) if, during or after such period, the Company or any
of its Restricted Subsidiaries shall have made any disposition of any Person or
business, then Consolidated Cash Flow Available for Fixed Charges of the Company
and its Restricted Subsidiaries shall be computed so as to give pro forma effect
to such disposition and (2) if, during or after such period, the Company or any
of its Restricted Subsidiaries
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<PAGE>
completes an acquisition of any Person or business which immediately after such
acquisition is a Subsidiary of such Person or whose assets are held directly by
the Company or a Restricted Subsidiary, then Consolidated Cash Flow Available
for Fixed Charges shall be computed so as to give pro forma effect to the
acquisition of such Person or business.
"Consolidated Income Tax Expense" for any period means the aggregate amount
of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means for any period the interest expense
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with GAAP,
including without limitation or duplication (or, to the extent not so included,
with the addition of), (i) the amortization of Indebtedness discount (including
original issue discount), (ii) any payments or fees with respect to letters of
credit, bankers' acceptances or similar facilities, (iii) fees with respect to
interest rate swap or similar agreements or foreign currency hedge, exchange or
similar agreements, (iv) Preferred Stock dividends of Restricted Subsidiaries
(other than dividends paid in shares of Preferred Stock that is not Disqualified
Stock) declared and paid or payable, (v) accrued Disqualified Stock dividends of
the Company and its Restricted Subsidiaries, whether or not declared or paid,
(vi) interest on Indebtedness guaranteed by the Company and its Restricted
Subsidiaries, (vii) the portion of any Capital Lease Obligation accruing during
such period that is allocable to interest expense in accordance with GAAP,
(viii) capitalized interest and (ix) commitment and other fees with respect to
senior credit facilities.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or net loss) of the Company and its Restricted
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP; provided that there shall be excluded therefrom, without duplication
(i) all items classified as extraordinary or non-recurring, (ii) any net income
(or net loss) of any Person other than the Company and its Restricted
Subsidiaries, except to the extent of the amount of dividends or other
distributions actually paid to the Company or its Restricted Subsidiaries by
such other Person during such period, (iii) the net income (or net loss) of any
Person acquired by the Company or any of its Restricted Subsidiaries in a
pooling-of-interests transaction for any period prior to the date of the related
acquisition, (iv) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan, (v) net gains (or net losses) in respect of
Asset Sales by the Company or its Restricted Subsidiaries, (vi) the net income
(or net loss) of any Restricted Subsidiary to the extent that the payment of
dividends or other distributions to the Company is restricted by the terms of
its constituting documents or any agreement, instrument, contract, judgment,
order, decree, statute, rule, governmental regulation or otherwise, except for
any dividends or distributions actually paid by such Restricted Subsidiary to
the Company, (vii) with regard to a non-wholly owned Restricted Subsidiary, any
aggregate net income (or net loss) in excess of the Company's or such Restricted
Subsidiary's pro rata share of such non-wholly owned Restricted Subsidiary's net
income (or net loss) and (viii) the cumulative effect of changes in accounting
principles.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall
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not take account of Unrestricted Subsidiaries), less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the Company or
any of its Restricted Subsidiaries, each item to be determined in conformity
with GAAP.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under GAAP would be included on a consolidated balance sheet of such Person and
its Restricted Subsidiaries after deducting therefrom all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, which in each case under GAAP would be included on such
consolidated balance sheet.
"Corporate Trust Office" means the principal office of the Trustee in the
City of Chicago, Illinois where at any particular time its corporate trust
business shall be principally administered, which at the date hereof is located
at 311 West Monroe Street, Chicago, Illinois 60606.
Covenant Defeasance" has the meaning set forth in Section 8.0.
"Default" means any event, act or condition, the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning set forth in Section 2.13(b).
"Defeasance" has the meaning set forth in Section 8.02(a).
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in the form of one or more Global Notes, The Depository Trust Company
for so long as it shall be a clearing agency registered under the Exchange Act,
or such successor as the Company shall designate from time to time in an
Officers' Certificate delivered to the Trustee.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness by the holder thereof at any time, in whole or in part, on or prior
to the Stated Maturity of the Notes.
"Duff & Phelps" means Duff & Phelps Credit Rating Co., or, if Duff & Phelps
Credit Rating Co. shall cease rating the specified debt securities and such
ratings business with respect thereto shall have been transferred to a successor
Person, such successor Person; provided that if Duff & Phelps Credit Rating Co.
ceases rating the specified debt securities and its rating business with respect
thereto shall not have been transferred to any successor Person or such
successor Person is Standard & Poor's or Moody's, then "Duff & Phelps" shall
mean any other "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act) (other than Standard & Poor's or
Moody's, as applicable, if either is such successor Person) that rates the
specified debt securities and that shall have been designated by the Company in
an Officers' Certificate.
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"Eligible Cash Equivalents" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof, in
each case with a term of not more than one year, (ii) investments in time
deposit accounts, term deposit accounts, certificates of deposit, money-market
deposits, bankers' acceptances and obligations maturing within one year of the
date of acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America or any state thereof, and which
bank or trust company has, or the obligation of which bank or trust company is
guaranteed by a bank or trust company which has, capital, surplus and undivided
profits aggregating in excess of $150,000,000 and has outstanding debt which is
rated "A" (or such similar equivalent rating) or higher by at least one
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor, (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper, maturing
not more than 180 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to Standard & Poor's, (v) investments in securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth, territory or province of the United
States of America or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's or "A-2" by Moody's, (vi) other debt
obligations maturing in 365 days or less issued by a corporation (other than an
Affiliate of the Company) organized under the laws of the United States or any
state thereof and rated at least "A-" by S&P or "A3" by Moody's and (vii) with
respect to any Foreign Subsidiary, investments by such Foreign Subsidiary that
are comparable to those described in clauses (iv) and (v) above but with respect
to such Foreign Subsidiary's country of organization or country in which it
conducts its business operations.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Event of Default" has the meaning set forth in Section 6.01.
"Excess Proceeds" has the meaning set forth in Section 4.08(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Note" means any Note issued in exchange for an Original Note or
Original Notes pursuant to the Registered Exchange Offer or otherwise registered
under the Securities Act and any Successor Note thereto.
"Exchange Offer Registration Statement" has the meaning set forth in the
form of the Notes contained in Section 2.03.
"Fair Market Value" means, with respect to any asset or Property, the sale
value that would be obtained in an arm's-length transaction between an informed
and
8
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willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy, as determined in good faith by the Board of
Directors.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company which
(i) is not organized under the laws of the United States, any state thereof or
the District of Columbia, and (ii) conducts substantially all of its business
operations outside the United States of America.
"GAAP" means generally accepted principles in the United States,
consistently applied, which are in effect on the date of this Indenture.
"Global Note(s)" means the Note or Notes that evidences all or part of the
Notes and bears the legend set forth in Section 2.02.
"Guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings correlative to
the foregoing); provided that the term "Guaranteed" and any meaning correlative
thereto shall not include endorsements for collection or deposit.
"Holder" means (i) in the case of any certificated Note, the Person in
whose name such certificated Note is registered in the Note Register and (ii) in
the case of any Global Note, the Depositary.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
"Incurrable" and "Incurring" shall have meanings correlative to the foregoing);
provided that a change in GAAP that results in an obligation of such Person that
exists at such time becoming Indebtedness shall not be deemed an Incurrence of
such Indebtedness and that the accrual of interest shall not be deemed an
Incurrence of Indebtedness. Indebtedness otherwise Incurred by a Person before
it becomes a Subsidiary of the Company (whether by merger, amalgamation,
consolidation, acquisition or otherwise) shall be deemed to have been Incurred
by the Company at the time at which such Person becomes a Subsidiary of the
Company.
"Indebtedness" means, at any time (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
money borrowed, (ii) any obligation of such Person evidenced by bonds,
debentures, notes, Guarantees or other similar instruments, including any such
obligations incurred in connection with the acquisition of Property, assets or
businesses, excluding trade accounts payable made in the ordinary course of
business, (iii) any reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (iv) any obligation of such Person issued or assumed as
the deferred purchase price of Property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business, which in either case are being contested in good faith), (v) any
Capital Lease Obligation of such Person, (vi) the maximum fixed redemption or
repurchase price of Disqualified Stock of such Person and,
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to the extent held by Persons other than such Person or its Restricted
Subsidiaries, the maximum fixed redemption or repurchase price of Preferred
Stock of such Person's Restricted Subsidiaries, at the time of determination,
(vii) any Attributable Indebtedness with respect to any Sale and Leaseback
Transaction to which such Person is a party, (viii) Indebtedness of other
Persons secured by a Lien to which the Property owned or held by such first
Person is subject, whether or not the obligation or obligations secured thereby
shall have been assumed (the amount of such Indebtedness being deemed to be the
lesser of the value of such property and assets or the amount of the
Indebtedness so secured) and (ix) any obligation of the type referred to in
clauses (i) through (viii) of this definition of another Person and all
dividends and distributions of another Person the payment of which, in either
case, such Person has Guaranteed or is responsible or liable for, directly or
indirectly, as obligor, Guarantor or otherwise. For purposes of the preceding
sentence, the maximum fixed repurchase price of any Disqualified Stock or
Preferred Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such stock as if such stock were repurchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Indenture; provided that, if such stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such stock. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Indenture" means this instrument as originally executed or 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, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument, and any such supplemental indenture, respectively.
"Initial Purchasers" means Salomon Smith Barney Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, TD
Securities (USA) Inc. and Banc of America Securities LLC.
"Investment" in any Person means any direct, indirect or contingent (i)
advance or loan to, Guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all of
the business, assets or stock or other evidence of beneficial ownership of such
Person; provided that Investments shall exclude extensions of trade credit in
the ordinary course of business. The amount of any Investment shall be the
original cost of such Investment, plus the cost of all additions thereto and
minus the amount of any portion of such Investment repaid to such Person in cash
as a repayment of principal or a return of capital, as the case may be, but
without any other adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
transfer.
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"Issue Date" means the date on which the Notes are first authenticated and
delivered under this Indenture.
"Lien" means, with respect to any Property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, set-off right, easement,
encumbrance, preference, priority or other security or similar agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property or other asset (including any conditional sale or title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means, when used with respect to a Note, the date on which the
principal of such Note becomes due and payable as provided therein or in this
Indenture, whether on the Change of Control Payment Date or purchase date
established pursuant to the terms of this Indenture with regard to an Asset Sale
Offer, as applicable, or by declaration of acceleration, call for redemption or
otherwise.
"Moody's" means Moody's Investors Service, Inc., or, if Moody's Investors
Service, Inc. shall cease rating the specified debt securities and such ratings
business with respect thereto shall have been transferred to a successor Person,
such successor Person; provided that if Moody's Investors Service, Inc. ceases
rating the specified debt securities and its ratings business with respect
thereto shall not have been transferred to any successor Person or such
successor Person is Duff & Phelps or Standard & Poor's, then "Moody's" shall
mean any other "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act) (other than Duff & Phelps or
Standard & Poor's, as applicable, if either is such successor Person) that rates
the specified debt securities and that shall have been designated by the Company
in an Officers' Certificate.
"Net Cash Proceeds" means (i) with respect to the sale of any Property or
other assets by the Company or any of the Restricted Subsidiaries, Cash Proceeds
received net of (a) all reasonable out-of-pocket expenses of the Company or such
Restricted Subsidiary incurred in connection with such sale, including, all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred (but excluding any finder's fee or broker's fee payable to any
Affiliate of the Company) and all U.S. federal, state, provincial, foreign and
local taxes arising in connection with such sale that are paid or required to be
accrued as a liability under GAAP by the Company or its Restricted Subsidiaries,
(b) all payments made or required to be made by the Company or its Restricted
Subsidiaries on any Indebtedness which is secured by such Properties or other
assets in accordance with the terms of any Lien upon or with respect to such
Properties or other assets or which must, by the terms of such Lien, or in order
to obtain a necessary consent to such transaction or by applicable law, be
repaid in connection with such sale, (c) all contractually required
distributions and other payments made to minority interest holders (but
excluding distributions and payments to Affiliates of the Company) in Restricted
Subsidiaries as a result of such transaction and (d) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reasonable reserve against any liabilities associated with such assets and
retained by the Company or any Restricted Subsidiary thereof, as the case may
be, after such transaction, including liabilities under any indemnification
obligations and severance and other employee termination costs associated with
such transaction, in each case as determined by the Board of Directors, in its
reasonable good faith judgment evidenced by a Board Resolution; provided that,
in the event that any consideration for a transaction (which
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would otherwise constitute Net Cash Proceeds) is required to be held in escrow
pending determination of whether a purchase price adjustment or indemnification
or other payment or similar adjustment will be made, such consideration (or any
portion thereof) shall become Net Cash Proceeds only at such time as it is
released to the Company or the Restricted Subsidiaries from escrow; and
provided, further, that any non-cash consideration received in connection with
any transaction, which is subsequently converted to cash, shall be deemed to be
Net Cash Proceeds at such time, and shall thereafter be applied in accordance
with this Indenture and (ii) with respect to any sale, issuance, transfer or
other disposition of Capital Stock, the proceeds of such sale, issuance,
transfer or other disposition in the form of cash or cash equivalents, net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees and reasonable
out-of-pocket expenses of the Company or any Subsidiary of the Company incurred
in connection with such sale, issuance, transfer or other disposition and net of
taxes paid or payable as a result thereof.
"Note Register" and "Note Registrar" have the respective meanings specified
in Section 2.06(a).
"Notes" has the meaning set forth in the Recitals to this Indenture and
more particularly means any of the Notes authenticated and delivered under this
Indenture, including the Original Notes and the Exchange Notes, as the context
may require.
"Offer Purchase Price" has the meaning set forth in Section 4.08(c).
"Officer" means the Chairman of the Board of Directors, a Vice Chairman of
the Board of Directors, the President, an Executive Vice President, the Chief
Executive Officer, the Chief Financial Officer, the Chief Accounting Officer,
the Treasurer, an Assistant Treasurer, the Corporate Secretary or an Assistant
Secretary.
"Officers' Certificate" means a certificate signed by (i) the President or
the Chief Executive Officer and (ii) the Chief Accounting Officer, Chief
Financial Officer or the Treasurer, of the Company and delivered to the Trustee,
which shall comply with Section 10.04, to the extent applicable.
"Opinion of Counsel" means a written opinion from legal counsel (who may be
counsel to the Company or the Trustee) who is acceptable to the Trustee, which
opinion shall comply with the provisions of Section 10.04, to the extent
applicable.
"Original Notes" means all Notes other than Exchange Notes.
"Paying Agent" means any Person authorized by the Company to make payments
of principal, premium or interest with respect to the Notes on behalf of the
Company.
"Permanent Regulation S Global Note" has the meaning set forth in Section
2.08(g)(v).
"Permitted Holders" means Madison Dearborn Partnership L.P., Frontenac
V.I.L.P. and Battery Ventures III, L.P., and Affiliates (other than the Company
and the Restricted Subsidiaries) of each of the foregoing.
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"Permitted Investments" means (i) Eligible Cash Equivalents, (ii)
Investments in any Person engaged in a Telecommunications Business as a result
of which such Person becomes a Restricted Subsidiary in compliance with this
Indenture, (iii) Investments pursuant to agreements or obligations of the
Company or a Restricted Subsidiary, in effect on the Issue Date, to make
Investments in clause (ii) above, (iv) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits, (v) Investments, Capital
Stock, bonds, notes, debentures or other debt or equity securities received as a
result of Asset Sales permitted under Section 4.08, (vi) Investments in
existence at the Issue Date, (vii) commission, payroll, travel and similar
advances made in the ordinary course of business to cover matters that are
expected at the time of such advances ultimately to be treated as expenses in
accordance with GAAP, (viii) loans or advances to employees and directors made
in the ordinary course of business at any time outstanding not to exceed in the
aggregate $5,000,000 and (ix) stock, obligations or securities received in
satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor, (ii) other Liens incidental to the conduct of the Company's or a
Restricted Subsidiary's business or the ownership of its Property and assets,
and which do not in the aggregate materially detract from the value of the
Company's and its Restricted Subsidiaries' Property or other assets when taken
as a whole, or materially impair the use thereof in the operation of its
business, (iii) Liens with respect to assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to secure Indebtedness owing to the Company, (iv)
Liens incurred or pledges and deposits made in the ordinary course of business
in connection with workers' compensation and unemployment insurance and other
types of social security, (v) statutory Liens of landlords, carriers,
warehousemen, mechanics, materialmen, repairmen and other types of statutory
obligations, (vi) deposits made to secure the performance of tenders, bids,
leases, surety and appeal bonds, government contracts, performance and return-
of-money bonds and other obligations of like nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed money),
(vii) zoning restrictions, servitudes, easements, rights-of-way, restrictions
and other similar charges or encumbrances incurred in the ordinary course of
business which, in the aggregate, do not materially detract from the value of
the Property subject thereto or interfere with the ordinary conduct of the
business of the Company or its Restricted Subsidiaries, (viii) Liens arising out
of judgments or awards against the Company or any Restricted Subsidiary with
respect to which the Company or such Restricted Subsidiary is prosecuting an
appeal or proceeding for review and the Company or such Restricted Subsidiary is
maintaining adequate reserves in accordance with GAAP, (ix) any interest or
title of a lessor in the Property subject to any lease other than a Capital
Lease, (x) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries, (xi) Liens encumbering Property or other assets under construction
arising from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such Property or other assets, (xii) Liens
on Property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; provided that such Liens do not extend to or cover any
Property or other assets of the Company or any Restricted Subsidiary other than
the Property or other assets acquired, (xiii) Liens securing reimbursement
obligations with respect to letters of credit that encumber documents and other
Property relating to such
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letters of credit and the products and proceeds thereof, (xiv) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods, (xv) Liens arising
out of conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business, (xvi) Liens on or sales of
receivables and (xvii) Liens in favor of the Trustee pursuant to this Indenture.
"Person" means any individual, corporation, limited liability company,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same Indebtedness as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.09 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" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation in accordance with Article 11
of Regulation S-X promulgated under the Securities Act (to the extent
applicable), as interpreted in good faith by the Board of Directors, or
otherwise, a calculation made in good faith by the Board of Directors, as the
case may be.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or other asset, whether real, personal or mixed, or
tangible or intangible, excluding Capital Stock of any other Person.
"Public Equity Offering" means an underwritten primary public offering of
the Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company immediately prior to the consummation of such Public
Equity Offering has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Purchase Agreement" means the Purchase Agreement, dated as of January 7,
2000 among the Company and the Initial Purchasers, as such agreement may be
amended from time to time.
"Qualified Stock" of any Person means a class of Capital Stock other than
Disqualified Stock.
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"Redemption Date" means, when used with respect to any Note or part thereof
to be redeemed hereunder, the date fixed for redemption of such Notes pursuant
to the terms of the Notes and this Indenture.
"Redemption Price" means, when used with respect to any Note or part
thereof to be redeemed hereunder, the price fixed for redemption of such Note
pursuant to the terms of the Notes and this Indenture, plus accrued and unpaid
interest thereon, if any, to the Redemption Date.
"Registered Exchange Offer" has the meaning set forth in the form of the
Notes contained in Section 2.03.
"Registration Agreement" means the Exchange and Registration Agreement,
dated as of January , 2000, between the Company and the Initial Purchasers, as
such agreement may be amended from time to time.
"Regular Record Date" means, for the interest payable on any interest
payment date, the date specified in Section 2.13(a).
"Regulation S" means Regulation S under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Regulation S Certificate" means a certificate substantially in the form
set forth in Annex A hereof.
"Regulation S Global Note" has the meaning specified in Section 2.01(c).
"Regulation S Notes" means all Notes offered and sold outside the United
States in reliance on Regulation S. Such term includes the Regulation S Global
Note.
"Restricted Global Note" has the meaning specified in Section 2.01(c).
"Restricted Notes" means all Notes offered and sold to "qualified
institutional buyers" (as defined in Rule 144A) in reliance on Rule 144A. Such
term includes the Restricted Global Note.
"Restricted Notes Certificate" means a certificate substantially in the
form set forth in Annex B hereof.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared or paid to any Person other than the
Company or a Restricted Subsidiary on the Capital Stock of any Restricted
Subsidiary, in each case, other than dividends, distributions or payments made
solely in Qualified Stock of the Company or such Restricted Subsidiary and other
than pro rata dividends or other distributions made by a Restricted Subsidiary
that is not a Significant Restricted Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Restricted Subsidiary that is
an entity other than a corporation), (ii) a payment made by the Company or any
of its Restricted Subsidiaries (other than to the Company or any Restricted
Subsidiary) to purchase, redeem, acquire or retire any Capital Stock of the
Company or (iii) a payment made by the Company or any of its Restricted
Subsidiaries (other than a payment made solely in Qualified Stock of the
Company) to redeem,
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repurchase, defease (including an in-substance or legal defeasance) or otherwise
acquire or retire for value (including pursuant to mandatory repurchase
covenants), prior to any scheduled maturity, scheduled sinking fund or mandatory
redemption payment, Indebtedness of the Company which is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the Notes
and which was scheduled to mature on or after the maturity of the Notes (other
than permitted refinancings thereof) or (iv) an Investment in any Person,
including an Unrestricted Subsidiary or the designation of a Subsidiary as an
Unrestricted Subsidiary, other than (a) a Permitted Investment, (b) an
Investment by the Company in a Restricted Subsidiary engaged in a
Telecommunications Business or (c) an Investment by a Restricted Subsidiary in
the Company or in a Restricted Subsidiary engaged in a Telecommunications
Business.
"Restricted Period" means the period of 40 consecutive days beginning
on and including the later of (i) the day on which Notes are first offered to
persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (ii) the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated as an Unrestricted Subsidiary pursuant to Section 4.17.
"Rule 144" means Rule 144 under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Notes" means the Notes purchased by the Initial Purchasers
from the Company pursuant to the Purchase Agreement, other than the Regulation S
Notes.
"Sale and Leaseback Transaction" means, with respect to any Person,
any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"SEC Reports" has the meaning set forth in Section 4.18(a).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Securities Act Legend" means a legend substantially in the form of
legend required in the form of Note set forth in Section 2.02 to be placed upon
each Regulation S Note and each Restricted Note.
"Senior Indebtedness" means all Indebtedness of the Company which is
not, expressly by its terms, subordinate or junior in right of payment to the
Notes.
"Shelf Registration Statement" has the meaning set forth in the form
of the Notes contained in Section 2.03.
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"Significant Restricted Subsidiary" means any Restricted Subsidiary of
which the Company owns, directly or indirectly, 80% or more of all of the
outstanding Capital Stock or other ownership interests (other than any
director's qualifying shares).
"Special Record Date" means a date fixed by the Trustee pursuant to
Section 2.13(b)(i) for the payment of Defaulted Interest.
Standard & Poor's" means Standard & Poor's Ratings Group, a division
of McGraw Hill Corporation, or, if Standard & Poor's Ratings Group shall cease
rating the specified debt securities and such ratings business with respect
thereto shall have been transferred to a successor Person, such successor
Person; provided that if Standard & Poor's Ratings Group ceases rating the
specified debt securities and its ratings business with respect thereto shall
not have been transferred to any successor Person or such successor Person is
Duff & Phelps or Moody's, then "Standard & Poor's" shall mean any other
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act) (other than Duff & Phelps or Moody's, as applicable,
if either is such successor Person) that rates the specified debt securities and
that shall have been designated by the Company in an Officers' Certificate.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Step-Up" has the meaning set forth in the form of the Note contained
in Section 2.03.
"Subordinated Indebtedness" means Indebtedness of the Company as to
which the payment of principal (and premium, if any) and interest and other
payment obligations in respect of such Indebtedness shall be subordinate to the
prior payment in full of the Notes to at least the following extent: (i) no
payments of principal (or premium, if any) or interest on or otherwise due in
respect of such Indebtedness may be permitted for so long as any Default in the
payment of principal (or premium, if any) or interest on the Notes exists, (ii)
in the event that any other Default exists, upon notice by Holders of 25% or
more of the aggregate principal amount of the outstanding Notes to the Trustee,
the Trustee shall have the right to give notice to the Company and the holders
of such Indebtedness (or trustees or agents therefor) of a payment blockage, and
thereafter no payments of principal (or premium, if any) or interest on or
otherwise due in respect of such Indebtedness may be made for a period of 179
days from the date of such notice, and (iii) such Indebtedness may not (a)
provide for payments of principal of such Indebtedness at the stated maturity
thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Indebtedness upon an event of default thereunder), in each
case prior to the final Stated Maturity of the Notes or (b) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Indebtedness at the option of the holder thereof prior to
the final Stated Maturity of the Notes, other than a redemption or other
retirement at the option of the holder of such
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Indebtedness (including pursuant to an offer to purchase made by the Company)
which is conditioned upon a change of control of the Company pursuant to
provisions substantially similar to those described under Section 4.07(a)
through Section 4.07(d) (and which shall provide that such Indebtedness will not
be repurchased pursuant to such provisions prior to the Company's repurchase of
the Notes required to be repurchased by the Company pursuant to the provisions
described under Section 4.07(a) through Section 4.07(d)).
"Subsidiary" means, with respect to any Person, (i) any corporation
more than 50% of the outstanding shares of Voting Stock of which is owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such
Person, (ii) any general partnership, joint venture or similar entity, more than
50% of the outstanding partnership or similar interests of which are owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such Person
and (iii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner.
"Successor Note" of any particular Note means every Note issued after,
and evidencing all or a portion of the same Indebtedness as that evidenced by,
such particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.09 hereof 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.
"Surviving Entity" has the meaning set forth in Section 5.01.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, real or personal, whether tangible or intangible,
used or intended for use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting,
or providing services relating to the transmission of, voice, video or data
through owned or leased wireline or wireless transmission facilities, (ii)
creating, developing, constructing, installing, repairing, maintaining or
marketing communications-related systems, network equipment and facilities,
software and other products, or (iii) evaluating, owning, operating,
participating in or pursuing any other business that is primarily related to
those identified in the foregoing clauses (i) or (ii) above (in the case of this
clause (iii), however, in a manner consistent with the Company's manner of
business on the Issue Date), and shall, in any event, include all businesses in
which the Company or any of its Subsidiaries are engaged on the Issue Date or
have entered into agreements to engage in or to acquire a company to engage in
or contemplate engaging in, as expressly set forth in the final offering
memorandum relating to the offering of the Original Notes by the Initial
Purchasers; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of
Directors.
"Temporary Notes" has the meaning set forth in Section 2.11(a).
"Temporary Regulation S Global Notes" has the meaning set forth in
Section 2.01(c).
"Total Net Incremental Equity" means, at any time of determination,
the sum of, without duplication (i) the aggregate Net Cash Proceeds received by
the
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Company from capital contributions in respect of existing Capital Stock (other
than Disqualified Stock) or the issuance or sale of Capital Stock (other than
Disqualified Stock or Qualified Stock to the extent the proceeds of such
Qualified Stock are used to retire any Capital Stock or Indebtedness of the
Company pursuant to Section 4.11(b)(ii) but including Capital Stock issued upon
the conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Disqualified Stock))
subsequent to the Issue Date, other than to a Subsidiary of the Company, plus
(ii) the Fair Market Value (determined at the time of issuance) of any Capital
Stock (other than Disqualified Stock) of the Company issued as consideration for
the acquisition of Capital Stock or assets of any Person engaged in the
Telecommunications Business, plus (iii) the aggregate Net Cash Proceeds received
by the Company or any Restricted Subsidiary from the sale, disposition, maturity
or repayment (in whole or in part) of any Investment that is made after the
Issue Date and that constituted a Restricted Payment declared or made on and
after the Issue Date to the extent made in reliance on Section 4.11(a)(iii)(C)
or Section 4.11(b)(vi)(B), but only such Net Cash Proceeds up to an amount equal
to the lesser of (a) the return of capital with respect to the applicable
portion of such Investment and (b) the cost of the applicable portion of such
Investment, in either case, less the cost of the disposition of such Investment,
plus (iv) the net reduction in Investments in any Person made pursuant to
Section 4.11(b)(vi)(B) resulting from such Person becoming a Restricted
Subsidiary (valued as provided in the definition of "Investment"), less (v) the
aggregate amount of all Restricted Payments made after the Issue Date (x) to the
extent made in reliance on Section 4.11(a)(iii)(C) or (y) to the extent made in
reliance on Section 4.11(b)(vi)(B).
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
effect on the date of this Indenture except as required by Section 9.04;
provided, that in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939, as so amended.
"Trust Officer" means any officer assigned to the Corporate Trust
Division (or any successor thereto), including any Vice President, Assistant
Vice President, Trust Officer, any Assistant Secretary, any trust officer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and,
thereafter, means such successor.
"Unrestricted Notes Certificate" means a certificate substantially in
the form set forth in Annex C hereof.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to Section 4.17.
"U.S. Government Obligations" means (i) securities that are (a) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of
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America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and (ii)
depository receipts issued by a bank (as defined in Section 3(a)(2) of the
Securities Act) as custodian with respect to any U.S. Government Obligation
which is specified in clause (i) above and held by such bank for the account of
the holder of such depository receipt, or with respect to any specific payment
of principal or interest on any U.S. Government Obligation which is so specified
and held, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of principal or interest of
the U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests (other than any director's qualifying shares) of which shall
at the time be owned by such Person or by one or more other Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more other
Wholly Owned Restricted Subsidiaries of such Person.
SECTION 1.02 Incorporation by Reference of Trust Indenture Act. (a)
Whenever this Indenture refers to a provision of the Trust Indenture Act, the
provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms incorporated by reference in this
Indenture have the following meanings:
(i) "indenture securities" means the Notes;
(ii) "indenture security holder" means a Holder;
(iii) "indenture to be qualified" means this Indenture;
(iv) "indenture trustee" or "institutional trustee" means the
Trustee; and
(v) "obligor" on the indenture securities means the Company or
other obligor on the Notes, if any.
(b) All other Trust Indenture Act terms used or incorporated by
reference in this Indenture that are defined by the Trust Indenture Act, defined
by Trust Indenture Act reference to another statute or defined by Commission
rule have the meanings assigned to them therein.
SECTION 1.03 Rules of Construction. Unless the context otherwise
requires:
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(a) 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;
(b) Section number and article number references are to sections
or articles of this Indenture, unless the context indicates otherwise;
(c) "or" is not exclusive;
(d) "including" means including without limitation;
(e) all references herein to "interest" on the Notes shall
include Additional Interest; and
(f) all dollar amounts are expressed in United States dollars.
SECTION 1.04 Form of Documents Delivered to Trustee. (a) 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.
(b) 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 1.05. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are received by 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 (subject to Section 7.01) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by an acknowledgment 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 such signer's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of the signer's 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.
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(c) The ownership of Notes shall be proved by the Note Register.
SECTION 1.06. Satisfaction and Discharge. (a) This Indenture shall
cease to be of further effect (except as to the rights of Holders under Sections
2.09, 2.11, 4.02, 4.03 and 4.04) and the Trustee, on receipt of a Company Order
requesting such action, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when (i) either (A) all
outstanding Notes have been delivered to the Trustee for cancellation or (B) all
such Notes not theretofore delivered to the Trustee for cancellation (1) have
become due and payable, (2) will become due and payable within one year or (3)
are to be called for redemption within one year under irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company, and the Company, in the
case of (1), (2) or (3) above, has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose, an amount in
United States dollars sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to, but not including, the date of
such deposit (in the case of Notes which have become due and payable) or to, but
not including, the Redemption Date, together with irrevocable instructions from
the Company in form and substance satisfactory to the Trustee directing the
Trustee to apply such funds to the payment thereof; (ii) the Company has paid or
caused to be paid all other sums payable hereunder 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 herein provided for relating
to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Section 1.06, the obligations of the Company to the Trustee under Section
7.07, and, if funds shall have been deposited with the Trustee in trust for the
Holders pursuant to this Section 1.06, the obligations of the Trustee under this
Section 1.06 and Section 4.03 shall survive.
(b) All money deposited with the Trustee pursuant to this Section
1.06 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, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money has been deposited with
the Trustee. If the Trustee or Paying Agent is unable to apply any money in
accordance with this Section 1.06 by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to this Section 1.06 until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
this Section 1.06; provided that, if the Company has made any payment of
interest on or principal, or premium, if any, on any Notes because of 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 cash held by the
Trustee or Paying Agent.
ARTICLE II
The Notes
---------
SECTION 2.01. Form and Dating. (a) The Notes and the certificate of
authentication of the Trustee thereon shall be substantially in the form
contained in this Article II, with such appropriate insertions, substitutions
and other variations as are
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required or permitted under this Indenture. Upon issuance, any such Note shall
be duly executed by the Company and authenticated by the Trustee as hereinafter
provided.
(b) The Notes may have such letters, numbers or other marks of
identification and such legends and endorsements, stamped, printed, lithographed
or engraved thereon, (i) as may be required to comply with this Indenture, any
law or any rule of any securities exchange on which the Notes may be listed, or
any agreement to which the Company is subject and (ii) as may be necessary to
conform to customary usage. Each Note shall be dated the date of its
authentication by the Trustee.
(c) Upon their original issuance, Rule 144A Notes shall be issued in
the form of one or more Global Notes registered in the name of the Depositary or
its nominee and deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee, for credit by the
Depositary to the respective accounts of beneficial owners of the Notes
represented thereby (or such other accounts as they may direct). Such Global
Notes, together with their Successor Notes which are Global Notes other than the
Regulation S Global Note, are collectively herein called the "Restricted Global
Note". Upon their original issuance, Regulation S Notes shall be issued in the
form of one or more temporary Global Notes registered in the name of the
Depositary or its nominee and deposited with the Trustee as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee, for
credit to the Agent Member accounts at the Depositary of Euroclear and/or CEDEL
for further credit by Euroclear and CEDEL, as the case may be, to the respective
accounts of the beneficial owners of the Notes represented thereby (or such
other accounts as they may direct) at Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System or CEDEL (the "Temporary
Regulation S Global Notes"). Interests in the Temporary Regulation S Global
Notes may only be held by the Agent Members of the Depositary for Euroclear and
CEDEL. Such Temporary Regulation S Global Notes, together with their Successor
Notes which are Global Notes (including Permanent Regulation S Global Notes, as
defined in Section 2.08(g)(v)) other than the Restricted Global Note are
collectively herein called the "Regulation S Global Note".
(d) Agent Members shall have no rights under this Indenture with
respect to any Global Note held on their behalf by the Depositary or its nominee
or by the Trustee, as custodian for the Depositary, or under such 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 of such Depositary governing the exercise of
the rights of a holder of a beneficial ownership interest in any Global Note.
(e) Except as provided in Section 2.08(i)(ii), owners of beneficial
ownership interests in Global Notes will not be entitled to receive physical
delivery of certificated Notes.
SECTION 2.02. Form of Face of Note. If a Global Note to be held by The
Depository Trust Company or its nominee, then insert--UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER,
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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 NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[If Restricted Notes or Regulation S Notes, then insert- THIS NOTE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER BY PURCHASING THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY
AND THE INITIAL PURCHASERS OF THIS NOTE THAT THIS NOTE MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY (OR SUCH
EARLIER DATE PROVIDED FOR IN RULE 144(K) UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THERETO) OF THE ISSUANCE HEREOF (OR A PREDECESSOR NOTE
HERETO) OR (Y) IF LATER, BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT
ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER
CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE), AND, IF SUCH TRANSFER IS
BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE PRIOR TO THE
EXPIRATION OF THE "40-DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE
903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT), A CERTIFICATE WHICH MAY BE
OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE
COMPANY AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR"
AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS NOTE) THAT IS ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES
AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR ANY OTHER
APPLICABLE SECURITIES LAWS, AND A CERTIFICATE
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IN THE FORM ATTACHED TO THIS NOTE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY
AND THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY
NOT TRANSFER THIS NOTE PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF
THE "40-DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF
REGULATION S UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER
THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR
HOLDING THIS NOTE AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH
CERTIFICATES AND OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO
CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND AGREES
FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144(A) OR (2) AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
AND THAT IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.]
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11.875% SENIOR NOTE DUE JANUARY 15, 2010
CUSIP NO. [ ]
No. $
Focal Communications Corporation, a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
indenture referred to on the reverse of this Note) for value received, hereby
promises to pay to _______________, or registered assigns, the principal amount
of ________ dollars ($__________) [if this Note is a Global Note, then insert:
(which principal amount may from time to time be increased or decreased to such
other principal amounts (which shall not exceed $__________ at any time) by
adjustments made to the Schedule annexed hereto by the Trustee hereinafter
referred to in accordance with the indenture referred to on the reverse of this
Note)] on January 15, 2010.
Interest Payment Dates: January 15 and July 15, commencing on
July 15, 2000.
Regular Record Dates: January 1 and July 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse of this Note or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
FOCAL COMMUNICATIONS CORPORATION
by _________________________________
Name:
Title:
Attest:
- ------------------------
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SECTION 2.03 Form of Reverse of Note.
-----------------------
1. Indenture.
---------
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11.875% Senior Notes due January 15, 2010 (the "Notes"),
issued under an indenture, dated as of January 12, 2000 (herein, as amended from
time to time, called the "Indenture"), between the Company and Harris Trust and
Savings Bank, as trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture). The Notes are limited in aggregate
principal amount to $275,000,000. Reference is hereby made to the Indenture and
all indentures supplemental thereto for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holder of this Note and of the terms upon which this Note is,
and is to be, authenticated and delivered. All terms used in this Note which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture.
2. Principal Amount and Interest.
-----------------------------
The Company will pay the principal amount of this Note on January 15,
2010.
This Note will bear interest on the outstanding aggregate principal
amount thereof at a rate of 11.875% per annum computed on a semiannual bond
equivalent basis from the Issue Date.
[If Original Notes, then insert--If (i) the Company has not filed a
registration statement (the "Exchange Offer Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), registering a
security substantially identical to this Note (except that such Note will not
contain terms with respect to transfer restrictions) pursuant to an exchange
offer (the "Registered Exchange Offer") on or prior to April 14, 2000 or (ii)
the Exchange Offer Registration Statement relating to the Registered Exchange
Offer has not become or been declared effective prior to August 12, 2000, or
(iii) neither the Registered Exchange Offer has been consummated nor a
registration statement registering this Note for resale (a "Shelf Registration
Statement") has been declared effective prior to September 11, 2000 or (iv)
after the Shelf Registration Statement has been declared effective, such Shelf
Registration Statement thereafter ceases to be effective or usable (subject to
certain exceptions set forth in the Registration Agreement) in connection with
resales of this Note or notes issued in exchange for this Note pursuant to the
Registered Exchange Offer ("Exchange Notes") in accordance with and during the
periods specified in the Registration Agreement without being succeeded promptly
by an additional registration statement filed and declared effective, in the
case of each of the immediately preceding clauses (i) through (iv) upon the
terms and conditions set forth in the Registration Agreement (each such event
referred to in such clauses (i) through (iv), a "Registration Default"), then
interest will accrue on this Note and the Exchange Notes (in addition to the
stated interest on this Note and the Exchange Notes) (the "Step-Up") and be
payable in cash semiannually in arrears on January 15 and July 15 of each year,
beginning on the January 15 or July 15 immediately following a Registration
Default (such interest to be payable to the Holder of record as of the January 1
and July 1, as the case may be, immediately preceding January 15 or July 15), at
a rate of 0.50% per annum during the 90-day period immediately following the
occurrence of a Registration Default and shall increase by a rate per annum
equal to 0.25% at the end of each subsequent 90-day period. In no event shall
such rate exceed 1.50% per annum in the aggregate regardless of the number of
Registration Defaults.]
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[If Exchange Notes, then insert--If after a shelf registration
statement registering this Note for resale (a "Shelf Registration Statement")
has been declared effective, such Shelf Registration Statement thereafter ceases
to be effective or usable (subject to certain exceptions set forth in the
Registration Agreement) in connection with resales of this Note in accordance
with and during the periods specified in the Registration Agreement without
being succeeded promptly by an additional registration statement filed and
declared effective, upon the terms and conditions set forth in the Registration
Agreement (a "Registration Default"), then interest will accrue on this Note (in
addition to the stated interest on this Note) (the "Step-Up") and be payable in
cash semiannually in arrears on January 15 and July 15 of each year, beginning
on the January 15 or July 15 immediately following a Registration Default (such
interest to be payable to the Holder of record as of the January 1 and July 1,
as the case may be, immediately preceding such January 15 or July 15), at a rate
of 0.50% per annum during the 90-day period immediately following the occurrence
of a Registration Default and shall increase by a rate per annum equal to 0.25%
at the end of each subsequent 90-day period. In no event shall such rate exceed
1.50% per annum in the aggregate regardless of the number of Registration
Defaults. Interest accruing as a result of the Step Up is referred to herein as
"Additional Interest." The amount of accrued Additional Interest shall be
determined on the basis of the number of days actually elapsed.]
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 interest rate payable on this Note.
Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice of which
shall be given to the Holder of this Note not less than 10 calendar days prior
to such Special Record Date.
3. Method of Payment.
-----------------
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. Payments in respect of
Notes represented by Global Notes (including principal, premium, interest and
Defaulted Interest, if any) will be made by wire transfer of immediately
available funds to the accounts specified by the nominee for the Depositary.
With respect to certificated Notes, the Paying Agent will make all payments of
principal, premium, interest and Defaulted Interest, if any, by wire transfer of
immediately available funds to the United States dollar accounts maintained by
the Holders entitled thereto with banks in the United States, or, if no such
account is designated by the relevant Holder to the Trustee or the Paying Agent
at least 30 days prior to the relevant due date for payment (or such other date
as the Trustee may accept in its discretion), by mailing a check to the
registered address of such Holder. 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.
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4. Paying Agent and Note Registrar.
-------------------------------
Initially, the Trustee will act as authenticating agent, Paying Agent
and Note Registrar. The Trustee may be removed by action of the Holders of not
less than a majority in principal amount of the outstanding Notes, or by the
Company or certain bona fide Holders of Notes upon the occurrence of certain
events. The Company may change any Paying Agent or Note Registrar with notice
in writing to the Trustee. The Company, any Subsidiary or any Affiliate of
either of them may act as Paying Agent or Note Registrar.
5. Optional Redemption.
-------------------
This Note is subject to redemption upon not less than 30 nor more than
60 days' prior written notice to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in principal amounts or at any
time on or after January 15, 2005, at the following Redemption Prices plus
accrued and unpaid interest, if any, thereon to but excluding the Redemption
Date, if redeemed during the periods indicated below:
From and Including To and Including Redemption Price
------------------ ---------------- ----------------
January 15, 2005 January 14, 2006 105.938%
January 15, 2006 January 14, 2007 103.958%
January 15, 2007 January 14, 2008 101.979%
January 15, 2008 100.000%
and thereafter
This Note will be redeemable at any time and from time to time prior
to January 15, 2003 in the event that the Company receives Net Cash Proceeds
from the sale of its Capital Stock (other than Disqualified Stock) in one or
more Public Equity Offerings, in which case the Company may, at its option, use
all or a portion of any such Net Cash Proceeds to redeem up to 35% of initially
outstanding aggregate principal amount of the Notes; provided, that at least 65%
of the original aggregate principal amount of the Notes remains outstanding
after each such redemption. Such redemption must occur on a date of redemption
within 90 days of such sale and upon not less than 30 nor more than 60 days'
prior written notice, in principal amounts of $1,000 or integral multiples
thereof at a redemption price equal to 111.875% of the principal amount of the
Notes to be redeemed plus Additional Interest, if any, to but excluding the date
of redemption.
If, after giving effect to the offer by the Company to repurchase all
or any part of each Holder's Notes made upon the occurrence of a Change of
Control as set forth in Section 7 hereto, at least 95% of the original aggregate
principal amount of the Notes has been redeemed or repurchased pursuant to the
Indenture, the Company shall have the right to redeem the balance of the Notes
at a redemption price equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, thereon to but excluding the date of redemption.
The Company may exercise this right by giving the Holders notice of such
redemption within 30 days following the payment date with respect to the
Company's earlier repurchase offer.
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<PAGE>
6. No Sinking Fund.
---------------
The Notes do not have the benefit of any sinking fund obligations.
7. Repurchase of Notes at the Option of Holders upon a Change of
-------------------------------------------------------------
Control.
- -------
Upon the occurrence of a Change of Control, each Holder will have the
right to require the Company to repurchase all or any part (equal to $1,000
principal amount or an integral multiple thereof) of such Holder's Notes at a
purchase price ("Change of Control Purchase Price") equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, thereon to
but excluding the payment date for the Change of Control Purchase Price.
Within 30 days following any Change of Control, the Company or the
Trustee (at the expense of the Company) shall mail a notice to each Holder
regarding the Company's offer to repurchase all or any part of such Holder's
Notes. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the offer described in the notice. Unless the Company defaults in the payment
of the Change of Control Purchase Price with respect thereto, all Notes or
portions thereof accepted for payment pursuant to the offer described in the
notice will cease to accrue interest from and after the payment date for the
Change of Control Purchase Price.
8. Repurchase of Notes at the Option of Holders upon an Asset Sale.
---------------------------------------------------------------
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds
calculated as of any date exceeds $5,000,000, the Company shall, within 30 days
of such date, make an offer to purchase (an "Asset Sale Offer") on a pro rata
basis (a) Notes at a purchase price (the "Offer Purchase Price") in cash equal
to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to but excluding the purchase date and (b) to the extent
required by the terms thereof, any other indebtedness of the Company that is
pari passu with the Notes. The pro rata amount of such Excess Proceeds to be
used to purchase Notes shall be in an amount equal to the aggregate amount of
such Excess Proceeds multiplied by the quotient obtained by dividing the
principal amount of the outstanding Notes by the sum of such principal amount
and the principal amount of such other Indebtedness. In the event the aggregate
Offer Purchase Price of the outstanding Notes tendered pursuant to an Asset Sale
Offer is in excess of the Excess Proceeds to be used to purchase such Notes,
such Excess Proceeds shall be applied to purchase such Notes on a pro rated
basis in principal amounts of $1,000 or an integral multiple thereof.
Within 30 days of the date the amount of Excess Proceeds exceeds
$5,000,000, the Company or the Trustee (at the expense of the Company) shall
mail to each Holder a written notice regarding the Asset Sale Offer. The Holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Asset
Sale Offer. Unless the Company defaults in the payment of the Offer Purchase
Price with respect thereto, all Notes or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrue interest from and after
the purchase date.
30
<PAGE>
9. Denominations; Transfer; Exchange.
---------------------------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 principal amount and any integral multiple thereof. A
Holder may register the transfer or exchange of Notes in accordance with the
Indenture. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
10. Persons Deemed Owners.
---------------------
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee, the Paying Agent and the Note Registrar may deem and
treat the Person in whose name this Note is registered as the owner hereof for
all purposes, whether or not this Note be overdue, and none of the Company, the
Trustee, the Paying Agent or the Note Registrar shall be affected by notice to
the contrary.
11. Unclaimed Money.
---------------
Subject to certain notice provisions, the Trustee and the Paying Agent
shall pay to the Company upon written request any money held by them for the
payment of principal, premium, if any, or interest that remains unclaimed for
two years. After payment to the Company, Holders entitled to such money must
look only to the Company for payment as general creditors, and all
responsibility and liability of the Trustee and the Paying Agent with respect to
such money shall cease.
12. Discharge Prior to Redemption.
-----------------------------
If the Company deposits with the Trustee United States dollars or U.S.
Government Obligations sufficient to pay the principal, premium, if any, and
accrued interest on the Notes to redemption, the Company will, with the
exceptions of certain sections thereof, be discharged from the Indenture and the
Notes, including certain covenants set forth in the Indenture.
13. Amendment; Waiver.
-----------------
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive certain past
defaults under the Indenture and their consequences.
14. Restrictive Covenants.
---------------------
The Indenture contains certain covenants which, among other things,
restrict the ability of the Company and Restricted Subsidiaries to incur
additional indebtedness (and, in the case of Restricted Subsidiaries, issue
preferred stock), pay dividends or make distributions in respect of the
Company's or Restricted Subsidiaries' capital stock, make other restricted
payments, enter into sale and leaseback transactions, incur liens, cause
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<PAGE>
encumbrances or restrictions to exist on the ability of Restricted Subsidiaries
to pay dividends or make distributions in respect of their capital stock, issue
and sell capital stock of Restricted Subsidiaries, enter into transactions with
affiliates, sell assets, or amalgamate, consolidate, merge or sell or otherwise
dispose of all or substantially all of their property and assets.
15. Defaults and Remedies.
---------------------
With the exception of certain Events of Defaults specified below, if
an Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% of the aggregate principal amount of the outstanding Notes may
declare the principal amount of, and any accrued and unpaid interest on, all
Notes then outstanding to be immediately due and payable. If a bankruptcy or
insolvency default with respect to the Company or a Restricted Subsidiary occurs
and is continuing, the Notes immediately become 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 not less
than a majority in principal amount of the outstanding Notes will have the right
to direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee.
16. No Recourse Against Others.
--------------------------
No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any covenant,
agreement or other obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its past, present or future status as a
controlling Person, director, officer, employee, incorporator or stockholder of
the Company. Each Holder by accepting a Note waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for the issuance of the Notes.
17. Governing Law.
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture. Requests may be made to:
Focal Communications Corporation
200 N. LaSalle
Chicago, Illinois 60601
Attention: Chief Financial Officer
18. Ranking.
-------
The Notes are senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future senior indebtedness of
the Company, and will rank senior in right of payment to all existing and future
subordinated Indebtedness
32
<PAGE>
of the Company. Holders of secured Indebtedness of the Company, however, will
have claims that are prior to the claims of the Holders with respect to the
assets securing such other indebtedness except to the extent the Notes are
equally and ratably secured by such assets.
33
<PAGE>
____________________________________________________________
CERTIFICATE OF TRANSFER
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of Focal Communications Corporation. The agent may substitute another
to act for him.
_____________________________________________________________________
Date: ________________ Your Signature: _____________________
_____________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
34
<PAGE>
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act of 1933 (the "Securities Act") after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by Focal Communications Corporation or any
Affiliate, the undersigned confirms that such Notes are being transferred in
accordance with the terms of such Notes:
CHECK ONE BOX BELOW
(1) [_] to Focal Communications Corporation; or
(2) [_] pursuant to an effective registration statement under the
Securities Act; or
(3) [_] inside the United States to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A under the Securities Act, in
each case pursuant to and in compliance with Rule 144A under the
Securities Act; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act;
(5) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act; or
(6) [_] to an institution that is an "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring this Note for investment purposes and not for
distribution in violation of the Securities Act or any other
applicable securities laws.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Notes evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (3),
(4), (5) or (6) is checked, the Trustee may require, prior to registering
any such transfer of the Notes, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act, such as the exemption provided by Rule 144 under the Securities Act.
35
<PAGE>
_________________________
Signature
Signature Guarantee:
_________________________ ______________________________
[Signature must be guaranteed Signature
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit
unions) with membership in
an approved guarantee
medallion program pursuant
to Securities and Exchange
Commission Rule 17Ad-15]
__________________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
and is aware that the sale to it is being made in reliance on Rule 144A under
the Securities Act and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
under the Securities Act or has determined not to request such information and
that it is aware that the transferor is relying upon the foregoing
representations of the undersigned in order to claim the exemption from
registration provided by Rule 144A under the Securities Act.
Dated: ________________ ________________________________________________
NOTICE: To be executed by an executive officer
36
<PAGE>
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Principal Amount of this
Amount of decrease in Amount of increase in Global Note following such Signature of authorized
Date of Principal Amount Principal Amount decrease or signatory of Trustee or
Exchange of this Global Note of this Global Note increase Notes Custodian
-------- --------------------- --------------------- -------------------------- ------------------------
</TABLE>
37
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.07 or 4.08 of the Indenture, check the box:
[__]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, state the amount in
principal amount ($1,000 or an integral multiple thereof): $
Date: _______________ Your Signature: ___________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee: _______________________________________
Signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan
associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities
and Exchange Commission Rule 17Ad-15]
SECTION 2.04. Form of Trustee's Certificate of Authentication. Harris
Trust and Savings Bank, as Trustee, certifies that this is one of the Notes
referred to in the within-mentioned Indenture.
Date:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
by _____________________________
Authorized Signatory
SECTION 2.05. Execution and Authentication. (a) The aggregate
principal amount of Notes outstanding at any time shall not exceed $275,000,000
except as provided in Section 2.09. The Notes shall be executed on behalf of
the Company by its Chief Executive Officer, Chief Financial Officer or, its
President or any Executive Vice President and shall be attested by the Company's
Corporate Secretary or one of its Assistant Secretaries, in each case by manual
or facsimile signature.
(b) The Notes shall be authenticated by manual signature of an
authorized officer of the Trustee and shall not be valid for any purpose unless
so authenticated.
(c) In case any officer of the Company whose signature shall have
been placed upon any of the Notes shall cease to be such officer of the Company
before authentication of such Notes by the Trustee and the issuance and delivery
thereof, such Notes may, nevertheless, be authenticated by the Trustee and
issued and delivered with
38
<PAGE>
the same force and effect as though such Person had not ceased to be such
officer of the Company.
(d) Notwithstanding any other provision hereof, the Trustee shall
authenticate and deliver Notes only upon receipt by the Trustee of an Officers'
Certificate complying with Section 10.04 with respect to satisfaction of all
conditions precedent contained in this Indenture to authentication and delivery
of such Notes.
(e) Upon compliance by the Company with the provisions of paragraph
(d) of this Section 2.05, the Trustee shall authenticate and deliver: (1)
Original Notes for original issue in an aggregate principal amount of
$275,000,000 and (2) Exchange Notes for issue only in a Registered Exchange
Offer pursuant to the Registration Agreement, for a like principal amount of
Original Notes, in each case upon receipt of a Company Order. Such Company
Order shall specify the amount of the Notes to be authenticated and the date on
which the original issue of Notes is to be authenticated and whether the Notes
are to be Original Notes or Exchange Notes.
(f) A Note shall not be valid or entitled to any benefit under this
Indenture or obligatory for any purpose unless executed by the Company and
authenticated by the manual signature of the Trustee as provided herein. The
signature of an authorized officer of the Trustee shall be conclusive evidence,
and the only evidence, that such Note has been authenticated and delivered under
this Indenture.
(g) The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Notes. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. Any
authenticating agent of the Trustee shall have the same rights hereunder as any
Note Registrar or Paying Agent. The Trustee, at its Corporate Trust Office, is
initially appointed authenticating agent hereunder.
SECTION 2.06. Note Registrar and Paying Agent. (a) The Company shall
maintain, pursuant to Section 4.02, an office or agency where the Notes may be
presented for registration of transfer or for exchange, an office or agency
where Notes may be presented for payment and an office or agency where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company shall cause to be kept at such office a register
(the register maintained in such office being herein sometimes 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 entitled to be registered or transferred as provided herein.
The Trustee, at its Corporate Trust Office, is initially appointed "Note
Registrar" for the purpose of registering Notes and transfers of Notes as herein
provided. The Company may, upon written notice to the Trustee, change the
designation of the Trustee as Note Registrar and appoint another Person to act
as Note Registrar for purposes of this Indenture. If any Person other than the
Trustee acts as Note Registrar, the Trustee shall have the right at any time,
upon reasonable notice, to inspect or examine the Note Register and to make such
inquiries of the Note Registrar as the Trustee shall in its discretion deem
necessary or desirable in performing its duties hereunder.
(b) The Company shall enter into an appropriate agency agreement with
any Person designated by the Company as Note Registrar or Paying Agent that is
39
<PAGE>
not a party to this Indenture, which agreement shall incorporate the provisions
of the Trust Indenture Act and shall implement the provisions of this Indenture
that relate to such Note Registrar or Paying Agent. Prior to the designation of
any such Person, the Company shall, by written notice (which notice shall
include the name and address of such Person), inform the Trustee of such
designation. If the Company fails to maintain a Note Registrar or Paying Agent,
the Trustee shall act as such. The Trustee, at its Corporate Trust Office, is
initially appointed Paying Agent hereunder.
(c) Upon surrender for registration of transfer of any Note at an
office or agency of the Company designated for such purpose, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Original Notes or Exchange
Notes, as the case may be, of any authorized denomination or denominations, of
like tenor and aggregate principal amount, all as requested by the transferor.
SECTION 2.07. Paying Agent To Hold Money in Trust. (a) The Company
will pay principal, 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. On or prior to 10:00 a.m. on each due date of the principal, premium, or
any payment of interest [(including Defaulted Interest)] with respect to any
Note represented by a Global Note, the Company (through the Paying Agent) shall
make payment of a sum sufficient to pay such principal, premium or interest when
so becoming due in United States dollars by wire transfer of immediately
available funds to accounts specified by the Depositary. With respect to
certificated Notes, the Company (through the Paying Agent) will make all
payments of principal, premium, interest [and Defaulted Interest], if any, by
wire transfer of immediately available funds in United States dollars to the
United States dollar accounts maintained by the Holders entitled thereto with
banks in the United States on or prior to 10:00 a.m. on each due date for
payment, or, if no such account is designated by any Holder to the Trustee or
the Paying Agent at least 30 days prior to the relevant due date for payment (or
such other date as the Trustee may accept in its discretion), by mailing a check
on such due date for payment to the registered address of the relevant Holder.
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.
(b) The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that such Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all money held by such Paying Agent for the
payment of principal, premium or interest with respect to the Notes, shall
notify the Trustee of any default by the Company in making any such payment and
at any time during the continuance of any such default, upon the written request
of the Trustee, shall forthwith pay to the Trustee all sums held in trust by
such Paying Agent.
(c) The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds disbursed by such
Paying Agent. Upon complying with this Section 2.07(c), the Paying Agent shall
have no further liability for the money delivered to the Trustee.
SECTION 2.08. Registration, Registration of Transfer and Exchange.
(a) At the option of the Holder, and subject to the other provisions of this
Section 2.08, Notes may be exchanged for other Notes of any authorized
denominations and of a like tenor and aggregate principal amount, upon surrender
of the Notes to be exchanged at an
40
<PAGE>
office or agency maintained by the Company for such purpose pursuant to Section
4.02. Whenever any Notes are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Notes which the
Holder making the exchange is entitled to receive.
(b) 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 (subject to the provisions in the Original Notes and the Exchange Notes
regarding the payment of Additional Interest) entitled to the same benefits
under this Indenture, as the Notes surrendered upon such registration of
transfer or exchange.
(c) Every Note presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company, the Trustee or the Note
Registrar) be duly endorsed, or be accompanied by a duly executed instrument of
transfer in form satisfactory to the Company, the Trustee and the Note
Registrar, by the Holder thereof or such Holder's attorney duly authorized in
writing.
(d) No service charge shall be made to the Holder for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Notes, other than exchanges pursuant to Sections 2.11, 3.06 or 9.06 or in
accordance with any offer pursuant to Sections 4.07 or 4.08.
(e) Any holder of beneficial ownership interests in a Global Note
shall, by acceptance of such Global Note, agree that transfers of beneficial
ownership interests in such Global Note may be effected through a book-entry
system maintained by the Holder of such Global Note (or its agent) and the
ownership of a beneficial ownership interest in the Global Note shall be
reflected in a book-entry.
(f) The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 calendar days before the day of the mailing of a notice of
redemption of Notes selected for redemption under Section 3.02 and ending at the
close of business on the day of such mailing, or (ii) to register the transfer
of or exchange any Note so selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(g) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture or the Notes, transfers and exchanges of Notes and
beneficial ownership interests in a Global Note of the kinds specified in this
Section 2.08(g) shall be made only in accordance with this Section 2.08(g).
(i) Restricted Global Note to Regulation S Global Note. If the owner
of a beneficial ownership interest in the Restricted Global Note wishes at
any time to transfer such interest to a Person who wishes to acquire the
same in the form of a beneficial ownership interest in the Regulation S
Global Note, such transfer may be effected only in accordance with the
provisions of this clause (g)(i) and clause (g)(v) below and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Note Registrar, of
(A) an order given by the Depositary or its authorized representative
directing that a beneficial ownership interest in the Regulation S Global
Note in a specified principal amount be
41
<PAGE>
credited to a specified Agent Member's account and that a beneficial
ownership interest in the Restricted Global Note in an equal principal
amount be debited from another specified Agent Member's account and (B) a
Regulation S Certificate, in form satisfactory to the Trustee and duly
executed by the owner of such beneficial ownership interest in the
Restricted Global Note or his attorney duly authorized in writing, then the
Trustee, as Note Registrar but subject to clause (g)(v) below, shall reduce
the principal amount of the Restricted Global Note and increase the
principal amount of the Regulation S Global Note by such specified
principal amount as provided in Section 2.08(i)(iii).
(ii) Regulation S Global Note to Restricted Global Note. If the
owner of a beneficial ownership interest in the Regulation S Global Note
wishes at any time to transfer such interest to a Person who wishes to
acquire the same in the form of a beneficial ownership interest in the
Restricted Global Note, such transfer may be effected only in accordance
with this clause (g)(ii) and subject to the Applicable Procedures. Upon
receipt by the Trustee, as Note Registrar, of (A) an order given by the
Depositary or its authorized representative directing that a beneficial
ownership interest in the Restricted Global Note in a specified principal
amount be credited to a specified Agent Member's account and that a
beneficial ownership interest in the Regulation S Global Note in an equal
principal amount be debited from another specified Agent Member's account
and (B) if such transfer is to occur during the Restricted Period, a
Restricted Notes Certificate, in form satisfactory to the Trustee and duly
executed by the owner of such beneficial ownership interest in the
Regulation S Global Note or his attorney duly authorized in writing, then
the Trustee, as Note Registrar, shall reduce the principal amount of the
Regulation S Global Note and increase the principal amount of the
Restricted Global Note by such specified principal amount as provided in
Section 2.08(i)(iii).
(iii) Non-Global Note to Non-Global Note. A Note that is not a
Global Note may be transferred, in whole or in part, to a Person who takes
delivery in the form of another Note that is not a Global Note as provided
in Section 2.08(a) hereof; provided that, if the Note to be transferred in
whole or in part is a Restricted Note, or is a Regulation S Note and the
transfer is to occur during the Restricted Period, then the Trustee shall
have received (A) a Restricted Notes Certificate (or the completion of the
Certificate of Transfer on the Note), in form satisfactory to the Trustee
and duly executed by the transferor Holder or his attorney duly authorized
in writing, in which case the transferee shall take delivery in the form of
a Restricted Note, or (B) a Regulation S Certificate (or the completion of
the Certificate of Transfer on the Note), in form satisfactory to the
Trustee and duly executed by the transferor Holder or his attorney duly
authorized in writing, in which case the transferee shall take delivery in
the form of a Regulation S Note (subject in each case to Section 2.08(h)
hereof).
(iv) Exchanges between Global Note and Non-Global Note. A
beneficial ownership interest in a Global Note may be exchanged for a Note
that is not a Global Note as provided in Section 2.08(i)(ii); provided
that, if such interest is a beneficial ownership interest in the Restricted
Global Note, or if such interest is a beneficial ownership interest in the
Regulation S Global Note and such exchange is to occur during the
Restricted Period, then such interest shall be exchanged for a Restricted
Note (subject in each case to Section 2.08(h)).
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(v) Exchanges between Temporary Regulation S Global Notes and
Permanent Regulation S Global Notes. Following the termination of the
Restricted Period (which termination the Company shall notify the Trustee
of pursuant to Section 4.18(c) hereof), beneficial ownership interests in
the Temporary Regulation S Global Note may be exchanged for equivalent
beneficial ownership interests in a permanent Global Note (a "Permanent
Regulation S Global Note") in fully registered form, pursuant to the
Applicable Procedures of the Depositary and only upon the receipt by the
Trustee of a certificate substantially in the form of Annex D hereto to the
effect that Euroclear or CEDEL, as the case may be, has received a
certificate substantially in the form of Annex E hereto from the owner of
such beneficial ownership interest in such Temporary Regulation S Global
Note. The delivery to the Trustee by Euroclear or CEDEL of the certificate
or certificates in the form of Annex D referred to above may be relied upon
by the Company and the Trustee as conclusive evidence that the certificate
or certificates referred to therein has or have been delivered to Euroclear
or CEDEL pursuant to the terms of this Indenture. Upon receipt by the
Trustee, as Note Registrar, of (A) such a certificate substantially in the
form of Annex D hereto and (B) an order given by the Depositary or its
authorized representative directing that the Temporary Regulation S Global
Note be reduced by, and the Permanent Regulation S Global Note be increased
by, the aggregate principal amount of the beneficial ownership interest in
the Temporary Regulation S Global Note to be so exchanged and to credit or
cause to be credited in the account of the Agent Member specified in such
instructions a beneficial ownership interest in the Permanent Regulation S
Global Note equal to the reduction in the aggregate principal amount of the
Temporary Regulation S Global Note, then the Trustee, as Note Registrar,
shall reduce the principal amount of the Temporary Regulation S Global Note
and increase the principal amount of the Permanent Regulation S Global Note
by such specified principal amount as provided in Section 2.08(i)(iii). The
Company shall use its best efforts to cause the Depositary to ensure that,
until the expiration of the Restricted Period, beneficial ownership
interests in the Regulation S 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.
(vi) Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in Section 2.08(i)(iii)), a Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or 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.
(h) Securities Act Legends. Rule 144A Notes and their Successor
Notes, and Regulation S Notes and their Successor Notes, shall each bear a
Securities Act Legend, subject to the following:
(i) subject to the following clauses of this Section 2.08(h), a new
Note which is issued in exchange for another Note or any portion thereof,
upon transfer or otherwise, shall bear a Securities Act Legend if such
other Note bore a Securities Act Legend;
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(ii) Exchange Notes shall not bear a Securities Act Legend;
(iii) at any time after the Notes may be freely transferred without
registration under the Securities Act or without being subject to transfer
restrictions pursuant to the Securities Act, a new Note which does not bear
a Securities Act Legend may be issued in exchange for or in lieu of a Note
or any portion thereof which bears such a legend if the Trustee has
received an Unrestricted Note Certificate, in form satisfactory to the
Trustee and duly executed by the Holder of such legended Note or his
attorney duly authorized in writing, and after such date and receipt of
such Unrestricted Note Certificate, the Trustee shall authenticate and
deliver such a new Note in exchange for or in lieu of such other legended
Note as provided in this Article II;
(iv) a new Note which does not bear a Securities Act Legend may be
issued in exchange for or in lieu of a Note or any portion thereof which
bears such a legend if, in the Company's judgment, placing such a legend
upon such new Note is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at the
direction of the Company, shall authenticate and deliver such a new Note as
provided in this Article II; and
(v) notwithstanding the foregoing provisions of this Section
2.08(h), a Successor Note of a Note that does not bear a particular form of
Securities Act Legend shall not bear such form of legend unless the Company
has reasonable cause to believe that such Successor Note is a "restricted
security" within the meaning of Rule 144, in which case the Trustee, at the
direction of the Company, shall authenticate and deliver a new Note bearing
a Securities Act Legend in exchange for such Successor Note as provided in
this Article II.
(i) The provisions of clauses (i), (ii), (iii), (iv) and (v) below
shall apply only to Global Notes:
(i) Each Global Note authenticated under this Indenture shall be
registered in the name of the Depositary or a nominee thereof and delivered
to the Depositary or a nominee thereof or custodian therefor, and each such
Global Note shall constitute a single Note for all purposes of this
Indenture.
(ii) Notwithstanding any other provision in this Indenture, no
Global Note may be exchanged in whole or in part for Notes registered, and
no transfer of a Global Note in whole or in part may be registered, in the
name of any Person other than the Depositary or a nominee thereof unless
(i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Note or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange
Act, and in either case a successor depositary is not appointed by the
Company within 90 days, (ii) the Company executes and delivers to the
Trustee a notice that such Global Note shall be so transferable,
registrable and exchangeable, and such transfer shall be registrable or
(iii) there shall have occurred and be continuing a Default with respect to
the Notes represented by such Global Note.
(iii) If any Global Note is to be exchanged for other Notes or
canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee
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to the Trustee, as Note Registrar, for exchange or cancellation as provided
in this Article II. If any Global Note is to be exchanged for other Notes
or canceled in part, or if another Note is to be exchanged in whole or in
part for a beneficial ownership interest in any Global Note, then either
(A) such Global Note shall be so surrendered for exchange or cancellation
as provided in this Article II or (B) the principal amount thereof shall be
reduced by an amount equal to the portion thereof to be so exchanged for
other Notes or canceled, or increased by an amount equal to the principal
amount of such other Note to be so exchanged for a beneficial ownership
interest therein, as the case may be, by means of an appropriate adjustment
made on the records of the Trustee, as Note Registrar, whereupon the
Trustee, in accordance with the Applicable Procedures, shall instruct the
Depositary or its authorized representative to make a corresponding
adjustment to its records. Upon any such surrender or adjustment of a
Global Note, the Trustee shall, subject to Section 2.08(i)(ii) and as
otherwise provided in this Article II, authenticate and deliver any Notes
issuable in exchange for such Global Note (or any portion thereof) to or
upon the order of, and registered in such names as may be directed by, the
Depositary or its authorized representative. Upon the request of the
Trustee in connection with the occurrence of any of the events specified in
Section 2.08(i)(ii), the Company shall promptly make available to the
Trustee a reasonable supply of Notes that are not in the form of Global
Notes. The Trustee shall be entitled to rely upon any order, direction or
request of the Depositary or its authorized agent which is given or made
pursuant to this Article II if such order, direction or request is given or
made in accordance with the Applicable Procedures.
(iv) Every Note authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Note or any portion
thereof, whether pursuant to this Section, Section 2.09, 3.06, 4.07, 4.08
or 9.06 or otherwise, shall be authenticated and delivered in the form of,
and shall be, a Global Note, unless such Note is registered in the name of
a Person other than the Depositary or a nominee thereof.
(v) None of the Company, the Trustee, any agent of the Trustee, any
Paying Agent or the Note Registrar will have any responsibility or
liability for any aspect of the Depositary's records (or the records of the
Agent Members) relating to or payments made on account of beneficial
ownership interests in a Global Note or for maintaining, supervising or
reviewing any records of the Depositary relating to such beneficial
ownership interests.
SECTION 2.09. Replacement Notes. (a) If any mutilated Note is
surrendered to the Trustee, the Company shall execute and upon its written
request the Trustee shall authenticate and deliver, in exchange for any such
mutilated Note, a new Note containing identical provisions and of like principal
amount, bearing a number not contemporaneously outstanding.
(b) If there shall be delivered to the Company and 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 either of
them and any agent of each of them harmless, then, in the absence of notice to
the Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed,
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lost or stolen Note, a new Note containing identical provisions and of like
principal amount, bearing a number not contemporaneously outstanding.
(c) In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
(d) Upon the issuance of any new Note under this Section 2.09, the
Company may require the payment by the Holder 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.
(e) Every new Note issued pursuant to this Section 2.09 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.
(f) The provisions of this Section 2.09 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.10. Outstanding Notes. (a) Notes outstanding at any time
are all Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section 2.10
as not outstanding. A Note does not cease to be outstanding because the Company
or an Affiliate of the Company holds such Note.
(b) If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that such replaced Note is held by a bona fide purchaser.
(c) In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent or any
amendment, modification or other change to this Indenture, Notes held or
beneficially owned by the Company or a Restricted Subsidiary or by an Affiliate
of the Company or a Restricted Subsidiary or by agents of any of the foregoing
shall be disregarded, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent
or any amendment, modification or other change to this Indenture, only Notes
which a Trust Officer knows are so owned shall be so disregarded. Notes so
owned which have been pledged in good faith shall not be disregarded if the
pledgee establishes to the satisfaction of the Trustee such pledgee's right so
to act with respect to the Notes and that the pledgee is not the Company, a
Restricted Subsidiary or an Affiliate of either of them or any of their agents.
SECTION 2.11. Temporary Notes. (a) Pending the preparation of
definitive Notes, the Company may execute, and the Trustee shall authenticate,
temporary notes ("Temporary Notes") which are printed or otherwise produced, of
like tenor of the definitive Notes in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations.
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(b) If Temporary Notes are issued, the Company shall cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the Temporary Notes shall be exchangeable for definitive Notes
upon surrender of the Temporary Notes to the Trustee, without charge to the
Holder. Until so exchanged, Temporary Notes will evidence the same debt and
will be entitled to the same benefits under this Indenture as the definitive
Notes in lieu of which they have been issued.
SECTION 2.12. Cancellation. The Company at any time may deliver
Notes to the Trustee for cancellation. The Note Registrar and the Paying Agent
shall forward to the Trustee for cancellation any Notes surrendered to them for
registration of transfer, exchange, purchase or payment. The Trustee shall
cancel all Notes surrendered for registration of transfer, exchange, purchase,
payment or cancellation and shall destroy such canceled Notes unless the Company
shall by Company Order otherwise direct. The Company may not issue new Notes to
replace Notes that have been delivered to the Trustee for cancellation.
SECTION 2.13. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
(a) Interest on any Note which is payable, and is punctually paid or
duly provided for on any January 15 or July 15 on which Additional Interest is
due (an "Additional Interest Payment Date") shall be paid to the Person in whose
name such Note is registered at the close of business on the Regular Record Date
for such interest payment, which shall be the January 1 or July 1 (whether or
not a Business Day), as the case may be.
(b) Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Additional Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date, and, except as hereinafter provided, such
Defaulted Interest, and any interest payable on such Defaulted Interest, may be
paid by the Company as provided in clause (i) below:
(i) The Company may elect to make payment of any Defaulted
Interest, and any interest payable on such Defaulted Interest, to the
Persons in whose names the 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 the Notes and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount in United States dollars
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such United
States dollars when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as provided in this clause.
Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 calendar days and
not less than 10 calendar days prior to the date of the proposed payment
and not less than 10 calendar days after the receipt by a Trust Officer of
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
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Interest and the Special Record Date therefor to be sent, first class mail,
postage prepaid, to each Holder at such Holder's address as it appears in
the Note Register, not less than 10 calendar days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Notes
are registered at the close of business on such Special Record Date in the
manner contemplated by Section 2.07(a).
(c) Subject to the foregoing provisions of this Section 2.13, 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 2.14. Authorized Denominations. The Notes shall be issuable
in minimum denominations of $1,000 principal amount and any integral multiple
thereof.
SECTION 2.15. Computation of Interest. Interest on the Notes shall
be computed on the basis of a 360-day year of twelve 30-day months; provided
that Additional Interest shall be computed on the basis of a 365- or 366-day
year, as the case may be, and the number of days actually elapsed from and
including the date Additional Interest commences to accrue to but excluding the
date on which Additional Interest ceases to accrue.
SECTION 2.16. Persons Deemed Owners. Prior to the due presentation
for registration of transfer of any Note, the Company, the Trustee, the Paying
Agent and the Note Registrar may deem and treat the Person in whose name the
Note is registered as the owner of such Note for the purpose of receiving
payment of the principal of, premium, if any, and (subject to Section 2.13)
interest on such Note and for all other purposes whatsoever, whether or not such
Note is overdue, and none of the Company, the Trustee, the Paying Agent or the
Note Registrar shall be affected by notice to the contrary.
SECTION 2.17. CUSIP Numbers. The Company, in issuing the Notes, may
use "CUSIP" and "ISIN" numbers for each series of Notes and, if so, the Trustee
shall use the relevant CUSIP and ISIN numbers in any notices to Holders as a
convenience to such Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP and ISIN
numbers printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company
shall promptly notify the Trustee of any change in any CUSIP or ISIN numbers
used.
SECTION 2.18. Holder Lists. The Trustee shall preserve in as current
a form as possible the most recent list available to it of the names and
addresses of Holders and shall otherwise comply with Trust Indenture Act ((S))
312(a). If the Trustee is not the Note Registrar, the Company shall furnish to
the Trustee as of each Regular Record Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, including
the aggregate principal amount of Notes held by each Holder.
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ARTICLE III
Redemption
----------
SECTION 3.01. Notice to Trustee. If the Company elects to redeem
Notes pursuant to paragraph 5 of the Notes, it shall notify the Trustee in
writing of the Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each such notice to the Trustee at least 60 calendar days
prior to the Redemption Date unless the Trustee consents in writing to a shorter
period. Such notice shall be accompanied by an Officers' Certificate and an
Opinion of Counsel from the Company to the effect that such redemption will
comply with any conditions to such redemption set forth herein and in the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed. Except as otherwise
provided herein, if less than all the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed pro rata, by lot or such other
basis as it shall deem fair and appropriate; provided that the Trustee may
select for redemption in part only Notes in denominations larger than $1,000
principal amount. In selecting Notes to be redeemed pursuant to this Section
3.02, the Trustee shall make such adjustments, reallocations and eliminations as
it shall deem proper so that the principal amount of each Note to be redeemed
shall be $1,000 principal amount or an integral multiple thereof, by increasing,
decreasing or eliminating any amount less than $1,000 principal amount which
would be allocable to any Holder. The Trustee in its discretion may determine
the particular Notes (if there are more than one) registered in the name of any
Holder which are to be redeemed, in whole or in part. Provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption. The Trustee shall notify the Company promptly of
the Notes or portions of Notes to be redeemed.
SECTION 3.03. Notice of Redemption. (a) At least 30 calendar days
but not more than 60 calendar days before a Redemption Date, the Company shall
send a notice of redemption, first class mail, postage prepaid, to Holders of
Notes to be redeemed at the addresses of such Holders as they appear in the Note
Register.
(b) The notice shall identify the Notes to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price (and shall specify the portion of such
Redemption Price that constitutes the amount of accrued and unpaid interest
to be paid, if any);
(iii) the name and address of the Paying Agent;
(iv) that the Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(v) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date, a new Note or Notes in principal amounts equal to the unredeemed
portion will be issued, or, if such Note is a Global Note, such Global
Note, with a notation adjusting the principal amount thereof to be equal to
the unredeemed portion, will be returned to the Holder thereof;
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(vi) if fewer than all the outstanding Notes are to be redeemed,
the identification and principal amounts of the particular Notes to be
redeemed;
(vii) that, unless the Company defaults in making the redemption
payment, interest on the Notes (or portions thereof) called for redemption
shall cease and such Notes (or portions thereof) shall cease to accrue
interest on and after the Redemption Date;
(viii) the paragraph of the Notes pursuant to which the Notes are
being called for redemption;
(ix) the CUSIP or ISIN if applicable; and
(x) any other information necessary to enable Holders to comply
with the notice of redemption.
(c) At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section 3.03 in a timely manner.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption shall become due and payable
on the Redemption Date and at the Redemption Price stated in such notice. Upon
surrender to the Paying Agent, such Notes shall be paid at the Redemption Price
stated in such notice. Failure to give notice or any defect in the notice to
any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. (a) Prior to 10:00 a.m.,
New York City time, on each Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company, one of its Subsidiaries or any of their
Affiliates is the Paying Agent, the Paying Agent shall segregate and hold in
trust for the benefit of the Holders) an amount of United States dollars in
immediately available funds, sufficient to pay the Redemption Price on all Notes
to be redeemed on that date other than Notes or portions of Notes called for
redemption on such date which have been delivered by the Company to the Trustee
for cancellation. The Paying Agent shall make payment of the funds so deposited
or segregated in the manner contemplated by Section 2.07(a).
(b) So long as the Company complies with the preceding paragraph and
the other provisions of this Article III, interest on the Notes to be redeemed
on the applicable Redemption Date shall cease to accrue from and after such date
and such Notes or portions thereof shall be deemed not to be entitled to any
benefit under this Indenture except to receive payment of the Redemption Price
on the Redemption Date. If any Note called for redemption shall not be so paid
upon surrender for redemption, then, from the Redemption Date until such
principal, premium, if any, and accrued but unpaid interest is paid, interest
shall be paid on the unpaid principal and premium, if any, and, to the extent
permitted by law, on any accrued but unpaid interest thereon, in each case at
the rate prescribed therefor by such Notes.
SECTION 3.06. Notes Redeemed in Part. Upon surrender and
cancellation of a Note (other than a Global Note) that is redeemed in part, the
Company shall issue and the Trustee shall authenticate and deliver to the
surrendering Holder (at
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the Company's expense) a new Note equal in principal amount to the unredeemed
portion of the Note surrendered and canceled; provided that each such Note shall
be equal to $1,000 principal amount or an integral multiple thereof.
ARTICLE IV
Covenants
---------
SECTION 4.01. Payment of Notes. (a) The Company shall make all
payments in respect of Offer Purchase Price, principal amount, Redemption Price,
Change of Control Purchase Price, Change of Control Redemption Purchase Price,
accrued and unpaid interest, and Defaulted Interest, if any, on the Notes in
United States dollars in immediately available funds on the dates and in the
manner provided in the Notes and in this Indenture. Principal, premium and
interest shall be considered paid on the date due if, on such date, the Trustee
or the Paying Agent (other than the Company, a Subsidiary of the Company or any
of their respective Affiliates) holds in accordance with this Indenture United
States dollars in immediately available funds designated for and sufficient to
pay all principal, premium and interest then due.
(b) The Company shall pay interest on overdue amounts due hereunder
and interest on overdue installments of interest, to the extent lawful, at a
rate per annum equal to the interest rate payable on the Notes.
SECTION 4.02. Maintenance of Office or Agency. (a) The Company
shall maintain an office in the Borough of Manhattan, the City of New York, or
agency where Notes may be presented or surrendered for 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 shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the office of Harris
Trust Company of New York, an affiliate of the Trustee located in the Borough of
Manhattan, the City of New York, and the Company hereby appoints the Trustee its
agent to receive all presentations, surrenders, notices and demands through such
affiliated office of the Trustee.
(b) The Company may also from time to time designate one or more
other offices or agencies (in or outside of the City of New York) where the
Notes may be presented or surrendered for any or all of such purposes, and may
from time to time rescind such designations; provided that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York, for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
and any change in the location of any such other office or agency.
SECTION 4.03. Money for the Note Payments To Be Held in Trust. (a)
If the Company, any Subsidiary of the Company or any of their respective
Affiliates shall at any time act as Paying Agent with respect to the Notes, such
Paying Agent shall, on or before each due date of the principal 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
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United States dollars in immediately available funds designated for and
sufficient to pay the principal (and premium, if any) or interest so becoming
due until such funds shall be paid to such Persons or otherwise disposed of as
herein provided, and shall promptly notify the Trustee of its action or failure
so to act.
(b) Whenever the Company shall have one or more Paying Agents with
respect to the Notes, it shall, prior to or on each due date of the principal of
(and premium, if any) or interest on any of the Notes, deposit with a Paying
Agent United States dollars in immediately available funds designated for and
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such funds to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Paying Agent shall promptly notify the Trustee of the Company's
action or failure so to act.
SECTION 4.04. Corporate Existence. Subject to the provisions of
Article IV and Article V hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
of its Restricted Subsidiaries; provided that the Company and any such
Restricted Subsidiary shall not be required to preserve any such right or
franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company.
SECTION 4.05. Maintenance of Property. The Company shall cause all
Property used or useful in the conduct of its business or the business of any of
its Restricted Subsidiaries and material to the Company and its Restricted
Subsidiaries taken as a whole to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as, in the judgment of the Company, may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided that nothing in this Section
4.05 shall prevent the Company from discontinuing the operation or maintenance
of any of such Property if such discontinuance is, in the judgment of management
of the Company, desirable in the conduct of its business or the business of any
of its Restricted Subsidiaries.
SECTION 4.06. Payment of Taxes and Other Claims. The Company shall
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges levied
or imposed upon the Company or any of its Restricted Subsidiaries or upon the
income, profits or Property of the Company or any of its Restricted Subsidiaries
and (b) all material lawful claims for labor, materials and supplies which, if
unpaid, might become a Lien (other than a Permitted Lien) upon the Property of
the Company or any of its Restricted Subsidiaries; provided 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 upon stay of execution
or the enforcement thereof and for which adequate reserves in accordance with
GAAP or other appropriate provision has been made.
SECTION 4.07. Repurchase at the Option of Holders upon a Change of
Control. (a) Upon the occurrence of a Change of Control, each Holder will
have the right to require the Company to repurchase all or any part (equal to
$1,000 principal
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amount or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described in Section 4.07(b) (the "Change of Control Offer") at a purchase
price (the "Change of Control Purchase Price") equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, thereon to but
excluding any Change of Control Payment Date.
(b) Within 30 calendar days of the date of any Change of Control,
the Company, or the Trustee at the request and expense of the Company, shall
send to each Holder by first class mail, postage prepaid, a notice prepared by
the Company stating:
(i) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to this Section 4.07, and that all Notes or
portions thereof that are timely tendered will be accepted for payment;
(ii) the Change of Control Purchase Price, and the date Notes are
to be purchased pursuant to the Change of Control Offer (the "Change of
Control Payment Date"), which date shall be a date occurring no earlier
than 30 calendar days nor later than 60 calendar days subsequent to the
date such notice is mailed;
(iii) that any Notes or portions thereof not tendered or accepted
for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change
of Control Purchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest from and after the Change of Control Payment Date;
(v) that any Holder electing to have any Notes or portions thereof
purchased pursuant to a Change of Control Offer will be required to
surrender such Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of such Notes completed, to the Paying Agent at
the address set forth in the notice, prior to the close of business on the
third Business Day preceding the Change of Control Payment Date;
(vi) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment 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 such Holder's election to have
such Notes or portions thereof purchased pursuant to the Change of Control
Offer;
(vii) that any Holder electing to have Notes purchased pursuant to
the Change of Control Offer must specify the principal amount that is being
tendered for purchase, which amount must be $1,000 principal amount or an
integral multiple thereof;
(viii) that any Holder whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Note or Notes surrendered, which unpurchased portion must be
equal to $1,000 principal amount or an integral multiple thereof, or, if
such Note is a Global
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Note, such Global Note, with a notation adjusting the principal amount
thereof to be equal to the unpurchased portion, will be returned to the
Holder thereof;
(ix) that, if after giving effect to the Change of Control Offer, at
least 95% of the original aggregate principal amount of the Notes has been
redeemed or repurchased, the Company shall have the right to redeem the
balance of the Notes at the Change of Control Redemption Purchase Price;
and
(x) any other information necessary to enable any Holder to tender
Notes and to have such Notes purchased pursuant to this Section 4.07(b).
(c) On the Change of Control Payment Date, the Company shall (i)
accept for payment any Notes or portions thereof properly tendered pursuant to
the Change of Control Offer; (ii) irrevocably deposit with the Paying Agent (or,
if the Company, one of its Subsidiaries or any of their Affiliates is the Paying
Agent, the Paying Agent shall segregate and hold in trust for the benefit of the
Holders), by 10:00 a.m., New York City time, on such date, in United States
dollars in immediately available funds, an amount equal to the Change of Control
Purchase Price in respect of all Notes or portions thereof so accepted other
than Notes or portions of Notes called for redemption on such date which have
been delivered by the Company to the Trustee for cancellation; and (iii)
deliver, or cause to be delivered, to the Trustee the Notes so accepted together
with an Officers' Certificate listing the Notes or portions thereof tendered to
the Paying Agent and accepted for payment. The Paying Agent shall make payment
of the funds so deposited or segregated in the manner contemplated by Section
2.07(a).
(d) Upon surrender and cancellation of a Note (other than a Global
Note) that is purchased in part pursuant to the Change of Control Offer, the
Company shall execute and the Trustee shall promptly authenticate and deliver to
the surrendering Holder of such Note, a new Note equal in principal amount to
the unpurchased portion of such surrendered Note; provided that each such new
Note shall be equal to $1,000 principal amount or an integral multiple thereof.
(e) If after giving effect to a Change of Control Offer at least 95%
of the original aggregate principal amount of the Notes has been redeemed or
repurchased, the Company shall have the right to redeem the balance of the Notes
at a redemption price (the "Change of Control Redemption Purchase Price") equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, thereon to but excluding the date of redemption (the "Change of Control
Redemption Date") by sending (or, at the request and expense of the Company,
having the Trustee send) the Holders by first class mail, postage prepaid, a
notice prepared by the Company of such redemption within 30 calendar days of the
Change of Control Payment Date with respect to such Change of Control Offer (the
"Change of Control Redemption") stating:
(i) that a Change of Control Offer has been consummated and after
giving effect thereto at least 95% of the original aggregate principal
amount of the Notes has been redeemed or repurchased;
(ii) that the Company is exercising its right, pursuant to this
Section 4.07(e), to redeem the balance of the outstanding Notes;
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(iii) the Change of Control Redemption Date with respect to such
Notes, which date shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed;
(iv) that, unless the Company defaults in the payment of the Change
of Control Redemption Purchase Price with respect to such Notes, all such
Notes shall cease to accrue interest from and after such Change of Control
Redemption Date;
(v) that all Holders are required to surrender such Notes 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 of Control
Redemption Date to collect the Change of Control Redemption Purchase Price;
and
(vi) such other matters as are required by Section 3.03.
(f) On the Change of Control Redemption Date, the Company shall:
(i) accept for payment Notes or portions thereon properly tendered
pursuant to the Change of Control Redemption;
(ii) deposit with the Paying Agent (or, if the Company, one of its
Subsidiaries or any of their Affiliates is the Paying Agent, the Paying
Agent shall segregate and hold in trust for the benefit of the Holders), by
10:00 a.m., New York City time, on such date, in United States dollars in
immediately available funds, an amount equal to the Change of Control
Redemption Purchase Price in respect of all Notes or portions thereof to be
redeemed on that date; and
(iii) deliver, or cause to be delivered, to the Trustee the Notes so
accepted together with an Officer's Certificate listing the Notes tendered
to the Paying Agent and accepted for payment.
The Paying Agent shall make payment of the funds so deposited or segregated in
the manner contemplated by Section 2.07(a).
(g) To the extent such laws and regulations are applicable, the
Company shall comply with the requirements of Section 14(e) under the Exchange
Act and any other securities laws or regulations in connection with the
repurchase of Notes pursuant to a Change of Control Offer or a Change of Control
Redemption.
SECTION 4.08. Limitation on Asset Sales. (a) The Company shall not,
and shall not permit any of its Restricted Subsidiaries, directly or indirectly,
to, consummate any Asset Sale, unless:
(i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration for such Asset Sale at least equal to the Fair
Market Value (as evidenced by a Board Resolution delivered to the Trustee)
of the Property or other assets sold or otherwise disposed of;
(ii) at least 75% of the consideration received in respect of such
Asset Sale by the Company or such Restricted Subsidiary, as the case may
be, for such Property or other assets consists of (A) Cash Proceeds or
Telecommunications
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Assets; or (B) the assumption of Indebtedness of the Company or such
Restricted Subsidiary (other than Indebtedness that is subordinated by its
terms to the Notes) and the release of the Company or the Restricted
Subsidiary, as the case may be, from all liability on the Indebtedness
assumed; or (C) publicly-traded shares of Capital Stock (other than
Preferred Stock and Disqualified Stock) traded in the United States of any
Person engaged in a Telecommunications Business; and
(iii) the Company or any Restricted Subsidiary, as the case may be,
uses the Net Cash Proceeds from such Asset Sale in the manner set forth in
Section 4.08(b).
(b) Within 360 calendar days after the closing of any Asset Sale,
the Company or any Restricted Subsidiary, as the case may be, may, at its
option, do any one or more of the following:
(i) reinvest an amount equal to the Net Cash Proceeds, or any
portion thereof, from such Asset Sale in Telecommunications Assets or in
Capital Stock of any Person engaged in the Telecommunications Business;
(ii) apply an amount equal to such Net Cash Proceeds (or remaining
Net Cash Proceeds) (A) to the permanent reduction of senior secured
Indebtedness of the Company (other than Indebtedness to a Restricted
Subsidiary unless the proceeds thereof are used by such Restricted
Subsidiary in a manner contemplated by clauses (i) through (iii) of this
paragraph) or other Indebtedness of the Company (other than Indebtedness to
a Restricted Subsidiary unless the proceeds thereof are used by such
Restricted Subsidiary in a manner contemplated by clauses (i) through (iii)
of this paragraph) that is senior to the Notes or to the permanent
reduction of Indebtedness, or to the redemption of Preferred Stock, of any
Restricted Subsidiary (other than Indebtedness to, or Preferred Stock owned
by, the Company or another Restricted Subsidiary unless the proceeds
thereof are used by the Company or such Restricted Subsidiary in a manner
contemplated by clauses (i) through (iii) of this paragraph) or (B) to the
extent none of the Company or any of its Restricted Subsidiaries has any
Indebtedness outstanding of the type referred to in the immediately
preceding clause (A) (other than Indebtedness under senior secured
revolving credit facilities), to the repayment of outstanding Indebtedness
under any such revolving credit facility; provided, however, that neither
the Company nor any Restricted Subsidiary shall be required to permanently
reduce the commitments under any such revolving credit facility by an
amount equal to the outstanding Indebtedness thereunder so repaid or
prepaid; or
(iii) apply an amount equal to such Net Cash Proceeds (or remaining
Net Cash Proceeds) to prepay, whether in whole or in part, Indebtedness
that is pari passu with the Notes and that matures prior to January 15,
2010.
Net Cash Proceeds from any Asset Sale that are not used as described in clauses
(i) through (iii) above within 360 calendar days of the closing of such Asset
Sale shall constitute "Excess Proceeds."
(c) If on any date the aggregate amount of Excess Proceeds
calculated as of such date exceeds $5,000,000 on, the Company shall use the
then-existing Excess
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Proceeds to make an offer, as described in Section 4.08(d) (an "Asset Sale
Offer"), to purchase on a pro rata basis (i) Notes at a purchase price (the
"Offer Purchase Price") in cash in United States dollars in immediately
available funds equal to 100% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to but excluding the Asset Sale Payment Date
(as defined in Section 4.08(d)(ii)) and (ii) to the extent required by the terms
thereof, any other Indebtedness of the Company that is pari passu with the
Notes. The pro rata amount of such Excess Proceeds to be used to purchase Notes
shall be in an amount equal to the aggregate amount of such Excess Proceeds
multiplied by the quotient obtained by dividing the principal amount of the
outstanding Notes by the sum of such principal amount and the principal amount
of such other Indebtedness.
(d) Within 30 calendar days of the date on which the aggregate
amount of Excess Proceeds exceeds $5,000,000, the Company, or the Trustee at the
request and expense of the Company, shall send to each Holder by first class
mail, postage prepaid, a notice prepared by the Company stating:
(i) that an Asset Sale Offer is being made pursuant to this Section
4.08, and that all Notes or portions thereof that are timely tendered will
be accepted for payment, subject to proration in the event the amount of
Excess Proceeds to be applied to repurchase Notes is less than the
aggregate Offer Purchase Price of all Notes timely tendered pursuant to the
Asset Sale Offer;
(ii) the Offer Purchase Price, the amount of Excess Proceeds that
are available to be applied to purchase tendered Notes, and the date Notes
or portions thereof are to be purchased pursuant to the Asset Sale Offer
(the "Asset Sale Payment Date"), which date shall be a date no earlier than
30 calendar days nor later than 60 calendar days subsequent to the date
such notice is mailed;
(iii) that any Notes or portions thereof not tendered or accepted for
payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Offer
Purchase Price with respect thereto, all Notes or portions thereof accepted
for payment pursuant to the Asset Sale Offer shall cease to accrue interest
from and after such Asset Sale Payment Date;
(v) that any Holder electing to have any Notes or portions thereof
purchased pursuant to the Asset Sale Offer will be required to surrender
such Notes, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of such 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 Asset Sale Payment Date;
(vi) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Asset Sale Payment 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 such Holder's election to have
such Notes or portions thereof purchased pursuant to the Asset Sale Offer;
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(vii) that any Holder electing to have Notes purchased pursuant to
the Asset Sale Offer must specify the principal amount that is being
tendered for purchase, which amount must be equal to $1,000 principal
amount or an integral multiple thereof;
(viii) that any Holder whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Note or Notes surrendered, which unpurchased portion will be
equal to $1,000 principal amount or an integral multiple thereof, or, if
such Note is a Global Note, such Global Note, with a notation adjusting the
principal amount thereof to be equal to the unredeemed portion, will be
returned to the Holder thereof; and
(ix) any other information necessary to enable any Holder to tender
Notes and to have such Notes purchased pursuant to this Section 4.08.
(e) To the extent that the aggregate Offer Purchase Price of all
Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds
relating thereto (such shortfall constituting a "Deficiency"), upon completion
of such Asset Sale Offer (including payment of the Offer Purchase Price for
accepted Notes), the Company may use such Deficiency for general corporate
purposes and such Deficiency shall not thereafter constitute Excess Proceeds for
any purpose.
(f) In the event the aggregate principal amount of the outstanding
Notes tendered pursuant to an Asset Sale Offer is in excess of the Excess
Proceeds to be used to purchase such Notes as indicated in the notice required
by Section 4.08(d), the Trustee shall select the Notes to be purchased by such
Excess Proceeds on a pro rata basis, with such adjustments as may be deemed
appropriate by the Trustee, so that only Notes in principal amounts of $1,000 or
an integral multiple thereof shall be purchased. Any amount remaining after
giving effect to such purchase shall constitute a Deficiency and shall be
applied as provided in Section 4.08(e).
(g) On the Asset Sale Payment Date, the Company shall (i) accept
for payment any Notes or portions thereof properly tendered and selected for
purchase pursuant to the Asset Sale Offer and Section 4.08(f); (ii) irrevocably
deposit with the Paying Agent (or, if the Company, one of its Subsidiaries or
any of their Affiliates is the Paying Agent, the Paying Agent shall segregate
and hold in trust for the benefit of the Holders), by 10:00 a.m., New York City
time, on such date, in United States dollars in immediately available funds, an
amount equal to the Offer Purchase Price in respect of all Notes or portions
thereof so accepted other than Notes or portions of Notes called for redemption
on such date which have been delivered by the Company to the Trustee for
cancellation; and (iii) deliver, or cause to be delivered, to the Trustee the
Notes so accepted together with an Officers' Certificate listing the Notes or
portions thereof tendered to the Company and accepted for payment. The Paying
Agent shall make payment of the funds so deposited or segregated in the manner
contemplated by Section 2.07(a). The Company shall publicly announce the results
of the Asset Sale Offer on or as soon as practicable after the Asset Sale
Payment Date.
(h) Upon surrender and cancellation of a Note (other than a Global
Note) that is purchased in part, the Company shall execute and the Trustee shall
promptly authenticate and deliver to the surrendering Holder of such Note a new
Note equal in principal amount to the unpurchased portion of such surrendered
Note; provided
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that each such new Note shall be in a principal amount of $1,000 or an integral
multiple thereof.
(i) Upon completion of an Asset Sale Offer (including payment of
the Offer Purchase Price for accepted Notes), the amount of Excess Proceeds for
the purposes of the Notes and this Indenture shall be reset to zero.
(j) To the extent such laws and regulations are applicable, the
Company shall comply with the requirements of Section 14(e) under the Exchange
Act and any other securities laws or regulations in connection with the
repurchase of Notes pursuant to an Asset Sale Offer.
SECTION 4.09. Limitation on Consolidated Indebtedness.
---------------------------------------
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness after the Issue
Date provided that the Company may Incur Indebtedness if, after giving effect to
the Incurrence of such Indebtedness and the receipt and application of the net
proceeds therefrom, the ratio of (A) the aggregate consolidated principal amount
of Indebtedness of the Company outstanding as of the most recent available
quarterly or annual balance sheet, after giving pro forma effect to the
Incurrence of such Indebtedness and any other Indebtedness Incurred since such
balance sheet date and the receipt and application of the proceeds thereof, to
(B) Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters immediately preceding the Incurrence of such Indebtedness for which
consolidated financial statements of the Company are available, determined on a
pro forma basis as if any such Indebtedness had been Incurred and the proceeds
thereof had been applied at the beginning of such four fiscal quarters, would be
less than 6.0 to 1.0 for such four-quarter periods.
(b) Notwithstanding the foregoing limitation, the Company and its
Restricted Subsidiaries may Incur each and all of the following:
(i) Senior Indebtedness in an aggregate principal amount
outstanding at any one time not to exceed $250,000,000, and any renewal,
extension, refinancing or refunding thereof in an amount which, together
with any principal amount remaining outstanding or available pursuant to
this clause (i) does not exceed the aggregate principal amount outstanding
or available under all such Senior Indebtedness immediately prior to such
renewal, extension, refinancing or refunding, less, in any case, any amount
of such Indebtedness permanently repaid under Section 4.08;
(ii) Indebtedness (including Guarantees) Incurred to finance the
cost (including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire
equipment, inventory or network assets (including acquisitions by way of
any Capital Lease Obligation and acquisitions of Capital Stock of a Person
that becomes a Restricted Subsidiary to the extent of the Fair Market Value
of the equipment, inventory or network assets so acquired) by the Company
or a Restricted Subsidiary after the Issue Date;
(iii) Indebtedness owed by the Company to any Significant Restricted
Subsidiary or Indebtedness owed by a Restricted Subsidiary to the Company
or to
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a Significant Restricted Subsidiary; provided that upon either (A) the
transfer or other disposition by a Significant Restricted Subsidiary or the
Company of any Indebtedness so permitted to a Person other than the Company
or a Significant Restricted Subsidiary or (B) the issuance (other than
directors' qualifying shares), sale, transfer or other disposition of
shares of Capital Stock (including by amalgamation, consolidation or
merger) of a Significant Restricted Subsidiary (such that upon such sale,
transfer or other disposition such Restricted Subsidiary would no longer
meet the definition of a Significant Restricted Subsidiary) to a Person
other than the Company or a Significant Restricted Subsidiary, the
provisions of this clause (iii) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed to have been Incurred at
the time of such transfer or other disposition;
(iv) Indebtedness Incurred to renew, extend, refinance or refund
(including successive extensions, renewals, refinancing and refundings),
whether in whole or in part (each, a "refinancing") (A) the Notes, (B)
Indebtedness outstanding at the date of this Indenture, (C) Indebtedness
Incurred pursuant to clause (ii) of this Section 4.09(b) or (D)
Indebtedness Incurred pursuant to Section 4.09(a), in an aggregate
principal amount not to exceed the aggregate principal amount of the
Indebtedness so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness so refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase, plus the
expenses of the Company and its Restricted Subsidiaries incurred in
connection with such refinancing; provided that Indebtedness the proceeds
of which are used to refinance the Notes or Indebtedness which is pari
passu with the Notes or Indebtedness which is subordinate in right of
payment to the Notes shall only be permitted under this clause (iv) if (Y)
in the case of any refinancing of the Notes or Indebtedness which is pari
passu with the Notes, the refinancing Indebtedness is made pari passu to
the Notes or constitutes Subordinated Indebtedness, and, in the case of any
refinancing of Subordinated Indebtedness, the refinancing Indebtedness
constitutes Subordinated Indebtedness and (Z) in any case, the refinancing
Indebtedness by its terms, or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, (1) does not provide for
payments of principal of such Indebtedness at stated maturity or by way of
a sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of the
acceleration of any payment with respect to such Indebtedness upon any
event of default thereunder), in each case prior to the time the same are
required by the terms of the Indebtedness being refinanced and (2) does not
permit redemption or other retirement (including pursuant to an offer to
purchase made by the Company) of such Indebtedness at the option of the
holder thereof prior to the time the same are required by the terms of the
Indebtedness being refinanced, other than a redemption or other retirement
at the option of the holder of such Indebtedness (including pursuant to an
offer to purchase made by the Company) which is conditioned upon a change
of control pursuant to provisions substantially similar to those described
in Section 4.07(a) through (d);
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(v) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) in respect of
guarantees or letters of credit Incurred in the ordinary course of business
or (C) arising from customary agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant
to such agreements, in the case of this clause (C) Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary for the
purpose of financing such acquisition);
(vi) Indebtedness outstanding under the Notes and this Indenture;
(vii) Subordinated Indebtedness in an aggregate principal amount
outstanding at any one time not to exceed $100,000,000, less, in any case,
any amount of such Indebtedness permanently repaid as provided under
Section 4.08;
(viii) Indebtedness of the Company such that after giving effect to
the incurrence thereof, the total aggregate principal amount of
Indebtedness incurred under this clause (viii) plus any refinancings
thereof otherwise incurred in compliance with the Indenture would not
exceed 200% of Total Net Incremental Equity;
(ix) Acquired Indebtedness;
(x) Indebtedness of the Company to the extent the net proceeds
thereof are promptly (A) used to repurchase Notes tendered as a result of a
Change of Control Offer or (B) deposited to defease the Notes as provided
under Article VIII;
(xi) Indebtedness not otherwise permitted to be Incurred pursuant
to clauses (i) through (x) above, which, together with any other
outstanding Indebtedness Incurred pursuant to this clause (xi), will not
exceed $25,000,000 aggregate principal amount at any one time outstanding;
and
(xii) Indebtedness of the Company and any Restricted Subsidiary
outstanding on the Issue Date including without limitation, the 12.125%
Senior Discount Notes due 2008 issued by the Company February 18, 1998.
(c) For purposes of determining any particular amount of Indebtedness
under this Section 4.09, (i) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (ii) any Liens
granted pursuant to the equal and ratable provisions referred to in Section 4.12
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section 4.09, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses; provided, however, that the Company may
allocate portions of such Indebtedness between or among such clauses.
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SECTION 4.10. Reserved.
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SECTION 4.11. Limitation on Restricted Payments. (a) The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any Restricted Payment unless, at the time of and after giving
effect to such proposed Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect, on a pro forma basis, to such Restricted
Payment and the Incurrence of any Indebtedness the net proceeds of which
are used to finance such Restricted Payment, the Company could Incur at
least $1.00 of additional Indebtedness pursuant to Section 4.09(a); and
(iii) after giving effect to such Restricted Payment on a pro forma
basis, the aggregate amount expended (the amount so expended, if other than
cash, to be determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) or declared for all Restricted
Payments after the Issue Date does not exceed the sum of (A) 50% of the
Consolidated Net Income of the Company (or, if Consolidated Net Income
shall be a deficit, minus 100% of such deficit) for the period (taken as
one accounting period) beginning on the last day of the fiscal quarter
immediately preceding the Issue Date and ending on the last day of the
fiscal quarter for which the Company's financial statements are available
immediately preceding the date of such Restricted Payment, plus (B) 100% of
the net reduction in Investments, subsequent to the Issue Date, in any
Person, resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of Property (but only
to the extent such interest, dividends, repayments or other transfers of
Property are not included in the calculation of Consolidated Net Income),
in each case to the Company or any Restricted Subsidiary from any Person
(including from Unrestricted Subsidiaries) or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investment"), not to exceed in the case
of any Person the amount of Investments previously made subsequent to the
Issue Date by the Company or any Restricted Subsidiary in such Person and
which was treated as a Restricted Payment, plus (C) the aggregate Net Cash
Proceeds received after the Issue Date (X) as capital contributions to the
Company, (Y) from the issuance (other than to a Subsidiary of the Company)
of Capital Stock (other than Disqualified Stock) of the Company and
warrants, rights or options on Capital Stock (other than Disqualified
Stock) of the Company, or (Z) from the conversion of Indebtedness of the
Company into Capital Stock (other than Disqualified Stock and other than by
a Subsidiary of the Company) of the Company after the date of this
Indenture, less, in the case of this clause (C), an amount equal to the
amount of such Net Cash Proceeds that are used to Incur Indebtedness
pursuant to Section 4.09(b)(vii) or to make Restricted Payments under
Section 4.11(b)(ii) or (vi).
(b) The foregoing limitations shall not prevent the Company from:
(i) paying a dividend on its Capital Stock at any time within 60 days
after the declaration thereof if, on the declaration date, the Company
could have paid such dividend in compliance with Section 4.11(a);
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(ii) retiring (A) any Capital Stock of the Company or (B) any
Indebtedness of the Company that is subordinate in right of payment to the
Notes, in exchange for, or out of the proceeds of the substantially
concurrent sale of Qualified Stock of the Company;
(iii) retiring any Indebtedness of the Company subordinated in right
of payment to the Notes in exchange for, or out of the proceeds of, the
substantially concurrent Incurrence of Indebtedness of the Company (other
than Indebtedness to a Subsidiary of the Company), provided that such new
Indebtedness (A) is subordinated in right of payment to the Notes at least
to the same extent as the Indebtedness being refinanced, (B) has an Average
Life longer than the Notes, and (C) has no scheduled principal payments due
in any amount earlier than the equivalent amount of principal under the
Indebtedness so retired;
(iv) retiring any Capital Stock or options to acquire Capital Stock
of the Company held by any directors, officers or employees of the Company
or any Restricted Subsidiary upon the termination of such Person's tenure
as a director or employee, as the case may be; provided that the aggregate
price paid for all such retired Capital Stock or options shall not exceed
$5,000,000 in the aggregate;
(v) retiring any Capital Stock of the Company to the extent
necessary (as determined in good faith by a majority of the disinterested
members of the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) to prevent the loss, or to secure the
renewal or reinstatement, of any license or franchise held by the Company
or any Restricted Subsidiary from any governmental agency;
(vi) Investments in a Person the primary business of which is
related, ancillary or complimentary to the business of the Company and its
Restricted Subsidiaries on the date of such Investments; provided, that the
aggregate amount of Investments made pursuant to this clause (vi) does not
exceed the sum of (A) $20,000,000 plus (B) an amount equal to (x) Total Net
Incremental Equity, minus (y) any amount of Total Net Incremental Equity to
the extent it has been used to incur Indebtedness pursuant to Section
4.09(b)(viii);
(vii) the declaration or payment of dividends on the Common Stock of
the Company (so long as such dividends are paid to the holders of all
classes of Common Stock (following a Public Equity Offering of such Common
Stock of up to 6% per annum of the Net Cash Proceeds received by the
Company in such Public Equity Offering; and
(viii) payments or distributions to dissenting stockholders pursuant
to applicable law to the extent required in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of the
Company;
(ix) making Investments not otherwise permitted in an aggregate
amount not to exceed $10,000,000 at any one time outstanding.
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(c) In determining the amount of Restricted Payments permissible
under this Section 4.11, amounts expended pursuant to clauses (ii) and (iii) of
Section 4.11(b) hereof shall not be included as Restricted Payments.
(d) Not later than the date of making any Restricted Payment
(including any Restricted Payment permitted to be made pursuant to Section
4.11(b) or Section 4.11(c)), the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the required calculations were computed,
which calculations may be based upon the Company's latest available financial
statements.
SECTION 4.12. Limitation on Liens. (a) The Company may not, and may
not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer
to exist any Lien on or with respect to any Property or other assets or
interests therein now owned or hereafter acquired or any income or profits
therefrom or any interest thereon to secure any Indebtedness without making, or
causing such Restricted Subsidiary to make, effective provision for securing the
Notes equally and ratably with such Indebtedness, provided that no Indebtedness
of the Company which is subordinate in right of payment to the Notes may be so
secured.
(b) The foregoing restrictions shall not apply to:
(i) Liens existing on the date of this Indenture and securing
Indebtedness outstanding on the date of this Indenture;
(ii) Liens Incurred on or after the Issue Date pursuant to Section
4.09(b)(i);
(iii) Liens in favor of the Company or any Significant Restricted
Subsidiary;
(iv) Liens on Property of the Company or a Restricted Subsidiary
acquired, constructed or constituting improvements made after the Issue
Date to secure Indebtedness Incurred pursuant to Section 4.09(b)(ii) which
is otherwise permitted under this Indenture, provided that (A) the
principal amount of any Indebtedness secured by any such Lien does not
exceed 100% of such purchase price or cost of construction or improvement
of the Property subject to such Lien, (B) such Lien attaches to such
Property prior to, at the time of or within 180 days after the engineering,
acquisition, installation, development, improvement, completion of
construction or commencement of operation of such Property and (C) such
Lien does not extend to or cover any Property other than the specific item
of Property (or portion thereof) acquired, engineered, constructed,
installed, developed or constituting the improvements made with the
proceeds of such Indebtedness;
(v) Liens to secure Acquired Indebtedness, provided that (A) such
Lien attaches to the acquired asset prior to the time of the acquisition of
such asset and (B) such Lien does not extend to or cover any other
Property;
(vi) Liens to secure Indebtedness Incurred to extend, renew,
refinance or refund (or successive extensions, renewals, refinancings or
refundings), in whole or in part, Indebtedness secured by any Lien referred
to in clauses (i), (ii), (iv) and (v) of this paragraph so long as such
Lien does not extend to any other
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Property and the principal amount of Indebtedness so secured is not
increased except as otherwise permitted under Section 4.09(b)(iv);
(vii) Liens not otherwise permitted by the foregoing clauses (i)
through (vi) in an aggregate amount not to exceed 5% of the Company's
Consolidated Tangible Assets as of the date on which any such Lien arises;
(viii) Liens granted after the Issue Date pursuant to Section 4.12(a)
to secure the Notes; and
(ix) Permitted Liens.
SECTION 4.13. Limitation on Sale and Leaseback Transactions. The
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into, assume, Guarantee or otherwise become liable
with respect to any Sale and Leaseback Transaction (other than a Sale and
Leaseback Transaction between the Company or a Restricted Subsidiary on the one
hand and a Restricted Subsidiary or the Company on the other hand), unless (a)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Sale and Leaseback Transaction at least equal
to the Fair Market Value (as evidenced by a Board Resolution) of the Property
subject to such transaction, (b) the Attributable Indebtedness of the Company or
such Restricted Subsidiary with respect thereto is included as Indebtedness and
would be permitted by Section 4.09, (c) the Company or such Restricted
Subsidiary would be permitted to create a Lien on such Property without securing
the Notes by Section 4.12 and (d) the Net Cash Proceeds from such transaction
are applied in accordance with Section 4.08.
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. (a) The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, cause or suffer to exist or
become effective, or enter into, any encumbrance or restriction (other than
pursuant to law or regulation) on the ability of any Restricted Subsidiary (i)
to pay dividends or make any other distributions in respect of its Capital Stock
or pay any Indebtedness or other obligation owed to the Company or any
Restricted Subsidiary, (ii) to make loans or advances to the Company or any
Restricted Subsidiary or (iii) to transfer any of its Property to the Company or
any other Restricted Subsidiary, except:
(A) any encumbrance or restriction existing as of the Issue Date;
(B) any encumbrance or restriction pursuant to an agreement relating
to an acquisition of Property, so long as the encumbrances or restrictions
in any such agreement relate solely to the Property so acquired;
(C) any encumbrance or restriction relating to any Indebtedness of
any Restricted Subsidiary existing on the date on which such Restricted
Subsidiary is acquired by the Company or another Restricted Subsidiary
(other than any such Indebtedness Incurred by such Restricted Subsidiary in
connection with or in anticipation of such acquisition);
(D) any encumbrance or restriction pursuant to an agreement effecting
a permitted refinancing of Indebtedness issued pursuant to an agreement
referred to in the foregoing clauses (A) through (C), so long as the
encumbrances and
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restrictions contained in any such refinancing agreement are not
materially more restrictive than the encumbrances and restrictions
contained in such agreements;
(E) in the case of clause (iii) above only, customary provisions
(X) that restrict the subletting, assignment or transfer of any
Property or other asset that is a lease, license, conveyance or
contract or similar Property or other asset, (Y) existing by virtue of
any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any Property or other assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture or
(Z) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of Property or other assets of the
Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary;
(F) in the case of clause (iii) above only, 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, but only to the
extent such restrictions restrict the transfer of the Property subject
to such security agreement;
(G) any encumbrance or restriction pursuant to a Senior
Indebtedness which is permitted to be outstanding under clause (i) of
Section 4.09(b);
(H) in the case of clause (iii) above only, any encumbrance or
restriction pursuant to an agreement for Indebtedness that is
permitted to be outstanding under clause (ii) of Section 4.09(b); and
(I) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock
or assets of such Restricted Subsidiary, provided that the
consummation of such transaction would not result in a Default, that
such restriction terminates if such transaction is not consummated and
that the consummation or abandonment of such transaction occurs within
one year of the date such agreement was entered into.
(b) The foregoing limitations shall not prevent the Company or
any Restricted Subsidiary from (i) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted under Section 4.12 or (ii)
restricting the sale or other disposition of Property or other assets of
the Company or any of its Restricted Subsidiaries that secure Indebtedness
of the Company or any of its Restricted Subsidiaries otherwise permitted
under Section 4.09.
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares
of Capital Stock of a Restricted Subsidiary (including options, warrants or
other rights to purchase shares of such Capital Stock) except (a) to the
Company or a Wholly Owned Restricted Subsidiary; (b) issuance of directors'
qualifying shares or sales to foreign nationals of shares of Capital Stock
of foreign Restricted Subsidiaries, to the extent required by applicable
law; (c) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect to such
issuance or sale would have been permitted to be made under Section 4.11 if
made on the date of such issuance
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or sale; or (d) issuances or sales of Common Stock (other than Disqualified
Stock) of a Restricted Subsidiary, provided that the Company or such
Restricted Subsidiary applies the Net Cash Proceeds, if any, of any such
sale in accordance with Section 4.08.
SECTION 4.16. Transactions with Affiliates. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, sell, lease, transfer, or otherwise dispose of, any of its
Properties or assets to, or purchase any Property or other assets from, or
enter into any contract, agreement, understanding, loan, advance or
Guarantee with or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (a) such Affiliate Transaction or
series of related Affiliate Transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary than those that
could have been obtained in a comparable arm's-length transaction by the
Company or such Restricted Subsidiary with a Person that is not an
Affiliate (or, in the event that there are no comparable transactions
involving Persons who are not Affiliates of the Company or the relevant
Restricted Subsidiary to apply for comparative purposes, is otherwise on
terms that, taken as a whole, the Company has determined to be fair to the
Company or the relevant Restricted Subsidiary) and (b) the Company delivers
to the Trustee (i) with respect to any Affiliate Transaction involving
aggregate payments or, in the case of assets or Property, a Fair Market
Value in excess of $1,000,000, a certificate of the chief executive,
operating or financial officer of the Company evidencing such officer's
determination that such Affiliate Transaction or series of related
Affiliate Transactions complies with clause (a) above and is in the best
interests of the Company or such Restricted Subsidiary, (ii) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate payments or, in the case of assets or Property, a Fair
Market Value in excess of $5,000,000, a Board Resolution certifying that
such Affiliate Transaction or series of related Affiliate Transactions
complies with clause (a) above and that such Affiliate Transaction or
series of related Affiliate Transactions has been approved by a majority of
the disinterested members of the Board of Directors who have determined
that such Affiliate Transaction or series of related Affiliate Transactions
is in the best interest of the Company or such Restricted Subsidiary and
(iii) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments or, in the case of any
assets or Property, a Fair Market Value in excess of $10,000,000, a written
opinion stating that the transaction complies with clause (a) above from a
financial point of view from an investment banking firm of national
standing in the United States which, in the good faith judgment of the
Board of Directors, is independent with respect to the Company and its
Subsidiaries and qualified to perform such task; provided that the
following shall not be deemed Affiliate Transactions:
(A) any employment, non-competition, confidentiality or similar
agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business;
(B) any agreement or arrangement with respect to the
compensation of a director or officer of the Company or any Restricted
Subsidiary approved by a majority of the disinterested members of the
Board of Directors;
(C) transactions permitted by Section 4.11;
(D) transactions pursuant to any agreement or arrangement
existing on the Issue Date, including any renewal, replacement,
extension, amendment or other modification thereof, provided such
modifications are not materially more adverse to the Company or the
Restricted Subsidiaries;
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(E) issuances of Capital Stock of the Company to any Affiliates;
and
(F) the sale of telecommunications services to any Affiliate on
an arm's-length basis which is undertaken in the ordinary course of
the Company's business.
SECTION 4.17. Restricted and Unrestricted Subsidiaries. (a) The
Company may designate a Subsidiary (including a newly formed or newly
acquired Subsidiary) of the Company or any of its Restricted Subsidiaries
as an Unrestricted Subsidiary if such Subsidiary does not have any
obligations which, if in default, would result in a cross default on
Indebtedness of the Company or a Restricted Subsidiary (other than
Indebtedness to the Company or a Significant Restricted Subsidiary), and
(i) such Subsidiary has total assets of $1,000 or less, (ii) such
Subsidiary has assets of more than $1,000 and an Investment in such
Subsidiary in an amount equal to the Fair Market Value of such Subsidiary
would then be permitted under Section 4.11(a) or (iii) such designation is
effective immediately upon such Person becoming a Subsidiary. Unless so
designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company shall be classified as a Restricted Subsidiary
thereof.
(b) The Company may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that (i) no default or Event of Default
shall have occurred and be continuing at the time of or after giving effect
to such designation and (ii) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately after such designation
would, if Incurred at such time, have been permitted to be Incurred (and
shall be deemed to have been Incurred) for all purposes of the Indenture.
(c) The designation of a Subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Restricted
Subsidiary in compliance with paragraph (b) hereof shall be made by the
Board of Directors pursuant to a Board Resolution and shall be effective as
of the date specified in such Board Resolution.
SECTION 4.18. Reports. (a) The Company will file with the Trustee
within 15 days after it files them with the Commission copies of the annual
reports on Form 10-K and the information, documents, and other reports that
the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act as well as quarterly reports ("SEC Reports").
In the event the Company shall cease to be required to file SEC Reports
pursuant to either of such sections of the Exchange Act, the Company will
nevertheless continue to file such reports with the Commission (unless the
Commission will not accept such a filing) and the Trustee. The Company will
furnish copies of the SEC Reports to the Holders of Notes at the time the
Company is required to file the same with the Trustee.
(b) From and after qualification of this Indenture under the
Trust Indenture Act, the Company shall provide the information, documents,
reports, summaries and certificates required by Section 314(a) of the Trust
Indenture Act.
(c) The Company shall notify the Trustee when the Restricted
Period terminates.
SECTION 4.19. Statement of Compliance; Notice of Default or Event
of Default. (a) The Company shall deliver to the Trustee on or before a
date not more than 90 days after the end of each fiscal year of the Company
ending after the date hereof, a statement regarding compliance with this
Indenture.
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(b) The Company shall deliver to the Trustee, within 30 days
after any executive officer of the Company becomes aware of the occurrence
of any event which constitutes, or with the giving of notice or the lapse
of time or both would constitute, a Default or Event of Default, a
statement describing such Default or Event of Default, its status and what
action the Company is taking or proposes to take with respect thereto.
(c) The Trustee may withhold from Holders notice of any
continuing Default or Event of Default (other than relating to the payment
of principal or interest) if the Trustee determines that withholding such
notice is in the Holders' interest.
ARTICLE V
Amalgamation, Consolidation, Merger, Conveyance, Lease or Transfer
------------------------------------------------------------------
SECTION 5.01. Merger, Consolidation or Sale of Assets. The
Company will not, in any transaction or series of related transactions,
amalgamate or consolidate with, or merge with or into, any other Person
(other than a merger of a Restricted Subsidiary into the Company in which
the Company is the surviving corporation), or sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of the
Property and assets of the Company and its Restricted Subsidiaries taken as
a whole to any other Person, unless:
(a) either (i) the Company shall be the surviving corporation or
(ii) the corporation (if other than the Company) formed by such
amalgamation or consolidation or into which the Company is merged, or the
Person which acquires, by sale, assignment, conveyance, transfer, lease or
disposition, all or substantially all of the Property and assets of the
Company and the Restricted Subsidiaries taken as a whole (such corporation
or Person, the "Surviving Entity"), shall be a corporation organized and
validly existing under the laws of the United States of America, any
political subdivision thereof, any state thereof or the District of
Columbia, and shall expressly assume, by a supplemental indenture, the due
and punctual payment of the principal of (and premium, if any) and interest
on all the Notes and the performance of the Company's covenants and
obligations under this Indenture;
(b) immediately after giving effect to such transaction or
series of related transactions on a pro forma basis (including any
Indebtedness Incurred in connection with or in respect of such transaction
or series of related transactions), no Default shall have occurred and be
continuing;
(c) immediately after giving effect to such transaction or
series of related transactions on a pro forma basis (including any
Indebtedness incurred in connection with or in respect of, and any
Indebtedness to be repaid in connection with or as a result of, such
transaction or series of related transactions), the Company (or the
Surviving Entity, if the Company is not the surviving corporation) (i)
shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
and (ii) would be permitted to Incur at least $1 of additional Indebtedness
pursuant to Section 4.09(a); provided that this clause (c)(ii) shall not
apply to (X) a consolidation, merger or sale of all (but not less than all)
of the assets of the Company if all Liens and Indebtedness of the company
or the Surviving Entity, as the case may be, and its Restricted
Subsidiaries outstanding immediately after such transaction would, if
Incurred at such time, have been permitted to be Incurred (and all such
Liens and Indebtedness, other than Liens and Indebtedness
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of the Company and its Restricted Subsidiaries outstanding immediately
prior to the transaction, shall be deemed to have been Incurred) for all
purposes of the Indenture or (Y) a consolidation, merger, sale of all or
substantially all of the assets of the Company if immediately after giving
effect to such transaction or series of related transactions on a pro forma
basis (including any Indebtedness incurred in connection with or in respect
of, and any Indebtedness to be repaid in connection with or as a result of,
such transaction or series of related transactions) the Company's (or the
Surviving Entity's) leverage ration computed pursuant to Section 4.09(a)
would be equal to or less than the leverage ratio of the Company
immediately prior to such transaction;
(d) if, as a result of any such transaction, Property of the
Company would become subject to a Lien prohibited by the provisions of this
Indenture described under Section 4.12, the Company or the Surviving Entity
to the Company shall have secured the Notes as required thereby; and
(e) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
paragraph (c)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with.
SECTION 5.02. Successor Corporation Substituted. Upon any
amalgamation or consolidation with, or merger by the Company with or into,
any other corporation, or any sale, assignment, transfer, lease, conveyance
or other disposition of all or substantially all of the Property and assets
of the Company and its Restricted Subsidiaries taken as a whole in
accordance with Section 5.01, the successor corporation formed by such
amalgamation or consolidation or into which the Company is merged, or the
Person to which such sale, conveyance, assignment, transfer, lease,
conveyance or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person has
been named as the Company herein; and thereafter the predecessor
corporation, except in the case of a lease referred to above, shall be
relieved of all obligations and covenants under this Indenture and the
Notes.
ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. "Event of Default", wherever
used herein with respect to the Notes, means any one of the following
events (whatever the reason for such event, and whether it shall be
voluntary or involuntary, or be effected by operation of law, pursuant to
any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment in full of interest (including
Additional Interest, if any) on any Note when the same becomes due and
payable, and the continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if
any, on) any Note at its maturity, upon optional redemption, including a
Change of Control Redemption Offer, required repurchase (including pursuant
to a Change of Control Offer
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or an Asset Sale Offer) or otherwise, or the failure to make an offer to
purchase any Note as required under this Indenture;
(c) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty addressed in clauses (a) or (b) above) and continuance of such
Default or breach for a period of 60 days after written notice thereof has
been given to the Company by the Trustee or to the Company and the Trustee
by Holders of at least 25% of the aggregate principal amount of the
outstanding Notes specifying such Default and stating that such notice is a
"Notice of Default" delivered in connection with this Indenture;
(d) (i) any principal payment in excess of $10,000,000 with
respect to Indebtedness of the Company or any restricted Subsidiary is not
paid when due within the applicable grace period, if any, or (ii)
Indebtedness of the Company or any Restricted Subsidiary is accelerated by
the Holders thereof and the principal amount of such accelerated
Indebtedness exceeds $10,000,000;
(e) a final judgment or final judgments for the payment of money
(other than to the extent covered by insurance as to which the insurance
company has acknowledged coverage and other than to the extent covered by
an indemnity given by an insurance company) is entered against the Company
or any Restricted Subsidiary of the Company in an aggregate amount in
excess of $10,000,000 by a court or courts of competent jurisdiction, which
judgment is not discharged, waived, appealed, stayed, bonded or satisfied
for a period of 60 consecutive days;
(f) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Restricted
Subsidiary bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under the United States Bankruptcy Code or any other
federal or state law or the law of any other jurisdiction relating to
bankruptcy, insolvency, winding up, liquidation, reorganization or relief
of debtors ("Bankruptcy Law"), or appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company
or any Restricted 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 calendar days; provided that if the entry of such order or
decree is appealed and dismissed on appeal or otherwise has ceased to be in
effect then the Event of Default hereunder by reason of the entry of such
order or decree shall be deemed to have been cured and the related
acceleration shall be deemed rescinded; or
(g) the institution by the Company or any Restricted Subsidiary
of proceedings to be adjudicated 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 any Bankruptcy 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 Restricted Subsidiary or of any substantial part of its
property, or the making by it of an 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 6.02. Acceleration. (a) If any Event of Default (other
than an Event of Default specified in Section 6.01(f) or Section 6.01(g))
occurs and is continuing, then and in every such case, the Trustee by a
notice in writing to the
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Company may, and at the direction of the Holders of not less than 25% of
the out standing aggregate principal amount of the Notes by a notice in
writing to the Company and the Trustee shall, declare the principal amount
of, and any accrued and unpaid interest on, all Notes then outstanding to
be immediately due and payable. Upon any such declaration, such principal
amount of, and any accrued and unpaid interest on, all Notes then
outstanding will become and be immediately due and payable.
(b) If an Event of Default specified in Section 6.01(f) or
Section 6.01(g) occurs, the principal amount of, and any accrued and unpaid
interest on, all Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder of Notes.
(c) Upon payment of the principal amount of, and any accrued and
unpaid interest on, the Notes in accordance with clause (a) or (b) above,
and any interest on any overdue principal, premium and interest (in each
case to the extent that payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of
the principal of, premium, if any, and interest on the Notes shall
terminate.
(d) In the event of a declaration of acceleration because an
Event of Default set forth in Section 6.01(d) has occurred and is
continuing, such declaration of acceleration shall be automatically
rescinded and annulled if the event of default triggering such Event of
Default pursuant to Section 6.01(d) shall be remedied, or cured, or waived
by the holders of the relevant Indebtedness, within 60 calendar days after
such event of default; provided no judgment or decree for the payment of
the money due on the Notes has been obtained by the Trustee as provided
hereinafter in this Article VI.
(e) At any time after a declaration of acceleration with respect
to the Notes has been made and before a judgment or decree for payment of
the money due has been obtained by the Trustee as provided hereinafter in
this Article VI, the Holders of not less than a majority in principal
amount of the outstanding Notes, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if,
(i) the Company has paid or deposited with the Trustee a
sum sufficient to pay:
(A) all overdue installments of interest on all Notes;
(B) the principal of (and premium, if any, on) any
Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Notes;
(C) to the extent that payment of such interest is
lawful, interest on the Defaulted Interest at the rate prescribed
therefor in the Notes and this Indenture;
(D) all moneys paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel
and all other amounts due to the Trustee pursuant to Section
7.07; and
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(ii) all Events of Default with respect to the Notes, other
than the nonpayment of the principal of Notes which have become due
solely by such declaration of acceleration, have been cured or waived
by the Holders as provided herein.
(f) No such rescission shall affect any subsequent Default or
impair any right consequent thereon.
SECTION 6.03. Other Remedies. (a) The Company covenants that if
an Event of Default specified in Section 6.01(a) or Section 6.01(b) occurs
the Company shall, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders, the whole amount then due and payable on the Notes
for principal (and premium, if any) and interest and, to the extent that
payment of such interest shall be legally enforceable, interest upon the
overdue principal (and premium, if any) and upon Defaulted Interest, at the
rate or rates prescribed therefor in 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 and all
other amounts due to the Trustee pursuant to Section 7.07.
(b) If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust,
may, and, subject to Section 6.05, at the direction of the Holders of not
less than a majority of the outstanding aggregate principal amount of the
Notes by a notice in writing to the Trustee, shall, institute a judicial
proceeding for the collection of the sums so due and unpaid, and 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 and assets of the Company or any other obligor upon
such Notes, wherever situated.
(c) If an Event of Default with respect to the Notes 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 6.04. Waiver of Past Defaults. The Holders of not less
than a majority in principal amount of the outstanding Notes may, on behalf
of the Holders of all the Notes, waive any past Default and its
consequences under this Article VI, except a Default (a) in the payment of
the principal (or premium, if any) or interest on, any Note, or (b) in
respect of a covenant or provision hereof which under Section 9.02(a)
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected.
SECTION 6.05. Control by Majority. The Holders of not less than a
majority in principal amount of the outstanding Notes shall have the right
to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided that
(a) such direction shall not be in conflict with any rule of law
or with this Indenture or unduly prejudicial to the rights of other
Holders (it being understood
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that, subject to Section 7.01, the Trustee shall have no duty to
ascertain whether or not the actions or forebearances specified in or
pursuant to such direction are unduly prejudicial to such Holders) and
would not subject the Trustee to personal liability, and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits. No Holder of Notes 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
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Notes;
(b) the Holders of not less than 25% in principal amount of the
outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered and, if requested,
provided to the Trustee security or indemnity satisfactory to the
Trustee in its reasonable discretion against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 30 calendar days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of not
less than a majority in principal amount of the outstanding Notes;
in any event, it being understood and intended that no one or more Holders
of Notes shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holders of Notes, 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, except in the manner herein
provided and for the equal and ratable benefit of all Holders of Notes.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of (premium, if any) and interest on
the Notes held by such Holder, on or after the respective due dates
expressed in the Notes or the Redemption Dates or purchase dates provided
for therein, or to bring suit for the enforcement of any such payment on or
after such respective dates, shall be absolute and unconditional and shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceedings, or any voluntary or involuntary case under Bankruptcy Law, as
now or hereafter constituted, relative to the Company or any other obligor
upon the Notes or the Property and assets of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the
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principal of such Notes shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in
such proceeding or otherwise, (a) to file and prove a claim for the whole
amount of principal (and premium, if any) and interest owing and unpaid in
respect of the Notes, to file such other papers or documents and to take
such other actions, including participating as a member or otherwise in any
official committee of creditors appointed in the matter, as may be
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 all
other amounts due to the Trustee pursuant to Section 7.07) and of the
Holders allowed in such judicial proceeding, and (b) to collect and receive
any moneys or other Property payable or deliverable on any such claims and
to distribute the same; and any receiver, assignee, trustee, custodian,
liquidator, sequestrator (or other similar official) in any such 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 7.07. Nothing contained herein 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 6.09. Priorities. (a) Any money collected by the Trustee
pursuant to this Article VI shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
(i) FIRST: To the payment of all amounts due the Trustee under
Section 7.07;
(ii) SECOND: To the payment of the amounts then due and unpaid
for principal (and premium, if any) and interest on the Notes,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for the principal (and premium,
if any) and interest, respectively; and
(iii) THIRD: To the Company.
(b) The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.09. At least 15 calendar days
before such record date, the Trustee at the expense of the Company shall
send to each Holder by first class mail, postage prepaid, a notice prepared
by the Company that states such record date, the payment date and amount to
be paid.
SECTION 6.10. Undertaking for Costs. All parties to this
Indenture agree, and each Holder of any Note by such Holder's acceptance
thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit and
that such court
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may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard
to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 6.10 shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Holder, or
group of Holders, holding in the aggregate more than 10% in principal
amount of the outstanding Notes, or to any suit instituted by any Holder
for the enforcement of the payment of the principal (or premium, if any) or
interest on any Note on or after its Stated Maturity.
SECTION 6.11. Waiver of Stay or Extension Laws. The Company (to
the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of
this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and shall
not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power
as though no such law had been enacted.
SECTION 6.12. Trustee May Enforce Claims Without Possession of
the 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.
SECTION 6.13. Restoration of Rights and Remedies. If the Trustee
or any Holder of Notes 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 the Company, the Trustee and
the Holders shall, subject to any determination in such proceeding, 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 6.14. Rights and Remedies Cumulative. Except as otherwise
provided in Section 2.09, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
SECTION 6.15. 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 VI 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.
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ARTICLE VII
Trustee
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SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and shall use the same degree of care in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default of which a
Trust Officer has actual knowledge: (i) the Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this Indenture and
no implied covenants or obligations shall be read into this Indenture against
the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; provided that in
the case of any such certificates or opinions that by any provision of this
Indenture are specifically required to be furnished to the Trustee, the Trustee
shall examine such certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct; provided that: (i) this paragraph (c) shall not limit the effect of
paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any
error of judgment made in good faith by a Trust Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and (iii) the
Trustee shall not be liable with respect to any action it takes or omits to take
in good faith in accordance with a direction received by it pursuant to Section
6.05.
(d) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(e) No provision of this Indenture shall require the Trustee 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 of liability is
not reasonably assured to it.
(f) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VII and to the provisions of the Trust
Indenture Act.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper Person.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on any
Officers' Certificate or Opinion of Counsel.
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(c) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided that the Trustee's conduct does not constitute willful
misconduct or gross negligence.
(d) Before the Trustee acts or refrains from acting, it may consult
with counsel and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(e) 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 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.
(f) The Trustee shall not be liable for any action it takes or omits
to take in good faith in accordance with the direction of the Holders of not
less than a majority of the aggregate outstanding principal amount of Notes
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security reasonable to it or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
(h) 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 willful misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(i) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless it shall have received written notice thereof from the
Company or the Holder of a Note or unless a Trust Officer shall have actual
knowledge thereof.
(j) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(k) The permissive rights to the Trustee to do things enumerated in
this Indenture shall not be construed as a duty.
SECTION 7.03. Individual Rights of Trustee. The Trustee, any Paying
Agent or Note Registrar, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company, its
Restricted Subsidiaries or its Affiliates with the same rights it would have if
it were not Trustee, Paying Agent or Note Registrar hereunder, as the case may
be; provided that the Trustee must in any event comply with Sections 7.10 and
7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this
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Indenture or the Notes, it shall not be accountable for the Company's use of the
proceeds from the Notes, and it shall not be responsible (a) for any statement
of the Company in this Indenture, including the recitals contained herein, or in
any document issued in connection with the sale of the Notes or in the Notes
other than the Trustee's certificate of authentication or (b) for compliance by
the Company with the Registration Agreement.
SECTION 7.05. Notice of Defaults. Within 90 calendar days after the
occurrence of any Default hereunder known to a Trust Officer with respect to the
Notes, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Note Register, notice of such Default hereunder known to
the Trustee, unless such Default shall have been cured or waived; provided that,
except in the case of a Default in the payment of the principal (or premium, if
any) or interest on any Note, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Trust Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders.
SECTION 7.06. Preservation of Information; Reports by Trustee to
Holders. (a) The Company shall furnish or cause to be furnished to the
Trustee:
(i) semiannually, not less than ten calendar days prior to each
January 15 and July 15, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of the Regular Record
Date immediately preceding such January 15 and July 15, and
(ii) at such other times as the Trustee may request in writing,
within 30 calendar days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than 15
calendar days prior to the time such list is furnished;
provided that if and so long as the Trustee shall be the Note Registrar for the
Notes, no such list need be furnished with respect to the Notes.
(b) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.06(a) and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar,
if so acting. The Trustee may destroy any list furnished to it as provided in
Section 7.06(a) upon receipt of a new list so furnished.
(c) Holders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Holders with respect to their rights under this
Indenture or under the Notes.
(d) Each Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee 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 this Section 7.06,
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 this Section 7.06.
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(e) Within 60 calendar days after April 15 of each year commencing
with the year 2000, the Trustee shall transmit by mail to all Holders of Notes,
a brief report dated as of such April 15 if and to the extent required under
Section 313(a) of the Trust Indenture Act.
(f) The Trustee shall comply with Sections 313(b) and 313(c) of the
Trust Indenture Act.
(g) A copy of each report described in Section 7.06(e) or referred to
in Section 7.06(f) shall, at the time of its transmission to Holders, be filed
by the Trustee with each securities exchange, if any, upon which the Notes are
then listed, with the Commission and also with the Company. The Company shall
promptly notify the Trustee of any securities exchange upon which the Notes are
listed.
SECTION 7.07. Compensation and Indemnity. (a) The Company shall pay
to the Trustee from time to time reasonable compensation for its services. The
Company shall reimburse the Trustee upon request for all reasonable out-of-
pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents and counsel. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust.
(b) The Company shall indemnify the Trustee for, and hold it harmless
against, any and all loss, liability or expense (including reasonable attorneys'
fees) arising out of or incurred by it in connection with the acceptance or
administration of the trust created by this Indenture and the performance of its
duties hereunder, except as set forth in Section 7.07(c). The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend any such claim and the
Trustee shall cooperate in the defense of such claim. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
(c) The Company need not reimburse any expense or indemnify against
any loss, liability or expense incurred by the Trustee through the Trustee's own
willful misconduct, negligence or bad faith.
(d) To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee other than money or property held in trust to pay
the principal, premium (if any), and interest on, particular Notes.
(e) The Company's payment obligations pursuant to this Section 7.07
shall survive the resignation or removal of the Trustee and discharge of this
Indenture. Subject to any other rights available to the Trustee under applicable
Bankruptcy Law, when the Trustee incurs expenses after the occurrence of a
Default specified in Section 6.01(f) or Section 6.01(g) hereof, the expenses are
intended to constitute expenses of administration under bankruptcy law.
SECTION 7.08. Replacement of Trustee. (a) No resignation or removal
of the Trustee and no appointment of a successor Trustee pursuant to this
Article VII
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shall become effective until the acceptance of appointment by the successor
Trustee under this Section 7.08.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 calendar days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act 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,
unless the Trustee's duty to resign is stayed in accordance with the
provisions of Section 310(b) of the Trust Indenture Act; or
(ii) the Trustee shall cease to be eligible under Section 7.10 and
shall fail to resign after written request therefor by the Company or by
any such Holder; or
(iii) the Trustee shall become incapable of acting or a decree or
order for relief by a court having jurisdiction in the premises shall have
been entered in respect of the Trustee in an involuntary case under
Bankruptcy Law, as now or hereafter constituted; or a decree or order by a
court having jurisdiction in the premises shall have been entered for the
appointment of a receiver, custodian, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Trustee or of its Property
and assets or affairs, or any public officer shall take charge or control
of the Trustee or of its Property and assets or affairs for the purpose of
rehabilitation, conservation, winding up or liquidation; or
(iv) the Trustee shall commence a voluntary case under Bankruptcy
Law, as now or hereafter constituted, or shall consent to the appointment
of or taking possession by a receiver, custodian, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Trustee or its
Property and assets or affairs, or shall make an assignment for the benefit
of creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall take corporate action in furtherance
of any such action;
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to the Notes, or (B) subject to Section 6.10, any Holder
who has been a bona fide Holder of a Note for at least six months may, on behalf
of such Holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee for the Notes.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapacity, or the occurrence of such vacancy, a successor Trustee shall be
appointed by the Holders of not less than a
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majority in principal amount of the outstanding Notes by written notice to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with this
Section 7.08, become the successor Trustee and to that extent replace any
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and shall have accepted
appointment in the manner hereinafter provided, any Holder that has been a bona
fide Holder of a Note for at least six months may, subject to Section 6.10, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such resignation, removal and appointment by first class mail,
postage prepaid, to the Holders as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor Trustee with
respect to the Notes and the address of its Corporate Trust Office.
(g) In the event of an appointment hereunder of a successor Trustee,
each such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all Property and money held by such former
Trustee hereunder, subject to its Lien, if any, provided for in Section 7.07.
(h) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in Section 7.08(g).
(i) 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 VII and under the Trust Indenture Act.
SECTION 7.09. Successor Trustee by Merger. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder; provided that such
corporation shall be otherwise qualified and eligible under this Article VII and
under the Trust Indenture Act, 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 the event that any Notes shall not have been authenticated by such
predecessor Trustee, any such successor Trustee may authenticate and deliver
such Notes, in either its own name or that of its predecessor Trustee, with the
full force and effect which this Indenture provides for the certificate of
authentication of the Trustee.
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SECTION 7.10. Eligibility; Disqualification. (a) There shall at
all times be a Trustee hereunder which shall be
(i) a corporation organized and doing business under the laws of the
United States of America, any State or Territory thereof or the District of
Columbia, authorized under such laws to exercise corporate trust powers,
and subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority,
(ii) or a corporation or other Person organized and doing business
under the laws of a foreign government that is permitted to act as Trustee
pursuant to a rule, regulation or order of the Commission, authorized under
such laws to exercise corporate trust powers, and subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or examination
applicable to United States institutional trustees,
in either case having a combined capital and surplus of at least $25,000,000.
(b) If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.10, 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.
Neither the Company nor any Affiliate of the Company nor any Restricted
Subsidiary shall serve as Trustee hereunder. If at any time the Trustee shall
cease to be eligible to serve as Trustee hereunder pursuant to the provisions of
this Section 7.10, it shall resign immediately in the manner and with the effect
specified in this Article VII.
(c) If the Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and
the Company shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act. Nothing herein shall prevent the Trustee from
filing with the Commission the application referred to in the penultimate
paragraph of Section 310(b) of the Trust Indenture Act.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding
any creditor relationship listed in Section 311(b) of the Trust Indenture Act.
A Trustee who has resigned or been removed shall be subject to Section 311(a) of
the Trust Indenture Act to the extent indicated therein.
ARTICLE VIII
Defeasance
----------
SECTION 8.01. Company's Option To Effect Legal Defeasance or Covenant
Defeasance. The Company may elect, at its option, at any time, to have Section
8.02 or Section 8.03 applied to the outstanding Notes (in whole and not in part)
upon compliance with the conditions set forth below in this Article VIII. Such
election shall be evidenced by a Board Resolution delivered to the Trustee.
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SECTION 8.02. Legal Defeasance and Discharge. (a) Upon the
Company's exercise of its option to have this Section 8.02 applied to the
outstanding Notes (in whole and not in part), the Company shall be deemed to
have been discharged from its obligations with respect to such Notes as provided
in this Section 8.02 on and after the date the conditions set forth in Section
8.04 are satisfied (hereinafter called "Defeasance"). For this purpose, such
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by such Notes and to have satisfied all its
other obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), subject to the following which shall
survive until otherwise terminated or discharged hereunder:
(i) the rights of Holders of such Notes to receive, solely from the
trust fund described in Section 8.04 and as more fully set forth in such
Section 8.04, payments in respect of the principal of (premium, if any) and
interest on such Notes (but not the Change of Control Purchase Price or the
Offer Purchase Price) when payments are due, and any rights of Holders of
such Notes with respect to such amounts,
(ii) the Company's obligations with respect to such Notes under
Section 2.08, 2.09, 2.12, 4.02 and 4.03,
(iii) the rights, powers, trusts, obligations and immunities of the
Trustee under this Indenture,
(iv) Article III hereof, and
(v) this Article VIII.
(b) Subject to compliance with this Article VIII, the Company may
exercise its option to have this Section 8.02 applied to the outstanding Notes
(in whole and not in part) notwithstanding the prior exercise of its option to
have Section 8.03 applied to such Notes.
SECTION 8.03. Covenant Defeasance. Upon the Company's exercise of
its option to have this Section 8.03 applied to the outstanding Notes (in whole
and not in part), (a) the Company shall be released from its obligations under
Section 5.01(d) and (e) hereof, Sections 4.05 through 4.18 (except to the extent
required by the Trust Indenture Act), inclusive, and any covenant added to this
Indenture subsequent to the Issue Date pursuant to Section 9.01, and (b) the
occurrence of any event specified in Section 6.01(c), with respect to any of
Section 5.01(d) and (e), Sections 4.05 through 4.18 (except to the extent
required by the Trust Indenture Act), inclusive, and any covenant added to this
Indenture subsequent to the Issue Date pursuant to Section 9.01, shall be deemed
not to be or result in an Event of Default, in each case with respect to such
Notes as provided in this Section 8.03 on and after the date the conditions set
forth in Section 8.04 are satisfied (hereinafter called "Covenant Defeasance").
For this purpose, such Covenant Defeasance means that, with respect to such
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 specified
Section (to the extent so specified in the case of Section 6.01(c)), whether
directly or indirectly by reason of any reference elsewhere herein to any such
Section or by reason of any reference in any such Section to any other provision
herein or in any other document, but the remainder of this Indenture and such
Notes shall be unaffected thereby.
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SECTION 8.04. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to the application of Section 8.02 or Section
8.03 to the outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments on the outstanding Notes, specifically pledged as security
for such Notes, and dedicated solely to the benefit of the Holders of such
Notes, (i) United States dollars in an amount, or (ii) U.S. Government
Obligations which through the scheduled payment of principal and interest
thereon in accordance with their terms will provide, not later than one day
before the due date of any payment in respect of the outstanding Notes, United
States dollars in an amount, or (iii) a combination thereof, in each case
sufficient, in the opinion of an internationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee to pay
and discharge, the principal of and interest on such Notes on the respective
Stated Maturities or Redemption Dates thereof, in accordance with the terms of
this Indenture and such Notes.
(b) In the event of an election to have Section 8.02 apply to the
outstanding Notes, the Company shall have delivered to the Trustee an Opinion of
Counsel reasonably acceptable to the Trustee stating that (i)(A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable United States federal income tax law, in either case (A) or (B) to
the effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of such Notes will not recognize gain or loss for United States
federal income tax purposes as a result of the deposit, Defeasance and discharge
to be effected with respect to such Notes and will be subject to United States
federal income tax in the same manner and at the same times as would have been
the case if the Defeasance had not occurred and (ii) the Company's deposit will
not result in the trust created thereby or the Trustee being subject to
regulation under the Investment Company Act of 1940, as amended.
(c) In the event of an election to have Section 8.03 apply to the
outstanding Notes, the Company shall have delivered to the Trustee an Opinion of
Counsel reasonably acceptable to the Trustee stating that (i) the Holders of
such Notes will not recognize gain or loss for United States federal income tax
purposes as a result of the deposit and Covenant Defeasance to be effected with
respect to such Notes and will be subject to United States federal income tax in
the same manner and at the same times as would have been the case if the
Covenant Defeasance had not occurred and (ii) the Company's deposit will not
result in the trust created thereby or the Trustee being subject to regulation
under the Investment Company Act of 1940, as amended.
(d) No Default or Event of Default with respect to the outstanding
Notes shall have occurred and be continuing at the time of such deposit after
giving effect thereto or at any time on or prior to the 91st calendar day after
the date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 91st calendar day).
(e) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust Indenture
Act (assuming for the purpose of this clause (e) that all Notes are in default
within the meaning of the Trust Indenture Act).
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(f) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(g) If the Notes are to be redeemed prior to Stated Maturity, notice
of such redemption shall have been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee shall have been made.
(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 8.05. Deposited United States Dollars and U.S. Government
Obligations To Be Held in Trust; Miscellaneous Provisions. (a) All United
States dollars and U.S. Government Obligations (including the proceeds thereof)
deposited or deemed to be deposited with the Trustee pursuant to Section 8.04 in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Notes, of all sums due and to become due
thereon in respect of principal and any premium and interest, but money so held
in trust 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 Obligations
deposited pursuant to Section 8.04 or principal of 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 outstanding Notes.
(b) Anything in this Article VIII to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Order any United States dollars or U.S. Government Obligations held by it as
provided in Section 8.04 which, in the opinion of an internationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, are in excess of the amount that would then be
required to be deposited to effect the Defeasance or Covenant Defeasance, as the
case may be, with respect to the outstanding Notes.
(c) The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal (premium, if
any), or interest that remains unclaimed for two years; provided that the
Trustee or such Paying Agent before being required to make any payment may cause
to be published at the expense of the Company once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money at such Holder's address (as set forth in the Note Register) notice that
such money remains unclaimed and that after a date specified therein (which
shall be at least 30 calendar days from the date of such publication or mailing)
any unclaimed balance of such money then remaining will be repaid to the
Company. After payment to the Company, Holders entitled to such money must look
only to the Company for payment as general creditors, and all responsibility and
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money in accordance with this Article VIII with respect to
any Notes by reason of any order or judgment of any court or governmental
authority enjoining,
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restraining or otherwise prohibiting such application, then the obligations
under this Indenture and such Notes from which the Company has been discharged
or released pursuant to Sections 8.02 or 8.03 shall be revived and reinstated as
though no deposit had occurred pursuant to this Article VIII with respect to
such Notes, until such time as the Trustee or Paying Agent is permitted to apply
all money held in trust pursuant to Section 8.05 with respect to such Notes in
accordance with this Article VIII; provided that if the Company makes any
payment of principal of or any premium or interest on any such Note following
such reinstatement of its obligations, the Company shall be subrogated to the
rights (if any) of the Holders of such Notes to receive such payment from the
money so held in trust.
ARTICLE IX
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company and the
Trustee may, at any time, and from time to time, without notice to or consent of
any Holder of Notes, enter into one or more indentures supplemental hereto, in
form satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company in
accordance with the terms of this Indenture and the assumption by such
successor of the covenants of the Company herein and in the Notes;
(b) to add to the covenants of the Company, for the benefit of the
Holders of all of the Notes, or to surrender any right or power herein
conferred upon the Company;
(c) to add any additional Events of Default;
(d) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee;
(e) to secure the Notes;
(f) to cure any ambiguity herein, or to correct or supplement any
provision hereof which may be inconsistent with any other provision hereof
or to add any other provisions with respect to matters or questions arising
under this Indenture; provided that such actions shall not adversely affect
the interests of the Holders of Notes in any material respect; or
(g) to comply with the requirements of the Commission or any other
regulatory authority in order to effect or maintain the qualification of
this Indenture under the Trust Indenture Act.
SECTION 9.02. With Consent of Holders. (a) With the consent of the
Holders of not less than a majority in principal amount of the outstanding
Notes, by Act of said Holders delivered to the Company and the Trustee, the
Company and the Trustee may enter into one or more 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; provided that no such
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supplemental indenture shall, without the consent of the Holder of each
outstanding Note,
(i) change the Stated Maturity of the principal of, or the due date
of any installment of interest on, any Note, or alter the redemption
provisions thereof, or reduce the principal amount thereof (or premium, if
any), or the interest thereon, that would be due and payable upon Maturity
thereof, or change the place of payment where, or the coin or currency in
which, any Note or any premium or interest thereon is payable;
(ii) reduce the percentage in principal amount of the outstanding
Notes;
(iii) subordinate in right of payment, or otherwise subordinate, the
Notes to any other Indebtedness;
(iv) impair the right to institute suit for the enforcement of any
payment with respect to the Notes;
(v) make any change that would result in the Company being required
to make any deduction or withholding from any payment made under or with
respect to the Notes; or
(vi) modify any of the provisions of this Section 9.02, except to
increase any percentage set forth herein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby.
(b) It shall not be necessary for any Act of Holders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 9.03. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture under this Article IX, 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 9.04. Compliance with Trust Indenture Act. Every amendment
or supplement to this Indenture or the Notes shall comply with the Trust
Indenture Act as then in effect.
SECTION 9.05. Revocation and Effect of Consents and Waivers. (a) A
consent to an amendment, supplement or a waiver by a Holder of a Note shall bind
the Holder and every subsequent Holder of such Note or portion of such Note that
evidences the same debt as the consenting Holder's Note, even if notation of the
consent or waiver is not made on such Note; provided that any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Note or
portion of such Note if the Trustee receives the notice of revocation at least
one Business Day prior to the date the amendment, supplement or waiver becomes
effective. After an amendment, supplement or waiver becomes effective pursuant
to this Article IX, it shall bind every Holder.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to give their consent or
take any other
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action described above or required or permitted to be taken pursuant to this
Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 calendar
days after such record date.
SECTION 9.06. Notation on or Exchange of Notes. If a supplemental
indenture changes the terms of a Note, the Trustee may require the Holder
thereof to deliver such Note to the Trustee. The Trustee may place an
appropriate notation on such Note regarding the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for such Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such
supplement.
SECTION 9.07. Trustee To Execute Supplemental Indentures. The Trustee
shall execute any supplemental indenture authorized pursuant to this Article IX
if such supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but
shall not be required to, execute such supplemental indenture. In executing any
supplemental indenture, the Trustee shall receive and shall be (subject to
Section 7.01) fully protected in relying upon an Officers' Certificate and an
Opinion of Counsel, which shall not be at the expense of the Trustee, stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture.
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Trust Indenture Act Controls. If and to the extent
that any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by, or with another provision (an "incorporated provision")
included in this Indenture by operation of Sections 310 to 318, inclusive, of
the Trust Indenture Act, such imposed duties or incorporated provision shall
control. If any provisions of this Indenture modifies or excludes any provision
of the TIA that may be so modified or excluded, the Indenture as so modified or
with such exclusion shall apply.
SECTION 10.02. Notices. (a) Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail, postage prepaid,
addressed as follows. If to the Company: 200 N. LaSalle, Chicago, Illinois
60601, Attention: Chief Financial Officer; with a copy to Jones, Day, Reavis &
Pogue, 77 West Wacker, Chicago, Illinois 60601, Attention: Elizabeth C.
Kitslaar, if to the Trustee: Harris Trust and Savings Bank, 311 West Monroe
Street, 12th Floor, Chicago, Illinois 60606, Attention: Corporate Trust
Administration.
(b) The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications. Any
notice or communication mailed to a Holder shall be sent to the Holder by first-
class mail, postage prepaid, at the Holder's address as it appears in the Note
Register and shall be duly given if so sent within the time prescribed. Failure
to mail a notice or
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communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders. If a notice or communication is mailed to the
Company, the Trustee or a Holder in the manner provided above, it is duly given,
whether or not the addressee receives it. In case by reason of the suspension of
regular mail service or by reason of any other cause it shall be impracticable
to give notice by mail to Holders, then such notification as shall be made with
the approval of the Trustee shall constitute a sufficient notification for every
purpose hereunder.
SECTION 10.03. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee: (a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and (b) an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 10.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture (other than pursuant to Section 4.19) shall
include: (a) a statement that the individual making such certificate or opinion
has read such covenant or condition; (b) 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; (c) a statement that, in the
opinion of such individual, such person has made such examination or
investigation as is necessary to enable such person to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and (d) a statement as to whether or not, in the opinion of such individual,
such covenant or condition has been complied with; provided that, with respect
to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate
or certificates of public officials.
SECTION 10.05. Rules by Trustee, Paying Agent and Note Registrar. The
Trustee may make reasonable rules for action by or a meeting of Holders, and any
Note Registrar and Paying Agent may make reasonable rules for their functions;
provided that no such rule shall conflict with the terms of this Indenture or
the Trust Indenture Act.
SECTION 10.06. Payments on Business Days. If a payment hereunder is
scheduled to be made on a date that is not a Business Day, payment shall be made
on the next succeeding day that is a Business Day, and no interest shall accrue
with respect to that payment during the intervening period. If a regular
record date is a date that is not a Business Day, such record date shall not be
affected.
SECTION 10.07. Governing Law; Jurisdiction. THIS INDENTURE AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD
BE REQUIRED THEREBY. EACH OF THE PARTIES HERETO AGREE TO SUBMIT TO THE NON-
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE.
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SECTION 10.08. No Recourse Against Others. No controlling Person,
director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any covenant, agreement or other obligations
of the Company under the Notes or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation, solely by
reason of its past, present or future status as a controlling Person, director,
officer, employee, incorporator or stockholder of the Company. By accepting a
Note, each Holder waives and releases all such liability (but only such
liability) as part of the consideration for issuance of such Note to such
Holder.
SECTION 10.09. Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors and assigns whether so
expressed or not. All agreements of the Trustee in this Indenture shall bind
its successors and assigns whether so expressed or not.
SECTION 10.10. Counterparts. This Indenture may be executed in any
number of counterparts and by the parties thereto 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.
SECTION 10.11. Table of Contents; Headings. The table of contents,
cross-reference table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 10.12. Severability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 10.13. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
[Remainder of Page Intentionally Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed all as of the day and year first above written.
FOCAL COMMUNICATIONS CORPORATION
/s/ Robert C. Taylor, Jr.
By ________________________________
Name: Robert C. Taylor, Jr.
Title: Director, President and
Chief Executive Officer
HARRIS TRUST AND SAVINGS BANK,
as Trustee,
/s/ J. Bartolini
By ________________________________
Name: J. Bartolini
Title: Vice President
<PAGE>
ANNEX A
Form of Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to (S) 2.08(g)(i) and (iii)
of the Indenture)
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Re: 11.875 Senior Notes due 2010
of Focal Communications Corporation (the "Notes")
------------------------------------------------
Reference is made to the Indenture, dated as of January 12, 2000 (the
"Indenture"), between Focal Communications Corporation (the "Company") and
Harris Trust and Savings Bank, as Trustee. Terms used herein and defined in the
Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933,
as amended (the "Securities Act"), are used herein as so defined.
This certificate relates to $________________principal amount of
Notes, which are evidenced by the following certificates (the "Specified
Notes"):
CUSIP No(s)._______________________________________
CERTIFICATE No(s)._________________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Notes or (ii) it is acting on behalf of all the beneficial owners of
the Specified Notes and is duly authorized by them to do so. Such beneficial
owner or owners are referred to herein collectively as the "Owner". If the
Specified Notes are represented by a Global Note, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as or on behalf of
the Owner. If the Specified Notes are not represented by a Global Note, they
are registered in the name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Notes be transferred to a
person (the "Transferee") who will take delivery in the form of a Regulation S
Note. In connection with such transfer, the Owner hereby certifies that, unless
such transfer is being effected pursuant to an effective registration statement
under the Securities Act, it is being effected in accordance with Rule 904 or
Rule 144 under the Securities Act and with all applicable securities laws of the
states of the United States and other jurisdictions. Accordingly, the Owner
hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
1
<PAGE>
(A) the Owner is not a distributor of the Notes, an affiliate of
the Company or any such distributor or a person acting on behalf of
any of the foregoing;
(B) the offer of the Specified Notes was not made to a person in
the United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated by
the Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner nor
any person acting on its behalf knows that the transaction has
been prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other remuneration in respect of the
Specified Notes, and the transfer is to occur during the Restricted
Period, then the requirements of Rule 904(c)(1) have been satisfied;
and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant
to Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Notes were last acquired from the Company
or from an affiliate of the Company, whichever is later, and is being
effected in accordance with the applicable amount, manner of sale and
notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since the Specified Notes were last acquired
from the Company or from an affiliate of the Company, whichever is
later, and the Owner is not, and during the preceding three months has
not been, an affiliate of the Company.
The Owner also hereby certifies that, if the transfer is occurring
during the period of 40 consecutive days beginning on and including the later of
(A) the day on which the Notes were first offered to persons other than
distributors (as defined in Regulation S of the Securities Act) in reliance on
Regulation S and (B) the original issuance date of the Notes (the "Restricted
Period"), the Transferee shall hold the
2
<PAGE>
Specified Notes in the form of a Global Note held only in or through accounts
maintained at the Depositary by Euroclear or Cedel (or by Agent Members acting
for the account thereof) until the expiration of the Restricted Period.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
Dated:
________________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By _____________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
3
<PAGE>
ANNEX B
Form of Restricted Notes Certificate
RESTRICTED NOTES CERTIFICATE
(For transfers pursuant to (S) 2.08(g)(ii)
and (iii) of the Indenture)
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Re: 11.875% Senior Notes due 2010
of Focal Communications Corporation (the "Notes")
-------------------------------------------------
Reference is made to the Indenture, dated as of January 12, 2000 (the
"Indenture"), between Focal Communications Corporation (the "Company") and
Harris Trust and Savings Bank, as Trustee. Terms used herein and defined in the
Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933,
as amended (the "Securities Act"), are used herein as so defined.
This certificate relates to $_______________ principal amount of
Notes, which are evidenced by the following certificates (the "Specified
Notes"):
CUSIP No(s). ______________________________
CERTIFICATE No(s). ________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Notes or (ii) it is acting on behalf of all the beneficial owners of
the Specified Notes and is duly authorized by them to do so. Such beneficial
owner or owners are referred to herein collectively as the "Owner". If the
Specified Notes are represented by a Global Note, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as or on behalf of
the Owner. If the Specified Notes are not represented by a Global Note, they
are registered in the name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Notes be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Note. In connection with such transfer, the Owner hereby certifies that, unless
such transfer is being effected pursuant to an effective registration statement
under the Securities Act, it is being effected in accordance with Rule 144A,
Rule 144 or to an Institutional Accredited Investor under Rule 501(a)(1), (2),
(3) or (7) under the Securities Act and in compliance with all applicable
securities laws of the states of the United States and other jurisdictions.
Accordingly, the Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
1
<PAGE>
(A) the Specified Notes are being transferred to a person that
the Owner and any person acting on its behalf reasonably believe is a
"qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant
to Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Notes were last acquired from the Company
or from an affiliate of the Company, whichever is later, and is being
effected in accordance with the applicable amount, manner of sale and
notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years has elapsed since the Specified Notes were last acquired
from the Company or from an affiliate of the Company, whichever is
later, and the Owner is not, and during the preceding three months has
not been, an affiliate of the Company.
(3) Institutional Accredited Investor Transfers. If the transfer is
being effected to an Institutional Accredited Investor as defined under
Rule 501(a)(1), (2), (3) or (7), the Specified Notes are being transferred
to such an Institutional Accredited Investor as therein so defined who is
purchasing for investment purposes and not for distribution.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
Dated: _____________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By: _________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
2
<PAGE>
ANNEX C
Form of Unrestricted Notes Certificate
UNRESTRICTED NOTES CERTIFICATE
(For removal of Securities Act Legends pursuant to
(S) 2.08(h)(iii) of the Indenture)
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Division
Re: 11.875 % Senior Notes due 2010
of Focal Communications Corporation ("the Notes")
-------------------------------------------------
Reference is made to the Indenture, dated as of January 12, 2000 (the
"Indenture"), between Focal Communications Corporation (the "Company") and
Harris Trust and Savings Bank, as Trustee. Terms used herein and defined in the
Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933,
as amended (the "Securities Act"), are used herein as so defined.
This certificate relates to $______________ principal amount of Notes,
which are evidenced by the following certificates (the "Specified Notes"):
CUSIP No(s).____________________________
CERTIFICATE No(s).______________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Notes or (ii) it is acting on behalf of all the beneficial owners of
the Specified Notes and is duly authorized by them to do so. Such beneficial
owner or owners are referred to herein collectively as the "Owner". If the
Specified Notes are represented by a Global Note, they are held through the
Depositary or an Agent Member in the name of the Undersigned, as or on behalf of
the Owner. If the Specified Notes are not represented by a Global Note, they
are registered in the name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Notes be exchanged for
Notes bearing no Securities Act Legend pursuant to Section 2.08(h)(iii) of the
Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a holding period of at least two years (computed
in accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Notes were last acquired from the Company or from an affiliate of the Company,
whichever is later, and the Owner is not, and during the preceding three months
has not been, an affiliate of the Company. The Owner also acknowledges that any
future transfers of the Specified Notes must comply with all applicable
securities laws of the states of the United States and other jurisdictions.
1
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.
Dated:
___________________________________________
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By: _______________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated).
2
<PAGE>
ANNEX D
FORM OF CLEARING SYSTEM CERTIFICATE
Re: Focal Communications Corporation
11.875% Senior Notes due 2010
(the "Notes")
Reference is hereby made to the Indenture dated as of January 12, 2000
(the "Indenture"), between Focal Communications Corporation (the "Company") and
Harris Trust and Savings Bank (the "Trustee"). Capitalized terms not defined in
this Certificate shall have the meanings given to them in the Indenture.
This is to certify that, as of the date hereof, with respect to
$___________ principal amount of Notes, except as set forth below, we have
received in writing by tested telex or by electronic transmission, from our
Agent Members entitled to a portion of such principal amount, certifications
with respect to such portion substantially to the effect set forth in the
Indenture.
We further certify (i) that we are not making available herewith for
exchange any portion of the Temporary Regulation S Global Note excepted in such
certifications and (ii) that as of the date hereof we have not received any
notification from any of our Agent Members to the effect that the statements
made by such Agent Members with respect to any portion of the part submitted
herewith for exchange are no longer true and cannot be relied upon as the date
hereof.
We understand that this certification is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this
1
<PAGE>
certification is or would be relevant, we irrevocably authorize you to produce
this certification to any interested party in such proceedings.
Dated: ___________,
Yours faithfully,
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, Brussels office,
as operator of the Euroclear System
By: ___________________________________
Name:
Title:
or
CEDEL S.A.
By: ___________________________________
Name:
Title:
2
<PAGE>
ANNEX E
FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP
Re: Focal Communications Corporation
11.875% Senior Notes due 2010
(the "Notes")
Reference is hereby made to the Indenture dated as of January 12, 2000
(the "Indenture"), between Focal Communications Corporation (the "Company") and
Harris Trust and Savings Bank (the "Trustee"). Capitalized terms not defined in
this Certificate shall have the meanings given to them in the Indenture.
This is to certify that, as of the date hereof, the above-captioned
Notes held by you for our account are beneficially owned by (a) non-U.S.
person(s) or (b) U.S. person(s) who purchased the Notes in transactions which
did not require registration under the Securities Act of 1933, as amended (the
"Act"). As used in this paragraph the term "U.S. person" has the meaning given
to it by Regulation S under the Act.
We undertake to advise you promptly by tested telex on or prior to the
date on which you intend to submit your certification relating to the Notes held
by you for our account in accordance with your operating procedures if any
applicable statement herein is not correct on such date, and in the absence of
any such notification it may be assumed that this certification applies as of
such date.
We understand that this certification is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you to produce this certification to any interested party in such proceedings.
Dated: ,
By: __________________________________
As, or as agent for, the
beneficial owner(s) of the
Notes to which this
certificate relates.
1
<PAGE>
Exhibit 4.29
[FORM OF 11-7/8% SENIOR NOTE DUE JANUARY 15, 2010]
CUSIP NO. 344155AD8
No. 1 $274,870,000
Focal Communications Corporation, a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
-------
indenture referred to on the reverse of this Note) for value received, hereby
promises to pay to Cede & Co., or registered assigns, the principal amount of
two hundred seventy-five million dollars ($275,000,000) (which principal amount
may from time to time be increased or decreased to such other principal amounts
(which shall not exceed $275,000,000 at any time) by adjustments made to the
Schedule annexed hereto by the Trustee hereinafter referred to in accordance
with the indenture referred to on the reverse of this Note) on January 15, 2010.
Interest Payment Dates: January 15 and July 15, commencing on July
15, 2000.
Regular Record Dates: January 1 and July 1.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
---
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR 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 NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER BY PURCHASING THIS NOTE AGREES FOR
THE BENEFIT OF THE COMPANY AND THE INITIAL PURCHASERS OF THIS NOTE THAT THIS
NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND
ANNIVERSARY (OR SUCH EARLIER DATE PROVIDED FOR IN RULE 144(K) UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO) OF THE ISSUANCE HEREOF (OR A
PREDECESSOR NOTE HERETO) OR (Y) IF LATER, BY ANY HOLDER THAT WAS AN AFFILIATE OF
THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH
TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
<PAGE>
ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED
IN THE INDENTURE PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD"
(WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT),
A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED
BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE) THAT IS ACQUIRING THIS NOTE
FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT OR ANY OTHER APPLICABLE SECURITIES LAWS, AND A CERTIFICATE IN THE FORM
ATTACHED TO THIS NOTE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT
TRANSFER THIS NOTE PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF THE
"40-DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S
UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS NOTE
AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND
OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY
TRANSFER BY IT OF THIS NOTE COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER
HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE
COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144(A) OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING
THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S.
PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING
THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE
SECURITIES ACT.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
2
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse of this Note or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: January 12, 2000
FOCAL COMMUNICATIONS
CORPORATION
by___________________
Name:
Title:
Attest:
______________________
3
<PAGE>
(REVERSE OF NOTE)
11 7/8% Senior Discount Note Due 2010
1. Indenture.
---------
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11.875% Senior Notes due January 15, 2010 (the "Notes"),
-----
issued under an indenture, dated as of January 12, 2000 (herein, as amended from
time to time, called the "Indenture"), between the Company and Harris Trust and
---------
Savings Bank, as trustee (herein called the "Trustee", which term includes any
-------
successor trustee under the Indenture). The Notes are limited in aggregate
principal amount to $275,000,000. Reference is hereby made to the Indenture and
all indentures supplemental thereto for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holder of this Note and of the terms upon which this Note is,
and is to be, authenticated and delivered. All terms used in this Note which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture.
2. Principal Amount and Interest.
-----------------------------
The Company will pay the principal amount of this Note on January 15,
2010.
This Note will bear interest on the outstanding aggregate principal
amount thereof at a rate of 11.875 % per annum computed on a semiannual bond
equivalent basis from the Issue Date.
If (i) the Company has not filed a registration statement (the
"Exchange Offer Registration Statement") under the Securities Act of 1933, as
-------------------------------------
amended (the "Securities Act"), registering a security substantially identical
--------------
to this Note (except that such Note will not contain terms with respect to
transfer restrictions) pursuant to an exchange offer (the "Registered Exchange
-------------------
Offer") on or prior to April 14, 2000 or (ii) the Exchange Offer Registration
- -----
Statement relating to the Registered Exchange Offer has not become or been
declared effective prior to August 12, 2000, or (iii) neither the Registered
Exchange Offer has been consummated nor a registration statement registering
this Note for resale (a "Shelf Registration Statement") has been declared
----------------------------
effective prior to September 11, 2000 or (iv) after the Shelf Registration
Statement has been declared effective, such Shelf Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions set
forth in the Registration Agreement) in connection with resales of this Note or
notes issued in exchange for this Note pursuant to the Registered Exchange Offer
("Exchange Notes") in accordance with and during the periods specified in the
--------------
Registration Agreement without being succeeded promptly by an additional
registration statement filed and declared effective, in the case of each of the
immediately preceding clauses (i) through (iv) upon the terms and conditions set
forth in the Registration Agreement (each such event referred to in such clauses
(i) through (iv), a "Registration Default"), then interest will accrue on this
--------------------
Note and the Exchange Notes (in addition to the stated interest on this Note and
the Exchange Notes) (the "Step-Up") and be payable in cash semiannually in
-------
arrears on January 15 and July 15 of each year, beginning on the January 15 or
July 15 immediately following a Registration Default (such interest to be
payable to the Holder of record as of the January 1 and July 1, as the case may
be, immediately preceding January 15 or July 15), at a rate of 0.50% per annum
during the 90-day period immediately following the occurrence of a Registration
Default and shall increase by a rate per annum equal to 0.25% at the end of each
subsequent 90-day period. In no event shall such rate exceed 1.50% per annum in
the aggregate regardless of the number of Registration Defaults.
4
<PAGE>
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 interest rate payable on this Note.
Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice of which
shall be given to the Holder of this Note not less than 10 calendar days prior
to such Special Record Date.
3. Method of Payment.
------------------
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. Payments in respect of
Notes represented by Global Notes (including principal, premium, interest and
Defaulted Interest, if any) will be made by wire transfer of immediately
available funds to the accounts specified by the nominee for the Depositary.
With respect to certificated Notes, the Paying Agent will make all payments of
principal, premium, interest and Defaulted Interest, if any, by wire transfer of
immediately available funds to the United States dollar accounts maintained by
the Holders entitled thereto with banks in the United States, or, if no such
account is designated by the relevant Holder to the Trustee or the Paying Agent
at least 30 days prior to the relevant due date for payment (or such other date
as the Trustee may accept in its discretion), by mailing a check to the
registered address of such Holder. 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.
4. Paying Agent and Note Registrar.
--------------------------------
Initially, the Trustee will act as authenticating agent, Paying Agent
and Note Registrar. The Trustee may be removed by action of the Holders of not
less than a majority in principal amount of the outstanding Notes, or by the
Company or certain bona fide Holders of Notes upon the occurrence of certain
events. The Company may change any Paying Agent or Note Registrar with notice
in writing to the Trustee. The Company, any Subsidiary or any Affiliate of
either of them may act as Paying Agent or Note Registrar.
5. Optional Redemption.
--------------------
This Note is subject to redemption upon not less than 30 nor more than
60 days' prior written notice to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in principal amounts or at any
time on or after January 15, 2005, at the following Redemption Prices plus
accrued and unpaid interest, if any, thereon to but excluding the Redemption
Date, if redeemed during the periods indicated below:
<TABLE>
<CAPTION>
From and Including To and Including Redemption Price
------------------ ---------------- ----------------
<S> <C> <C>
January 15, 2005 January 14, 2006 105.938%
January 15, 2006 January 14, 2007 103.958%
January 15, 2007 January 14, 2008 101.979%
</TABLE>
5
<PAGE>
January 15, 2008 and thereafter 100.000%
This Note will be redeemable at any time and from time to time prior
to January 15, 2003 in the event that the Company receives Net Cash Proceeds
from the sale of its Capital Stock (other than Disqualified Stock) in one or
more Public Equity Offerings, in which case the Company may, at its option, use
all or a portion of any such Net Cash Proceeds to redeem up to 35% of initially
outstanding aggregate principal amount of the Notes; provided, that at least 65%
--------
of the original aggregate principal amount of the Notes remains outstanding
after each such redemption. Such redemption must occur on a date of redemption
within 90 days of such sale and upon not less than 30 nor more than 60 days'
prior written notice, in principal amounts of $1,000 or integral multiples
thereof at a redemption price equal to 111.875% of the principal amount of the
Notes to be redeemed plus Additional Interest, if any, to but excluding the date
of redemption.
If, after giving effect to the offer by the Company to repurchase all
or any part of each Holder's Notes made upon the occurrence of a Change of
Control as set forth in Section 7 hereto, at least 95% of the original aggregate
principal amount of the Notes has been redeemed or repurchased pursuant to the
Indenture, the Company shall have the right to redeem the balance of the Notes
at a redemption price equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, thereon to but excluding the date of redemption.
The Company may exercise this right by giving the Holders notice of such
redemption within 30 days following the payment date with respect to the
Company's earlier repurchase offer.
6. No Sinking Fund.
----------------
The Notes do not have the benefit of any sinking fund obligations.
7. Repurchase of Notes at the Option of Holders upon a Change of Control.
----------------------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder will have the
right to require the Company to repurchase all or any part (equal to $1,000
principal amount or an integral multiple thereof) of such Holder's Notes at a
purchase price ("Change of Control Purchase Price") equal to 101% of the
--------------------------------
principal amount thereof plus accrued and unpaid interest, if any, thereon to
but excluding the payment date for the Change of Control Purchase Price.
Within 30 days following any Change of Control, the Company or the
Trustee (at the expense of the Company) shall mail a notice to each Holder
regarding the Company's offer to repurchase all or any part of such Holder's
Notes. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the offer described in the notice. Unless the Company defaults in the payment
of the Change of Control Purchase Price with respect thereto, all Notes or
portions thereof accepted for payment pursuant to the offer described in the
notice will cease to accrue interest from and after the payment date for the
Change of Control Purchase Price.
8. Repurchase of Notes at the Option of Holders upon an Asset Sale.
----------------------------------------------------------------
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds
calculated as of any date exceeds $5,000,000, the Company shall, within 30 days
of such date, make an offer to purchase (an "Asset Sale Offer") on a pro rata
----------------
basis (a) Notes at a purchase price (the
6
<PAGE>
"Offer Purchase Price") in cash equal to 100% of the principal amount thereof,
--------------------
plus accrued and unpaid interest thereon, if any, to but excluding the purchase
date and (b) to the extent required by the terms thereof, any other indebtedness
of the Company that is pari passu with the Notes. The pro rata amount of such
Excess Proceeds to be used to purchase Notes shall be in an amount equal to the
aggregate amount of such Excess Proceeds multiplied by the quotient obtained by
dividing the principal amount of the outstanding Notes by the sum of such
principal amount and the principal amount of such other Indebtedness. In the
event the aggregate Offer Purchase Price of the outstanding Notes tendered
pursuant to an Asset Sale Offer is in excess of the Excess Proceeds to be used
to purchase such Notes, such Excess Proceeds shall be applied to purchase such
Notes on a pro rated basis in principal amounts of $1,000 or an integral
multiple thereof.
Within 30 days of the date the amount of Excess Proceeds exceeds
$5,000,000, the Company or the Trustee (at the expense of the Company) shall
mail to each Holder a written notice regarding the Asset Sale Offer. The Holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Asset
Sale Offer. Unless the Company defaults in the payment of the Offer Purchase
Price with respect thereto, all Notes or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrue interest from and after
the purchase date.
9. Denominations; Transfer; Exchange.
----------------------------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 principal amount and any integral multiple thereof. A
Holder may register the transfer or exchange of Notes in accordance with the
Indenture. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
10. Persons Deemed Owners.
----------------------
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee, the Paying Agent and the Note Registrar may deem and
treat the Person in whose name this Note is registered as the owner hereof for
all purposes, whether or not this Note be overdue, and none of the Company, the
Trustee, the Paying Agent or the Note Registrar shall be affected by notice to
the contrary.
11. Unclaimed Money.
----------------
Subject to certain notice provisions, the Trustee and the Paying Agent
shall pay to the Company upon written request any money held by them for the
payment of principal, premium, if any, or interest that remains unclaimed for
two years. After payment to the Company, Holders entitled to such money must
look only to the Company for payment as general creditors, and all
responsibility and liability of the Trustee and the Paying Agent with respect to
such money shall cease.
12. Discharge Prior to Redemption.
------------------------------
If the Company deposits with the Trustee United States dollars or U.S.
Government Obligations sufficient to pay the principal, premium, if any, and
accrued interest on the Notes to redemption, the Company will, with the
exceptions of certain
7
<PAGE>
sections thereof, be discharged from the Indenture and the Notes, including
certain covenants set forth in the Indenture.
13. Amendment; Waiver.
------------------
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive certain past
defaults under the Indenture and their consequences.
14. Restrictive Covenants.
----------------------
The Indenture contains certain covenants which, among other things,
restrict the ability of the Company and Restricted Subsidiaries to incur
additional indebtedness (and, in the case of Restricted Subsidiaries, issue
preferred stock), pay dividends or make distributions in respect of the
Company's or Restricted Subsidiaries' capital stock, make other restricted
payments, enter into sale and leaseback transactions, incur liens, cause
encumbrances or restrictions to exist on the ability of Restricted Subsidiaries
to pay dividends or make distributions in respect of their capital stock, issue
and sell capital stock of Restricted Subsidiaries, enter into transactions with
affiliates, sell assets, or amalgamate, consolidate, merge or sell or otherwise
dispose of all or substantially all of their property and assets.
15. Defaults and Remedies.
----------------------
With the exception of certain Events of Defaults specified below, if
an Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% of the aggregate principal amount of the outstanding Notes may
declare the principal amount of, and any accrued and unpaid interest on, all
Notes then outstanding to be immediately due and payable. If a bankruptcy or
insolvency default with respect to the Company or a Restricted Subsidiary occurs
and is continuing, the Notes immediately become 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 not less
than a majority in principal amount of the outstanding Notes will have the right
to direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee.
16. No Recourse Against Others.
---------------------------
No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any covenant,
agreement or other obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its past, present or future status as a
controlling Person, director, officer, employee, incorporator or stockholder of
the Company. Each Holder by accepting a Note waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for the issuance of the Notes.
8
<PAGE>
17. Governing Law.
--------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture. Requests may be made to:
Focal Communications Corporation
200 N. LaSalle
Chicago, Illinois 60601
Attention: Chief Financial Officer
18. Ranking.
--------
The Notes are senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future senior indebtedness of
the Company, and will rank senior in right of payment to all existing and future
subordinated Indebtedness of the Company. Holders of secured Indebtedness of
the Company, however, will have claims that are prior to the claims of the
Holders with respect to the assets securing such other indebtedness except to
the extent the Notes are equally and ratably secured by such assets.
9
<PAGE>
______________________________________________________________________
CERTIFICATE OF TRANSFER
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of Focal Communications Corporation. The agent may substitute another
to act for him.
______________________________________________________________________
Date: ________________ Your Signature: _____________________
______________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
10
<PAGE>
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act of 1933 (the "Securities Act") after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by Focal Communications Corporation or any
Affiliate, the undersigned confirms that such Notes are being transferred in
accordance with the terms of such Notes:
CHECK ONE BOX BELOW
(1) [_] to Focal Communications Corporation; or
(2) [_] pursuant to an effective registration statement under the
Securities Act; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
-----------------------------
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A under the Securities Act, in
each case pursuant to and in compliance with Rule 144A under the
Securities Act; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act;
(5) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act; or
(6) [_] to an institution that is an "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring this Note for investment purposes and not for
distribution in violation of the Securities Act or any other
applicable securities laws.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Notes evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (3),
-------- -------
(4), (5) or (6) is checked, the Trustee may require, prior to registering
any such transfer of the Notes, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act, such as the exemption provided by Rule 144 under the Securities Act.
11
<PAGE>
______________________
Signature
Signature Guarantee:
_______________________ _____________________________
[Signature must be guaranteed Signature
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit
unions) with membership in
an approved guarantee
medallion program pursuant
to Securities and Exchange
Commission Rule 17Ad-15]
____________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
---------
institutional buyer" within the meaning of Rule 144A under the Securities Act,
- -------------------
and is aware that the sale to it is being made in reliance on Rule 144A under
the Securities Act and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
under the Securities Act or has determined not to request such information and
that it is aware that the transferor is relying upon the foregoing
representations of the undersigned in order to claim the exemption from
registration provided by Rule 144A under the Securities Act.
Dated: ________________ ______________________________________________
NOTICE: To be executed by an executive officer
12
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been
made:
<TABLE>
<CAPTION>
Principal Amount of this
Amount of decrease in Amount of increase in Global Note following Signature of authorized
Date of Principal Amount Principal Amount such decrease or signatory of Trustee or
Exchange of this Global Note of this Global Note increase Notes Custodian
- -------- ----------------------- ----------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
</TABLE>
13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.07 or 4.08 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, state the amount in
principal amount ($1,000 or an integral multiple thereof): $
Date: _______________ Your Signature: __________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee: _______________________________________
Signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan
associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities
and Exchange Commission Rule 17Ad-15.
14
<PAGE>
Harris Trust and Savings Bank, as Trustee, certifies that this is one
of the Notes referred to in the within-mentioned Indenture.
Date: January 12, 2000
HARRIS TRUST AND SAVINGS BANK,
as Trustee
by_______________________
Authorized Signatory
15
<PAGE>
Exhibit 4.30
[FORM OF 11-7/8% SENIOR NOTE DUE JANUARY 15, 2010]
CUSIP NO. U3143AB4
No. 2 $130,000
Focal Communications Corporation, a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
-------
indenture referred to on the reverse of this Note) for value received, hereby
promises to pay to Cede & Co., or registered assigns, the principal amount of
two hundred seventy-five million dollars ($275,000,000) (which principal amount
may from time to time be increased or decreased to such other principal amounts
(which shall not exceed $275,000,000 at any time) by adjustments made to the
Schedule annexed hereto by the Trustee hereinafter referred to in accordance
with the indenture referred to on the reverse of this Note) on January 15, 2010.
Interest Payment Dates: January 15 and July 15, commencing on July
15, 2000.
Regular Record Dates: January 1 and July 1.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
---
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR 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 NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER BY PURCHASING THIS NOTE AGREES FOR
THE BENEFIT OF THE COMPANY AND THE INITIAL PURCHASERS OF THIS NOTE THAT THIS
NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND
ANNIVERSARY (OR SUCH EARLIER DATE PROVIDED FOR IN RULE 144(K) UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO) OF THE ISSUANCE HEREOF (OR A
PREDECESSOR NOTE HERETO) OR (Y) IF LATER, BY ANY HOLDER THAT WAS AN AFFILIATE OF
THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH
TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
<PAGE>
ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
NOTE), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED
IN THE INDENTURE PRIOR TO THE EXPIRATION OF THE "40-DAY RESTRICTED PERIOD"
(WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT),
A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED
BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS NOTE) THAT IS ACQUIRING THIS NOTE
FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT OR ANY OTHER APPLICABLE SECURITIES LAWS, AND A CERTIFICATE IN THE FORM
ATTACHED TO THIS NOTE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT
TRANSFER THIS NOTE PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF THE
"40-DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S
UNDER THE SECURITIES ACT)), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS NOTE
AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND
OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY
TRANSFER BY IT OF THIS NOTE COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER
HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE
COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144(A) OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING
THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S.
PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING
THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE
SECURITIES ACT.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
2
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse of this Note or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: January 12, 2000
FOCAL COMMUNICATIONS
CORPORATION
by___________________
Name:
Title:
Attest:
______________________
3
<PAGE>
(REVERSE OF NOTE)
11 7/8% Senior Discount Note Due 2010
1. Indenture.
---------
This Note is one of a duly authorized issue of Notes of the Company
designated as its 11.875% Senior Notes due January 15, 2010 (the "Notes"),
-----
issued under an indenture, dated as of January 12, 2000 (herein, as amended from
time to time, called the "Indenture"), between the Company and Harris Trust and
---------
Savings Bank, as trustee (herein called the "Trustee", which term includes any
-------
successor trustee under the Indenture). The Notes are limited in aggregate
principal amount to $275,000,000. Reference is hereby made to the Indenture and
all indentures supplemental thereto for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holder of this Note and of the terms upon which this Note is,
and is to be, authenticated and delivered. All terms used in this Note which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture.
2. Principal Amount and Interest.
-----------------------------
The Company will pay the principal amount of this Note on January 15,
2010.
This Note will bear interest on the outstanding aggregate principal
amount thereof at a rate of 11.875 % per annum computed on a semiannual bond
equivalent basis from the Issue Date.
If (i) the Company has not filed a registration statement (the
"Exchange Offer Registration Statement") under the Securities Act of 1933, as
-------------------------------------
amended (the "Securities Act"), registering a security substantially identical
--------------
to this Note (except that such Note will not contain terms with respect to
transfer restrictions) pursuant to an exchange offer (the "Registered Exchange
-------------------
Offer") on or prior to April 14, 2000 or (ii) the Exchange Offer Registration
- -----
Statement relating to the Registered Exchange Offer has not become or been
declared effective prior to August 12, 2000, or (iii) neither the Registered
Exchange Offer has been consummated nor a registration statement registering
this Note for resale (a "Shelf Registration Statement") has been declared
----------------------------
effective prior to September 11, 2000 or (iv) after the Shelf Registration
Statement has been declared effective, such Shelf Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions set
forth in the Registration Agreement) in connection with resales of this Note or
notes issued in exchange for this Note pursuant to the Registered Exchange Offer
("Exchange Notes") in accordance with and during the periods specified in the
--------------
Registration Agreement without being succeeded promptly by an additional
registration statement filed and declared effective, in the case of each of the
immediately preceding clauses (i) through (iv) upon the terms and conditions set
forth in the Registration Agreement (each such event referred to in such clauses
(i) through (iv), a "Registration Default"), then interest will accrue on this
--------------------
Note and the Exchange Notes (in addition to the stated interest on this Note and
the Exchange Notes) (the "Step-Up") and be payable in cash semiannually in
-------
arrears on January 15 and July 15 of each year, beginning on the January 15 or
July 15 immediately following a Registration Default (such interest to be
payable to the Holder of record as of the January 1 and July 1, as the case may
be, immediately preceding January 15 or July 15), at a rate of 0.50% per annum
during the 90-day period immediately following the occurrence of a Registration
Default and shall increase by a rate per annum equal to 0.25% at the end of each
subsequent 90-day period. In no event shall such rate exceed 1.50% per annum in
the aggregate regardless of the number of Registration Defaults.
4
<PAGE>
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 interest rate payable on this Note.
Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice of which
shall be given to the Holder of this Note not less than 10 calendar days prior
to such Special Record Date.
3. Method of Payment.
------------------
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. Payments in respect of
Notes represented by Global Notes (including principal, premium, interest and
Defaulted Interest, if any) will be made by wire transfer of immediately
available funds to the accounts specified by the nominee for the Depositary.
With respect to certificated Notes, the Paying Agent will make all payments of
principal, premium, interest and Defaulted Interest, if any, by wire transfer of
immediately available funds to the United States dollar accounts maintained by
the Holders entitled thereto with banks in the United States, or, if no such
account is designated by the relevant Holder to the Trustee or the Paying Agent
at least 30 days prior to the relevant due date for payment (or such other date
as the Trustee may accept in its discretion), by mailing a check to the
registered address of such Holder. 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.
4. Paying Agent and Note Registrar.
--------------------------------
Initially, the Trustee will act as authenticating agent, Paying Agent
and Note Registrar. The Trustee may be removed by action of the Holders of not
less than a majority in principal amount of the outstanding Notes, or by the
Company or certain bona fide Holders of Notes upon the occurrence of certain
events. The Company may change any Paying Agent or Note Registrar with notice
in writing to the Trustee. The Company, any Subsidiary or any Affiliate of
either of them may act as Paying Agent or Note Registrar.
5. Optional Redemption.
--------------------
This Note is subject to redemption upon not less than 30 nor more than
60 days' prior written notice to each Holder of Notes to be redeemed at such
Holder's address appearing in the Note Register, in principal amounts or at any
time on or after January 15, 2005, at the following Redemption Prices plus
accrued and unpaid interest, if any, thereon to but excluding the Redemption
Date, if redeemed during the periods indicated below:
<TABLE>
<CAPTION>
From and Including To and Including Redemption Price
------------------ ---------------- ----------------
<S> <C> <C>
January 15, 2005 January 14, 2006 105.938%
January 15, 2006 January 14, 2007 103.958%
January 15, 2007 January 14, 2008 101.979%
</TABLE>
5
<PAGE>
January 15, 2008 and thereafter 100.000%
This Note will be redeemable at any time and from time to time prior
to January 15, 2003 in the event that the Company receives Net Cash Proceeds
from the sale of its Capital Stock (other than Disqualified Stock) in one or
more Public Equity Offerings, in which case the Company may, at its option, use
all or a portion of any such Net Cash Proceeds to redeem up to 35% of initially
outstanding aggregate principal amount of the Notes; provided, that at least 65%
--------
of the original aggregate principal amount of the Notes remains outstanding
after each such redemption. Such redemption must occur on a date of redemption
within 90 days of such sale and upon not less than 30 nor more than 60 days'
prior written notice, in principal amounts of $1,000 or integral multiples
thereof at a redemption price equal to 111.875% of the principal amount of the
Notes to be redeemed plus Additional Interest, if any, to but excluding the date
of redemption.
If, after giving effect to the offer by the Company to repurchase all
or any part of each Holder's Notes made upon the occurrence of a Change of
Control as set forth in Section 7 hereto, at least 95% of the original aggregate
principal amount of the Notes has been redeemed or repurchased pursuant to the
Indenture, the Company shall have the right to redeem the balance of the Notes
at a redemption price equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, thereon to but excluding the date of redemption.
The Company may exercise this right by giving the Holders notice of such
redemption within 30 days following the payment date with respect to the
Company's earlier repurchase offer.
6. No Sinking Fund.
----------------
The Notes do not have the benefit of any sinking fund obligations.
7. Repurchase of Notes at the Option of Holders upon a Change of Control.
----------------------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder will have the
right to require the Company to repurchase all or any part (equal to $1,000
principal amount or an integral multiple thereof) of such Holder's Notes at a
purchase price ("Change of Control Purchase Price") equal to 101% of the
--------------------------------
principal amount thereof plus accrued and unpaid interest, if any, thereon to
but excluding the payment date for the Change of Control Purchase Price.
Within 30 days following any Change of Control, the Company or the
Trustee (at the expense of the Company) shall mail a notice to each Holder
regarding the Company's offer to repurchase all or any part of such Holder's
Notes. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the offer described in the notice. Unless the Company defaults in the payment
of the Change of Control Purchase Price with respect thereto, all Notes or
portions thereof accepted for payment pursuant to the offer described in the
notice will cease to accrue interest from and after the payment date for the
Change of Control Purchase Price.
8. Repurchase of Notes at the Option of Holders upon an Asset Sale.
----------------------------------------------------------------
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds
calculated as of any date exceeds $5,000,000, the Company shall, within 30 days
of such date, make an offer to purchase (an "Asset Sale Offer") on a pro rata
----------------
basis (a) Notes at a purchase price (the
6
<PAGE>
"Offer Purchase Price") in cash equal to 100% of the principal amount thereof,
--------------------
plus accrued and unpaid interest thereon, if any, to but excluding the purchase
date and (b) to the extent required by the terms thereof, any other indebtedness
of the Company that is pari passu with the Notes. The pro rata amount of such
Excess Proceeds to be used to purchase Notes shall be in an amount equal to the
aggregate amount of such Excess Proceeds multiplied by the quotient obtained by
dividing the principal amount of the outstanding Notes by the sum of such
principal amount and the principal amount of such other Indebtedness. In the
event the aggregate Offer Purchase Price of the outstanding Notes tendered
pursuant to an Asset Sale Offer is in excess of the Excess Proceeds to be used
to purchase such Notes, such Excess Proceeds shall be applied to purchase such
Notes on a pro rated basis in principal amounts of $1,000 or an integral
multiple thereof.
Within 30 days of the date the amount of Excess Proceeds exceeds
$5,000,000, the Company or the Trustee (at the expense of the Company) shall
mail to each Holder a written notice regarding the Asset Sale Offer. The Holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below and tendering this Note pursuant to the Asset
Sale Offer. Unless the Company defaults in the payment of the Offer Purchase
Price with respect thereto, all Notes or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrue interest from and after
the purchase date.
9. Denominations; Transfer; Exchange.
----------------------------------
The Notes are issuable only in registered form without coupons in
denominations of $1,000 principal amount and any integral multiple thereof. A
Holder may register the transfer or exchange of Notes in accordance with the
Indenture. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
10. Persons Deemed Owners.
----------------------
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee, the Paying Agent and the Note Registrar may deem and
treat the Person in whose name this Note is registered as the owner hereof for
all purposes, whether or not this Note be overdue, and none of the Company, the
Trustee, the Paying Agent or the Note Registrar shall be affected by notice to
the contrary.
11. Unclaimed Money.
----------------
Subject to certain notice provisions, the Trustee and the Paying Agent
shall pay to the Company upon written request any money held by them for the
payment of principal, premium, if any, or interest that remains unclaimed for
two years. After payment to the Company, Holders entitled to such money must
look only to the Company for payment as general creditors, and all
responsibility and liability of the Trustee and the Paying Agent with respect to
such money shall cease.
12. Discharge Prior to Redemption.
------------------------------
If the Company deposits with the Trustee United States dollars or U.S.
Government Obligations sufficient to pay the principal, premium, if any, and
accrued interest on the Notes to redemption, the Company will, with the
exceptions of certain
7
<PAGE>
sections thereof, be discharged from the Indenture and the Notes, including
certain covenants set forth in the Indenture.
13. Amendment; Waiver.
------------------
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding. The Indenture also contains provisions permitting the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive certain past
defaults under the Indenture and their consequences.
14. Restrictive Covenants.
----------------------
The Indenture contains certain covenants which, among other things,
restrict the ability of the Company and Restricted Subsidiaries to incur
additional indebtedness (and, in the case of Restricted Subsidiaries, issue
preferred stock), pay dividends or make distributions in respect of the
Company's or Restricted Subsidiaries' capital stock, make other restricted
payments, enter into sale and leaseback transactions, incur liens, cause
encumbrances or restrictions to exist on the ability of Restricted Subsidiaries
to pay dividends or make distributions in respect of their capital stock, issue
and sell capital stock of Restricted Subsidiaries, enter into transactions with
affiliates, sell assets, or amalgamate, consolidate, merge or sell or otherwise
dispose of all or substantially all of their property and assets.
15. Defaults and Remedies.
----------------------
With the exception of certain Events of Defaults specified below, if
an Event of Default occurs and is continuing, the Trustee or the Holders of not
less than 25% of the aggregate principal amount of the outstanding Notes may
declare the principal amount of, and any accrued and unpaid interest on, all
Notes then outstanding to be immediately due and payable. If a bankruptcy or
insolvency default with respect to the Company or a Restricted Subsidiary occurs
and is continuing, the Notes immediately become 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 not less
than a majority in principal amount of the outstanding Notes will have the right
to direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee.
16. No Recourse Against Others.
---------------------------
No controlling Person, director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any covenant,
agreement or other obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its past, present or future status as a
controlling Person, director, officer, employee, incorporator or stockholder of
the Company. Each Holder by accepting a Note waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for the issuance of the Notes.
8
<PAGE>
17. Governing Law.
--------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture. Requests may be made to:
Focal Communications Corporation
200 N. LaSalle
Chicago, Illinois 60601
Attention: Chief Financial Officer
18. Ranking.
--------
The Notes are senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future senior indebtedness of
the Company, and will rank senior in right of payment to all existing and future
subordinated Indebtedness of the Company. Holders of secured Indebtedness of
the Company, however, will have claims that are prior to the claims of the
Holders with respect to the assets securing such other indebtedness except to
the extent the Notes are equally and ratably secured by such assets.
9
<PAGE>
______________________________________________________________________
CERTIFICATE OF TRANSFER
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of Focal Communications Corporation. The agent may substitute another
to act for him.
______________________________________________________________________
Date: ________________ Your Signature: _____________________
______________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
10
<PAGE>
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act of 1933 (the "Securities Act") after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by Focal Communications Corporation or any
Affiliate, the undersigned confirms that such Notes are being transferred in
accordance with the terms of such Notes:
CHECK ONE BOX BELOW
(1) [_] to Focal Communications Corporation; or
(2) [_] pursuant to an effective registration statement under the
Securities Act; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
-----------------------------
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A under the Securities Act, in
each case pursuant to and in compliance with Rule 144A under the
Securities Act; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act;
(5) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act; or
(6) [_] to an institution that is an "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring this Note for investment purposes and not for
distribution in violation of the Securities Act or any other
applicable securities laws.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Notes evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (3),
-------- -------
(4), (5) or (6) is checked, the Trustee may require, prior to registering
any such transfer of the Notes, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act, such as the exemption provided by Rule 144 under the Securities Act.
11
<PAGE>
______________________
Signature
Signature Guarantee:
_______________________ _____________________________
[Signature must be guaranteed Signature
by an eligible Guarantor
Institution (banks, stock
brokers, savings and loan
associations and credit
unions) with membership in
an approved guarantee
medallion program pursuant
to Securities and Exchange
Commission Rule 17Ad-15]
____________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
---------
institutional buyer" within the meaning of Rule 144A under the Securities Act,
- -------------------
and is aware that the sale to it is being made in reliance on Rule 144A under
the Securities Act and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
under the Securities Act or has determined not to request such information and
that it is aware that the transferor is relying upon the foregoing
representations of the undersigned in order to claim the exemption from
registration provided by Rule 144A under the Securities Act.
Dated: ________________ ______________________________________________
NOTICE: To be executed by an executive officer
12
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been
made:
<TABLE>
<CAPTION>
Principal Amount of this
Amount of decrease in Amount of increase in Global Note following Signature of authorized
Date of Principal Amount Principal Amount such decrease or signatory of Trustee or
Exchange of this Global Note of this Global Note increase Notes Custodian
- -------- ----------------------- ----------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
</TABLE>
13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.07 or 4.08 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, state the amount in
principal amount ($1,000 or an integral multiple thereof): $
Date: _______________ Your Signature: ____________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee: _______________________________________
Signature must be guaranteed by an eligible Guarantor
Institution (banks, stock brokers, savings and loan
associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities
and Exchange Commission Rule 17Ad-15.
14
<PAGE>
Harris Trust and Savings Bank, as Trustee, certifies that this is one
of the Notes referred to in the within-mentioned Indenture.
Date: January 12, 2000
HARRIS TRUST AND SAVINGS BANK,
as Trustee
by____________________
Authorized Signatory
15
<PAGE>
Exhibit 4.31
FOCAL COMMUNICATIONS CORPORATION
11-7/8% Senior Notes due 2010
EXCHANGE AND REGISTRATION AGREEMENT
New York, New York
January 12, 2000
Salomon Smith Barney Inc.
Donaldson Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
Banc of America Securities LLC
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Focal Communications Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell (the "Initial Placement") to you (the
"Initial Purchasers"), upon the terms set forth in a Purchase Agreement, dated
January 7, 2000 (the "Purchase Agreement") among the Initial Purchasers and the
Company, its 11-7/8% Senior Notes due 2010 (the "Notes"). As an inducement to
the Initial Purchasers to enter into the Purchase Agreement and in satisfaction
of a condition to your obligations thereunder, the Company agrees with you, (i)
for your benefit and (ii) for the benefit of the holders from time to time of
the Notes and the Transfer Restricted Notes (as defined herein) (including you)
(each of the foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE>
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the preamble hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 90-day period following
the consummation of the Registered Exchange Offer, exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement
of the Company on an appropriate form under the Act with respect to the
Registered Exchange Offer, 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.
"Exchanging Dealer" means any Holder (which may include the Initial
Purchasers) which is a broker-dealer, electing to exchange Notes acquired for
its own account as a result of market-making activities or other trading
activities, for New Notes.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Notes, dated as of
January 12, 2000, between the Company and Harris Trust and Savings Bank, as
trustee, as the same may be amended from time to time in accordance with the
terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
"Initial Purchasers" has the meaning set forth in the preambles
hereto.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of notes registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering.
"New Notes" means notes of the Company identical in all material
respects to the Transfer Restricted Notes (except that the transfer restrictions
and registration rights provisions will be modified or eliminated, as
appropriate), to be issued under the Indenture or the New Note Indenture.
"New Note Indenture" means an indenture between the Company and the
New Note Trustee, identical in all material respects with the Indenture.
"New Note Trustee" means a bank or trust company reasonably
satisfactory to the Initial Purchasers, as trustee with respect to the New Notes
under the New Note Indenture; provided that initially the Trustee shall serve as
trustee with respect to the New Notes under the New Note Indenture unless
prohibited from so acting by applicable laws.
2
<PAGE>
"Notes" has the meaning set forth in the preamble hereto.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Transfer Restricted Notes or the New Notes,
covered by such Registration Statement, and all amendments and supplements to
the Prospectus, including post-effective amendments.
"Preliminary Memorandum" has the meaning set forth in the Purchase
Agreement.
"Purchase Agreement" has the meaning set forth in the preambles
hereto.
"Registered Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Transfer Restricted
Notes, a like principal amount of the New Notes.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Transfer
Restricted Notes or the New Notes pursuant to the provisions of this Agreement,
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.
"Restricted Holder" means (i) a holder that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act or (ii) a holder
who has arrangements or understandings with any person to participate in the
Registered Exchange Offer for the purpose of distributing New Notes.
"Shelf Registration" means a registration effected pursuant to Section
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to the provisions of Section 3 hereof which covers some
or all of the Transfer Restricted Notes or New Notes, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, 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.
"Transfer Restricted Note" means each Note until (i) the date on which
such Note has been exchanged by a person other than a broker-dealer or a
Restricted Holder for a New Note in the Registered Exchange Offer that is freely
transferable under the Act, (ii) following the exchange by a broker-dealer in
the Registered Exchange Offer of such Note for a New Note, the date on which
such New Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the Prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Act and disposed of in accordance with the
Shelf Registration Statement, or (iv) the date on which such Note is distributed
to the public pursuant to Rule 144 under the Act or is saleable pursuant to Rule
144(k) under the Act.
"Trustee" means the trustee with respect to the Notes under the
Indenture.
3
<PAGE>
"Underwriter" means any underwriter of notes in connection with an
offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Notes by Exchanging
Dealers; Private Exchange. (a) The Company shall prepare and, not later than 90
days following the Closing Date shall file with the Commission, the Exchange
Offer Registration Statement with respect to the Registered Exchange Offer. The
Company shall use its reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Act within 210 days of the
Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Transfer Restricted Notes for New Notes (assuming that such
Holder is not a Restricted Holder) to trade such New Notes from and after their
receipt without any limitations or restrictions under the Act and without
material restrictions under the securities laws of at least two-thirds of the
several states of the United States.
(c) In connection with the Registered 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 Registered 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) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
(i) accept for exchange all Transfer Restricted Notes tendered and
not validly withdrawn pursuant to the Registered Exchange Offer; provided
that the Company shall only accept Transfer Restricted Notes of a Holder
who has represented that any New Notes to be received by such Holder will
be acquired in the ordinary course of such Holder's business, such Holder
has no arrangements with any other person to participate in the
distribution of the New Notes, and such Holder is not an Affiliate of the
Company, or if such Holder is an Affiliate of the Company, that such Holder
will comply, to the extent applicable, with the registration and prospectus
delivery requirements of the Act;
(ii) deliver to the Trustee for cancellation or notation of
reduction in principal amount all Transfer Restricted Notes so accepted for
exchange; and
(iii) cause the Trustee or the New Note Trustee, as the case may be,
promptly to authenticate and deliver to each Holder of Transfer Restricted
Notes, New Notes equal in principal amount to the Transfer Restricted Notes
of such Holder so accepted for exchange.
4
<PAGE>
(e) The Initial Purchasers and the Company acknowledge that, pursuant
to interpretations by the Commission's staff of Section 5 of the Act, and in the
absence of an applicable exemption therefrom, each Exchanging Dealer is required
to deliver a Prospectus in connection with a sale of any New Notes received by
such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange for
Transfer Restricted Notes acquired for its own account as a result of market-
making activities or other trading activities. Accordingly, the Company shall:
(i) include the information substantially in the form set forth in
Annex A hereto on the cover of the Exchange Offer Registration Statement;
the information set forth in Annex B hereto in the forepart of the Exchange
Offer Registration Statement in a section setting forth details of the
Registered Exchange Offer; the information substantially in the form set
forth in Annex C hereto in the underwriting or plan of distribution section
of the Prospectus forming a part of the Exchange Offer Registration
Statement; and the information substantially in the form set forth in Annex
D hereto in the letter of transmittal delivered pursuant to the Registered
Exchange Offer; and
(ii) use its reasonable best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the
Exchange Offer Registration Period for delivery by Exchanging Dealers in
connection with sales of New Notes received pursuant to the Registered
Exchange Offer, as contemplated by Section 4(h) below.
The Company shall be deemed not to have used its reasonable best
efforts to keep the Exchange Offer Registration Statement continuously
effective during the requisite period if it voluntarily takes any action
that would result in Holders of notes covered thereby not being able to
offer and sell such notes during that period, unless (i) such action is
required by applicable law or (ii) such action is taken by the Company in
good faith and for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or divestiture
of assets, so long as the Company promptly thereafter complies with the
requirements of Section 4(k) hereof, if applicable.
(f) In the event that any Initial Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Transfer Restricted Notes constituting any portion of an allotment
remaining unsold after 30 days following the date hereof, at the request of such
Initial Purchaser, the Company shall issue and deliver to such Initial Purchaser
or the party purchasing New Notes registered under a Shelf Registration
Statement as contemplated by Section 3 hereof from such Initial Purchaser, in
exchange for such Transfer Restricted Notes, a like principal amount of New
Notes. The Company shall seek to cause the CUSIP Service Bureau to issue the
same CUSIP number for such New Notes as for New Notes issued pursuant to the
Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof; (ii) for any
other reason the Exchange Offer Registration Statement is not declared effective
within 210 days after the Closing Date; (iii) the Registered Exchange Offer is
not consummated (it being understood that, for purposes of this clause (iii) and
clause (iii) of Section 5 hereof, "consummated" shall mean that the Company has
offered the New Notes in exchange for surrender of the Transfer Restricted Notes
pursuant to the Registered Exchange Offer, kept the Registered Exchange Offer
open for the period required by Section 2(c)(ii) hereof and fulfilled all of its
other obligations hereunder in connection with the Registered Exchange Offer)
within 240 days of the Closing Date; (iv) any Initial Purchaser so requests with
respect to
5
<PAGE>
Transfer Restricted Notes constituting any portion of an allotment remaining
unsold after 30 days following the date hereof; (v) any Holder (other than an
Initial Purchaser or a Restricted Holder) does not receive freely tradeable New
Notes in the Registered Exchange Offer (it being understood that, for purposes
of this clause (v), (x) the requirement that a Holder deliver a Prospectus
containing the information required by Items 507 and/or 508 of Regulation S-K
under the Act in connection with sales of New Notes acquired in exchange for
such Transfer Restricted Notes shall result in such New Notes being not "freely
tradeable" but (y) the requirement that an Exchanging Dealer deliver a
Prospectus in connection with sales of New Notes acquired in the Registered
Exchange Offer in exchange for Transfer Restricted Notes acquired as a result of
market-making activities or other trading activities shall not result in such
New Notes being not "freely tradeable"), the following provisions shall apply:
(a) The Company shall, at its cost, as promptly as practicable (but in
no event more than 90 days after so required or requested pursuant to this
Section 3), file with the Commission and thereafter shall use its reasonable
best efforts to cause to be declared effective under the Act a Shelf
Registration Statement relating to the offer and sale of the Transfer Restricted
Notes or the New Notes, as applicable, by the Holders from time to time in
accordance with the methods of distribution elected by such Holders and set
forth in such Shelf Registration Statement; provided, that with respect to New
Notes received by an Initial Purchaser in exchange for Transfer Restricted Notes
constituting any portion of an allotment remaining unsold after 30 days
following the date hereof, 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) with respect thereto, and any such Exchange
Offer Registration Statement, as so amended, shall be referred to herein as, and
governed by the provisions herein applicable to, a Shelf Registration Statement.
(b) The Company shall 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 (or any shorter period under Rule 144(k) under the Securities Act) from
the date the Shelf Registration Statement is declared effective by the
Commission (or until one year after such effective date if such Shelf
Registration Statement is filed at the request of an Initial Purchaser) or such
shorter period that will terminate when all the Transfer Restricted Notes or New
Notes, as applicable, covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company shall be deemed not
to have used its reasonable best efforts to keep the Shelf Registration
Statement effective during the requisite period if it voluntarily takes any
action that would result in Holders of notes covered thereby not being able to
offer and sell such notes during that period, unless (i) such action is required
by applicable law, or (ii) such action is taken by the Company in good faith and
for valid business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long as the
Company promptly thereafter complies with the requirements of Section 4(k)
hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you and to each Holder, prior to the
filing thereof with the Commission, a copy of any Shelf Registration Statement
and any Exchange Offer Registration Statement, and each amendment thereof and
each amendment or supplement, if any, to the Prospectus included therein and
shall use its reasonable best efforts to reflect in
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each such document, when so filed with the Commission, such comments as you or
any Holder reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement and
any amendment thereto and any Prospectus forming part thereof and any amendment
or supplement thereto complies in all material respects with the Act and the
rules and regulations thereunder, (ii) any 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 Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of Notes covered thereby, and, if requested
by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has been
filed with the Commission and when the Registration Statement or any post-
effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus included therein or for
additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of Notes covered thereby, and, in the case
of an Exchange Offer Registration Statement, any Exchanging Dealer which has
provided in writing to the Company a telephone or facsimile number and address
for notices, and, if requested by you or any such Holder or Exchanging Dealer,
confirm such advice in writing:
(i) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Notes included therein for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of such
date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made).
(d) The Company shall use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of Notes included within
the coverage of any Shelf Registration Statement, without charge, at least one
copy of such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements
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and schedules, and, if the Holder so requests in writing, all exhibits
(including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Notes included within the coverage of any Shelf Registration
Statement, without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Notes in connection with the offering
and sale of the Notes covered by the Prospectus or any amendment or supplement
thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, any documents incorporated by reference therein, and,
if the Exchanging Dealer so requests in writing, all exhibits (including those
incorporated by reference).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies of
the Prospectus included in such Exchange Offer Registration Statement and any
amendment or supplement thereto as such Exchanging Dealer may reasonably request
if required by applicable law for delivery by such Exchanging Dealer in
connection with a sale of New Notes received by it pursuant to the Registered
Exchange Offer; and the Company consents to the use of the Prospectus or any
amendment or supplement thereto by any such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
Notes pursuant to any Registration Statement, the Company shall register or
qualify or cooperate with the Holders of Notes included therein and their
respective counsel in connection with the registration or qualification of such
Notes for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing and do any and
all other acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the Notes covered by such Registration Statement;
provided, however, that the Company will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process or to taxation in
any such jurisdiction where it is not then so subject.
(j) The Company shall cooperate with the Holders of Transfer
Restricted Notes to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Notes to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as Holders may request at least two business days
prior to sales of Notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
4(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to the
related Prospectus or file any other required document so that, as thereafter
delivered to purchasers of the Notes included therein, the Prospectus will not
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the Transfer
Restricted Notes or
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New Notes, as the case may be, registered under such Registration Statement, and
provide the applicable trustee with printed certificates for such Transfer
Restricted Notes or New Notes, in a form eligible for deposit with The
Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its note holders as soon as practicable after the effective date of
the applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture or the New Note Indenture,
as the case may be, to be qualified under the Trust Indenture Act in a timely
manner.
(o) The Company may require each Holder of Notes to be sold pursuant
to any Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of such Notes as the Company may from
time to time reasonably require for inclusion in such Registration Statement,
and may exclude from any such registration the Notes of any such holder who
fails to furnish such information within 10 days after such request; provided
that such Shelf Registration Statement is declared effective by the Commission
within 60 days after such 10-day period.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority Holders
reasonably request in writing should be included therein and shall make all
required filings of such Prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such Prospectus supplement
or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements (including underwriting agreements) and take all
other appropriate actions in order to expedite or facilitate the registration or
the disposition of the Transfer Restricted Notes, and in connection therewith,
if an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those set forth
in Section 7 (or such other provisions and procedures acceptable to the Company
and the Majority Holders and the Managing Underwriters, if any, with respect to
all parties to be indemnified pursuant to Section 7).
(r) In the case of any Shelf Registration Statement, the Company shall
(i) subject to the requesting Holder entering into a reasonable confidentiality
agreement, make reasonably available for inspection by the Holders of Notes to
be registered thereunder, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney, accountant or other
agent retained by the Holders or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries; (ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by the Holders or any such
underwriter, attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence examinations;
provided, however, that any information provided pursuant to clause (i) or
clause (ii) hereof that is designated in writing by the Company, in good faith,
as confidential at the time of delivery of such information shall be kept
confidential by the Holders or any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public generally
or through a third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders of Notes
registered thereunder and the underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in primary underwritten
offerings and covering matters set forth in the
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Purchase Agreement; (iv) 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 and the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten offerings; (v) obtain
"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 to each
selling Holder of Notes registered thereunder and the underwriters, if any, in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with primary underwritten offerings; and (vi)
deliver such documents and certificates as may be reasonably requested by the
Majority Holders and the Managing Underwriters, if any, including those to
evidence compliance with Section 4(k) and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 4(r) shall be performed at (A) the effectiveness of such
Registration Statement and each post-effective amendment thereto and (B) each
closing under any underwriting or similar agreement as and to the extent
required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by any Initial
Purchaser, and any attorney, accountant or other agent retained by such Initial
Purchaser, all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries; (ii) cause the
Company's officers, directors and employees to supply all relevant information
reasonably requested by such Initial Purchaser or any such attorney, accountant
or agent in connection with any such Registration Statement as is customary for
similar due diligence examinations; provided, however, that any information
provided pursuant to clause (i) or (ii) hereof that is designated in writing by
the Company, in good faith, as confidential at the time of delivery of such
information shall be kept confidential by such Initial Purchaser or any such
attorney, accountant or agent, unless such disclosure is made in connection with
a court proceeding or required by law, or such information becomes available to
the public generally or through a third party without an accompanying obligation
of confidentiality; (iii) make such representations and warranties to such
Initial Purchaser, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings and covering those
matters set forth in the Purchase Agreement; (iv) obtain opinions of counsel to
the Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to such Initial Purchaser and its
counsel, addressed to such Initial Purchaser, covering such matters as are
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Initial Purchaser or its
counsel; (v) obtain "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 to such Initial Purchaser, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with primary underwritten offerings, or if requested by such Initial Purchaser
or its counsel in lieu of a "cold comfort" letter, an agreed-upon procedures
letter under Statement on Auditing Standards No. 35, covering matters requested
by such Initial Purchaser or its counsel; and (vi) deliver such documents and
certificates as may be reasonably requested by such Initial Purchaser or its
counsel, including those to evidence compliance with Section 4(k) and with
conditions customarily contained in underwriting agreements. The foregoing
actions set forth in clauses (iii), (iv), (v), and (vi) of this Section 4(s)
shall be performed at the close of the Registered Exchange Offer and the
effective date of any post-effective amendment to the Exchange Offer
Registration Statement.
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5. Additional Interest Under Certain Circumstances. In the event
that (i) the Exchange Offer Registration Statement has not been filed with the
Commission on or prior to the 90th day following the date hereof; (ii) the
Exchange Offer Registration Statement has not been declared effective prior to
the 210th day following the date hereof; (iii) either the Registered Exchange
Offer has not been consummated or the Shelf Registration Statement has not been
declared effective on or prior to the 240th day following the date hereof; or
(iv) after the Shelf Registration Statement has been declared effective, such
Registration Statement thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Notes or New Notes in accordance with and
during the periods specified in Section 3(b) hereof (because either (A) any
event occurs as a result of which the related prospectus forming part of such
Registration Statement would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading or (B) it
shall be necessary to amend such Registration Statement or supplement the
related prospectus, to comply with the Securities Act or the Exchange Act or the
respective rules thereunder) without, in the case of (A) or (B), being succeeded
promptly by an amendment or supplement to the Registration Statement or related
prospectus or additional registration statement filed and declared effective
(each such event referred to in clauses (i) through (iv) a "Registration
Default"), interest ("Additional Interest") will accrue on the Transfer
Restricted Notes and the New Notes (in addition to the stated interest on the
Transfer Restricted Notes and the New Notes) from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Additional Interest will be
payable in cash semiannually in arrears on the January 15 and July 15 of each
year, beginning on January 15 or July 15 immediately succeeding a Registration
Default, at a rate per annum equal to 0.50% during the 90-day period immediately
following the occurrence of any Registration Default increasing by a rate per
annum equal to 0.25% at the end of each subsequent 90-day period. In no event
shall such rate per annum exceed 1.50% in the aggregate regardless of the number
of Registration Defaults.
6. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith. Notwithstanding the
foregoing, the holders of the Notes being registered shall pay all agency or
brokerage fees and commissions and underwriting discounts and commissions
attributable to the sale of such Notes and the fees and disbursements of any
counsel or other advisors or experts retained by such holders (severally or
jointly), other than the counsel and experts specifically referred to above,
transfer taxes on resale of any of the Notes by such holders and any advertising
expenses incurred by or on behalf of such holders in connection with any offers
they may make.
7. Indemnification and Contribution. (a) In connection with any
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of Notes covered thereby (including each Initial Purchaser and, with
respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of either
the Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or
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<PAGE>
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 agrees to reimburse each such indemnified party, as incurred,
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such Holder
specifically for inclusion therein; provided, further, that the foregoing
indemnity agreement with respect to any Preliminary Memorandum shall not inure
to the benefit of any Initial Purchaser from whom the person asserting any such
losses, claims, damages or liabilities purchased Notes, or any person
controlling, or any director, officer, employee or agent of, such Initial
Purchaser, if a copy of the Final Memorandum (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Initial Purchaser to such person, at or
prior to the written confirmation of the sale of the Notes to such person, if
the Final Memorandum (as so amended and supplemented) would have cured the
defect giving rise to such losses, claims, damages or liabilities and if the
Company has previously furnished copies thereof in sufficient quantity to such
Initial Purchaser. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined herein) of, as provided in Section 7(d), any underwriters of Notes
registered under a Shelf Registration Statement, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the Initial Purchaser and the selling Holders
provided in this Section 7(a) and shall, if requested by any Holder, enter into
an underwriting agreement reflecting such agreement, as provided in Section 4(q)
hereof.
(b) Each Holder of Notes covered by a Registration Statement
(including each Initial Purchaser and, with respect to any Prospectus delivery
as contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees
to indemnify and hold harmless (i) the Company, (ii) each of its directors,
officers, employees and agents, and (iii) each person who controls the Company
within the meaning of either the Act or the Exchange Act to the same extent as
the foregoing indemnity from the Company to each such Holder, but only with
reference to written information relating to such Holder furnished to the
Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any such Holder may otherwise have.
In addition, the Company may require, as a condition to including any
Notes in any Shelf Registration Statement filed pursuant to this Agreement and
to entering into any underwriting agreement with respect thereto, that the
Company shall have received an undertaking reasonably satisfactory to it from
the holder of such Notes and from each underwriter named in any such
underwriting agreement agreeing to indemnify the persons named above in this
Section 7(b) on substantially the same basis as that of the indemnification
provided in this Section 7(b).
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event,
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relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel limited,
however, to the reasonable fees, costs and expenses of one counsel and one local
counsel if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 7 is unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, or liabilities referred to
therein for any reason, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall have a joint and several obligation
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
no case shall any Initial Purchaser or any subsequent Holder of any Note or New
Note be responsible, in the aggregate, for any amount in excess of the purchase
discount or commission applicable to such Note, or in the case of a New Note,
applicable to the Note which was exchangeable into such New Note, as set forth
on the cover page of the Final Memorandum, nor shall any underwriter be
responsible for any amount in excess of the underwriting discount or commission
applicable to the Notes purchased by such underwriter under the Registration
Statement which resulted in such Losses. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the indemnifying
party and the indemnified party shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of such indemnifying party, on the one hand, and such indemnified party,
on the other hand, in connection with the statements or omissions which resulted
in such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the sum of the total net
proceeds from the Initial Placement (before deducting expenses) as set forth on
the cover page of the Final Memorandum. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and benefits
received by any other Holder
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shall be deemed to be equal to the value of receiving Transfer Restricted Notes
or New Notes, as applicable, registered under the Act. Benefits received by any
underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement which resulted in such Losses. Relative fault shall
be determined by reference to whether any alleged untrue statement or omission
relates to information provided by the indemnifying party, on the one hand, or
by the indemnified party, on the other hand. The parties agree that it would not
be just and equitable if contribution were determined by pro rata allocation or
any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 7, each person who controls a Holder within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, and each director, officer, employee and agent of the Company
shall have the same rights to contribution as the Company, subject in each case
to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force and effect,
regardless of any investigation made by or on behalf of any Holder or the
Company or any of the officers, directors or controlling persons referred to in
Section 7 hereof, and will survive the sale by a Holder of Notes covered by a
Registration Statement.
8. Miscellaneous. (a) No Inconsistent Agreements. The Company has not,
as of the date hereof, entered into, nor shall it, on or after the date hereof,
enter into, any agreement with respect to its Notes that is inconsistent with
the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof (other than agreements which the parties thereto have waived
such conflicting or inconsistent provisions with respect to this Agreement and
the Notes).
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, qualified, 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 the
Holders of at least a majority of the then outstanding aggregate principal
amount of Transfer Restricted Notes (or, after the consummation of any Exchange
Offer in accordance with Section 2 hereof, of New Notes); provided that, with
respect to any matter that directly or indirectly affects the rights of any
Initial Purchaser hereunder, the Company shall obtain the written consent of
each such Initial Purchaser against which such amendment, qualification,
supplement, waiver or consent is to be effective. Notwithstanding the foregoing
(except the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Notes are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by the Majority Holders, determined on the basis of Notes
being sold rather than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 8(c),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Note
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Registrar (as defined in the Indenture) under the Indenture, with a copy in
like manner to Salomon Smith Barney Inc.;
(2) if to you, initially at the respective addresses set forth in the
Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly given
when received.
The Initial Purchasers or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties, including,
without the need for an express assignment or any consent by the Company
thereto, subsequent Holders of Transfer Restricted Notes and/or New Notes. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Transfer Restricted Notes and/or New Notes and any such Holder may specifically
enforce the provisions of this Agreement as if an original party hereto.
(e) 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.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without regards to
principles of conflicts of law.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Transfer Restricted
Notes or New Notes is required hereunder, Transfer Restricted Notes or New
Notes, as applicable, held by the Company shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[Remainder of Page Intentionally Blank]
15
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
FOCAL COMMUNICATIONS CORPORATION
By: /s/ Robert C. Taylor, Jr.
--------------------------------------
Name: Robert C. Taylor, Jr.
Title: Director, President and
Chief Executive Officer
The foregoing Agreement is
hereby accepted as of the
date first written above
SALOMON SMITH BARNEY INC.
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
TD SECURITIES (USA) INC.
BANC OF AMERICA SECURITIES LLC
By: SALOMON SMITH BARNEY INC.
By: /s/ Robert F. Doherty
-------------------------------------
Name: Robert F. Doherty
Title: Director
<PAGE>
ANNEX A
Each broker-dealer that receives New 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 New 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 Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Transfer Restricted Notes where such New Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date (as defined herein) and ending on the close of business 90 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."
<PAGE>
ANNEX B
Each broker-dealer that receives New Notes for its own account in
exchange for Transfer Restricted Notes, where such Transfer Restricted Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
--------------------
Each broker-dealer that receives New 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 New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Transfer
Restricted Notes where such Transfer Restricted Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until ____________, 2000, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus./1/
The Company will not receive any proceeds from any sale of New Notes
by broker-dealers. New 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 New 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 New Notes. Any broker-dealer that
resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the
- ----------------
/1/ In addition, the legend required by Item 502(e)of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus and, if
applicable, any additional information required by Items 507 and/or 508 of
Regulation S-K.
<PAGE>
Act and any profit of any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Act.
<PAGE>
ANNEX D
Rider A
- -------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------
Address:
----------------------------------------------------------------
-------------------------------------------------------------------------
Rider B
- -------
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
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Transfer Restricted Notes, it represents that
the Transfer Restricted Notes to be exchanged for New Notes were acquired by it
as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; 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 Securities Act.
<PAGE>
Exhibit 4.33
[FORM OF EXCHANGE AGENT AGREEMENT]
_________________, 2000
Harris Trust and Savings Bank
12th Floor
311 West Monroe Street
Chicago, Illinois 60690
Ladies and Gentlemen:
Focal Communications Corporation, a Delaware corporation (the
"Company"), hereby appoints Harris Trust and Savings Bank ("Harris Trust") to
act as exchange agent (the "Exchange Agent") in connection with an exchange
offer by the Company to exchange an aggregate principal amount of up to
$275,000,000 of its 11-7/8% Senior Notes due 2010, Series B (the "New Notes"),
which have been registered under the Securities Act of 1933, as amended, for a
like principal amount of its outstanding 11-7/8% Senior Notes due 2010, Series A
(the "Old Notes"). The terms and conditions of the exchange offer are set forth
in a Prospectus, dated __________________, 2000 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and in the related Letter of
Transmittal, which together constitute the "Exchange Offer." Capitalized terms
used herein and not defined shall have the respective meanings ascribed thereto
in the Prospectus.
On the basis of the representations, warranties and agreements of the
Company and Harris Trust contained herein and subject to the terms and
conditions hereof, the following sets forth the agreement between the Company
and Harris Trust as Exchange Agent for the Exchange Offer:
1. Appointment and Duties as Exchange Agent.
(a) The Company hereby authorizes Harris Trust to act as Exchange
Agent in connection with the Exchange Offer and Harris Trust agrees to act as
Exchange Agent in connection with the Exchange Offer. As Exchange Agent, Harris
Trust will perform those services as are outlined herein or which are
customarily performed by an exchange agent in connection with an exchange offer
of like nature, including, but not limited to, accepting tenders of the Old
Notes, assisting the Company in the preparation of the documentation necessary
to effect the transactions herein contemplated (without assuming responsibility
for such documentation, unless such information has been furnished to the
Company in writing by Harris Trust).
(b) The Company acknowledges and agrees that Harris Trust has been
retained pursuant to this Agreement to act solely as Exchange Agent in
connection with the Exchange Offer, and in such capacity, Harris Trust shall
perform such duties as are outlined herein and which are specifically set forth
in the section of the Prospectus captioned "The Exchange Offer" and in the
<PAGE>
Letter of Transmittal; provided, however, that in no way will Harris Trust's
general duty to act in good faith and without gross negligence or willful
misconduct be discharged by the foregoing.
(c) Harris Trust will examine each of the Letters of Transmittal (or
electronic instructions transmitted by The Depository Trust Company (the "DTC
Transmissions") and certificates for the Old Notes and any other documents
delivered or mailed to Harris Trust by or for holders of the Old Notes (or any
Book-Entry Confirmations (as set forth in the Prospectus) received by Harris
Trust with respect to the Old Notes), to ascertain whether: (i) the Letters of
Transmittal and any such other documents are duly executed and properly
completed in accordance with the instructions set forth therein (or that the DTC
Transmission contains the proper information required to be set forth therein)
and (ii) the Old Notes have otherwise been properly tendered (or that the Book-
Entry Confirmations are in due and proper form and contain the information
required to be set forth therein). In each case where the Letters of
Transmittal or any other documents have been improperly completed or executed
(or the DTC Transmissions are not in due and proper form or omit certain
information) or certificates for the Old Notes are not in proper form for
transfer (or the Book-Entry Confirmations are not in due and proper form or omit
certain information) or some other irregularity in connection with the tender or
acceptance of the Old Notes exists, Harris Trust will endeavor, subject to the
terms and conditions of the Exchange Offer, to advise the tendering holders of
Old Notes of the irregularity and to take any other action as may be necessary
or advisable to cause such irregularity to be corrected. Notwithstanding the
above, Harris Trust shall not be under any duty to give any notification of any
irregularities in tenders or incur any liability for failure to give any such
notification.
(d) With the approval of the President, any Senior Vice President, any
Executive Vice President, any Vice President or the Treasurer or any Assistant
Treasurer of the Company (such approval, if given orally, to be confirmed in
writing) or any other party designated by any such officer, Harris Trust is
authorized to waive any irregularities in connection with any tender of the Old
Notes pursuant to the Exchange Offer.
(e) Tenders of the Old Notes may be made only as set forth in the
Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer" and the Old Notes shall be considered properly tendered only
when tendered in accordance with such procedures set forth therein.
Notwithstanding the provisions of this paragraph, the Old Notes which the
President, any Senior Vice President, any Executive Vice President, any Vice
President or the Treasurer, any Assistant Treasurer or any other designated
officer of the Company, shall approve (such approval, if given orally, to be
confirmed in writing) as having been properly tendered shall be considered to be
properly tendered.
(f) Harris Trust shall advise the Company with respect to any Old
Notes received as soon as possible after 5:00 p.m., New York City time, on the
Expiration Date and accept its instructions with respect to disposition of the
Old Notes.
(g) Harris Trust shall (i) ensure that each Letter of Transmittal and,
if required pursuant to the terms of the Exchange Offer, the related Old Notes
or a bond power are duly executed (with signatures guaranteed where required) by
the appropriate parties in accordance with the terms of the Exchange Offer; (ii)
in those instances where the person executing the Letter of Transmittal (as
indicated on the Letter of Transmittal) is acting in a fiduciary or
representative capacity, ensure that proper evidence of his or her authority so
as to act is submitted; (iii) in those
2
<PAGE>
instances where the Old Notes are tendered by persons other than the registered
holder of such Old Notes, ensure that the customary transfer requirements,
including any applicable transfer taxes, and the requirements imposed by the
transfer restrictions on the Old Notes (including any applicable requirements
for certification, legal opinions or other information) are fulfilled; (iv)
ensure that the Old Notes tendered in part are tendered in principal amounts of
$1,000 and integral multiples thereof; and (v) deliver certificates for the Old
Notes tendered in part to the transfer agent for split-up and shall return any
untendered Old Notes or Old Notes which have not been accepted by the Company to
the holders of such Old Notes (or in the case of Old Notes tendered by book-
entry transfer, such non-exchanged Old Notes will be credited to an account
maintained with the Book-Entry Transfer Facility) promptly after the expiration
or termination of the Exchange Offer.
(h) Upon acceptance by the Company of any Old Notes duly tendered
pursuant to the Exchange Offer (such acceptance if given orally, to be confirmed
in writing), Harris Trust will cause the New Notes in exchange therefor to be
issued as promptly as possible (subject to receipt from the Company of
appropriate certificates under the related Indenture) and Harris Trust will
deliver such New Notes on behalf of the Company at the rate of $1,000 principal
amount of New Notes for each $1,000 principal amount of the Old Notes tendered
as promptly as possible after acceptance by the Company of the Old Notes in
exchange and notice (such notice if given orally, to be confirmed in writing) of
such acceptance by the Company; provided, however, that in all cases, the Old
Notes tendered pursuant to the Exchange Offer will be exchanged only after
timely receipt by Harris Trust of certificates for such Old Notes (or a Book-
Entry Confirmation), a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees and
any other required documents (or a properly completed DTC Transmission). Unless
otherwise instructed by the Company, Harris Trust shall issue the New Notes only
in denominations of $1,000 or any integral multiple thereof.
(i) Tendered pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and the conditions set forth in the Prospectus and
the Letter of Transmittal, the Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time on or prior to the Expiration Date in accordance
with the terms of the Exchange Offer.
(j) Notice of any decision by the Company not to exchange any Old
Notes tendered shall be given by the Company either orally (if given orally, to
be confirmed in writing) or in a written notice to Harris Trust.
(k) If, pursuant to the Exchange Offer, the Company does not accept
for exchange all or part of the Old Notes tendered because of an invalid tender,
the occurrence of certain other events set forth in the Prospectus under the
caption "The Exchange Offer--Conditions to the Exchange Offer" or otherwise,
Harris Trust shall, upon notice from the Company (such notice if given orally,
to be confirmed in writing), promptly after the expiration or termination of the
Exchange Offer return such certificates for unaccepted Old Notes (or effect
appropriate Book-Entry Confirmation), together with any related required
documents and the Letters of Transmittal (or DTC Transmissions) relating thereto
that are in Harris Trust's possession, to the persons who deposited such
certificates.
(l) Certificates for reissued Old Notes, unaccepted Old Notes or New
Notes shall be forwarded by (a) first-class certified mail, return receipt
requested under a blanket surety bond obtained by Harris Trust protecting Harris
Trust and the Company from loss or liability arising out
3
<PAGE>
of the non-receipt or non-delivery of such certificates or (b) by registered
mail insured by Harris Trust separately for the replacement value of each such
certificate.
(m) Harris Trust is not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, commercial
bank, trust company or other nominee or to engage or use any person to solicit
tenders.
(n) As Exchange Agent, Harris Trust:
(i) shall have no duties or obligations other than those
specifically set forth in the Prospectus, the Letter of Transmittal or
herein or as may be subsequently agreed to in writing;
(ii) will make no representations and will have no
responsibilities as to the validity, value or genuineness of any of
the certificates for the Old Notes deposited pursuant to the Exchange
Offer, and will not be required to and will make no representation as
to the validity, value or genuineness of the Exchange Offer; provided,
however, that in no way will Harris Trust's general duty to act in
good faith and without gross negligence or willful misconduct be
limited by the foregoing;
(iii) shall not be obligated to take any legal action hereunder
which might in Harris Trust's reasonable judgment involve any expense
or liability, unless Harris Trust shall have been furnished with
reasonable indemnity;
(iv) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter,
telegram or other document or security delivered to Harris Trust and
reasonably believed by Harris Trust to be genuine and to have been
signed by the proper party or parties;
(v) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its
due execution and validity and effectiveness of its provisions, but
also as to the truth and accuracy of any information contained
therein, which Harris Trust believes in good faith to be genuine and
to have been signed or represented by a proper person or persons
acting in a fiduciary or representative capacity (so long as proper
evidence of such fiduciary's or representative's authority so to act
is submitted to Harris Trust) and Harris Trust examines and reasonably
concludes that such evidence properly establishes such authority;
(vi) may rely on and shall be protected in acting upon written or
oral instructions from the President, any Senior Vice President, any
Executive Vice President, any Vice President, the Treasurer, any
Assistant Treasurer or any other designated officer of the Company;
(vii) may consult with its own counsel with respect to any
questions relating to Harris Trust's duties and responsibilities and
the written opinion of such counsel shall be full and complete
authorization and protection in respect of any
4
<PAGE>
action taken, suffered or omitted to be taken by Harris Trust
hereunder in good faith and in accordance with the written opinion of
such counsel; and
(viii) shall not advise any person tendering Old Notes pursuant
to the Exchange Offer as to whether to tender or refrain from
tendering all or any portion of its Old Notes or as to the market
value, decline or appreciation in market value of any Old Notes that
may or may not occur as a result of the Exchange Offer or as to the
market value of the New Notes.
(o) Harris Trust shall take such action as may from time to time be
requested by the Company (and such other action as Harris Trust may reasonably
deem appropriate) to furnish copies of the Prospectus, Letter of Transmittal and
the Notice of Guaranteed Delivery or such other forms as may be approved from
time to time by the Company, to all persons requesting such documents and to
accept and comply with telephone requests for information relating to the
Exchange Offer, provided that such information shall relate only to the
procedures for tendering into (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your request.
(p) Harris Trust shall advise orally and promptly thereafter confirm
in writing to the Company and such other person or persons as the Company may
request, daily (and more frequently during the week immediately preceding the
Expiration Date and if otherwise reasonably requested) up to and including the
Expiration Date, the aggregate principal amount of the Old Notes which have been
duly tendered pursuant to and in compliance with the terms of the Exchange Offer
and the terms received by Harris Trust pursuant to the Exchange Offer and this
Agreement, separately reporting and giving cumulative totals as to items
properly received and items improperly received. In addition, Harris Trust will
also provide, and cooperate in making available to the Company, or any such
other person or persons upon request (such request if made orally, to be
confirmed in writing) made from time to time, such other information as the
Company may reasonably request. Such cooperation shall include, without
limitation, the granting by Harris Trust to the Company, and such person or
persons as the Company may request, access to those persons on Harris Trust's
staff who are responsible for receiving tenders, in order to ensure that
immediately prior to the Expiration Date the Company shall have received
adequate information in sufficient detail to enable the Company to decide
whether to extend the Exchange Offer. Harris Trust shall prepare a final list of
all persons whose tenders were accepted, the aggregate principal amount of the
Old Notes tendered, the aggregate principal amount of the Old Notes accepted and
deliver said list to the Company.
(q) Letters of Transmittal, Book-Entry Confirmations, DTC
Transmissions and Notices of Guaranteed Delivery shall be stamped by Harris
Trust as to the date and the time of receipt thereof and shall be preserved by
Harris Trust for a period of time at least equal to the period of time Harris
Trust preserves other records pertaining to the transfer of securities, or one
year, whichever is longer, and thereafter shall be delivered by Harris Trust to
the Company. Harris Trust shall dispose of unused Letters of Transmittal and
other surplus materials by returning them to the Company.
(r) Harris Trust hereby expressly waives any lien, encumbrance or
right of set-off whatsoever that Harris Trust may have with respect to funds
deposited with it for the payment of transfer taxes by reasons of amounts, if
any, borrowed by the Company, or any of its subsidiaries
5
<PAGE>
or affiliates pursuant to any loan or credit agreement with Harris Trust or for
compensation owed to Harris Trust hereunder or for any other matter.
2. Compensation.
In consideration of Harris Trust's acceptance of the appointment set
forth in Paragraph 1 above, the Company agrees to (i) pay Harris Trust a fee for
all services rendered under the foregoing appointment of $3500.00 and (ii)
reimburse Harris Trust for any reasonable out-of-pocket expenses incurred as
Exchange Agent in performing the services described herein; provided, however,
that Harris Trust shall not be entitled to reimbursement for the fees or
disbursements of its legal counsel without the prior written consent of the
Company.
3. Indemnification.
(a) The Company hereby agrees to protect, defend, indemnify and hold
harmless Harris Trust against and from any and all costs, losses, liabilities,
expenses (including reasonable counsel fees and disbursements) and claims
imposed upon or asserted against Harris Trust on account of any action taken or
omitted to be taken by Harris Trust in connection with its acceptance of or
performance of its duties under this Agreement and the documents related thereto
as well as the reasonable costs and expenses of defending itself against any
claim or liability arising out of or relating to this Agreement and the
documents related thereto. This indemnification shall survive the release,
discharge, termination, and/or satisfaction of this Agreement. Anything in this
Agreement to the contrary notwithstanding, the Company shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of Harris Trust's bad faith, gross negligence or willful
misconduct. In no case shall the Company be liable under this indemnification
agreement with respect to any claim against Harris Trust unless the Company
shall be notified by Harris Trust, by letter, of the written assertion of a
claim against Harris Trust or of any other action commenced against Harris
Trust, reasonably promptly after Harris Trust shall have received any such
written assertion or shall have been served with a summons in connection
therewith. The Company shall be entitled to participate at its own expense in
the defense of any such claim or other action, and, if the Company so elects,
the Company may assume the defense of any pending or threatened action against
Harris Trust in respect of which indemnification may be sought hereunder, in
which case the Company shall not thereafter be responsible for the fees and
disbursements of legal counsel for Harris Trust under this paragraph; provided
that the Company shall not be entitled to assume the defense of any such action
if the named parties to such action include both the Company and Harris Trust
and representation of both parties by the same legal counsel would, in the
written opinion of counsel for Harris Trust, be inappropriate due to actual or
potential conflicting interests between them. It is understood that the Company
shall not be liable under this paragraph for the fees and disbursements of more
than one legal counsel for Harris Trust. In the event that the Company shall
assume the defense of any such suit, the Company shall not therewith be liable
for the fees and expenses of any counsel retained by Harris Trust.
(b) Harris Trust agrees that, without the prior written consent of the
Company (which consent shall not be unreasonably withheld), it will not settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding in respect of which indemnification could be sought
in accordance with the indemnification provision of this Agreement (whether or
not Harris Trust or the Company or any of its directors, officers and
controlling persons is an actual or potential party to such claim, action or
proceeding).
6
<PAGE>
4. Tax Information.
(a) Harris Trust shall arrange to comply with all requirements under
the tax laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service. The Company understands that Harris Trust is required, in
certain instances, to deduct 31% with respect to interest paid on the New Notes
and proceeds from the sale, exchange, redemption or retirement of the New Notes
from holders of the New Notes who have not supplied their correct Taxpayer
Identification Number or required certification. Such funds will be turned over
by Harris Trust to the Internal Revenue Service.
(b) Harris Trust shall notify the Company of the amount of any
transfer taxes payable in respect of the exchange of the Old Notes and, upon
receipt of written approval from the Company shall deliver or cause to be
delivered, in a timely manner, to each governmental authority to which any
transfer taxes are payable in respect of the exchange of the Old Notes, a check
in the amount of all transfer taxes so payable, and the Company shall reimburse
Harris Trust for the amount of any and all transfer taxes payable in respect of
the exchange of the Old Notes; provided, however, that Harris Trust shall
reimburse the Company for amounts refunded to it in respect of its payment of
any such transfer taxes, at such time as such refund is received by Harris
Trust.
5. Governing Law.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
6. Notices.
Any communications or notice provided for hereunder shall be in
writing and shall be given (and shall be deemed to have been given upon receipt)
by delivery in person, telecopy, or overnight delivery or by registered or
certified mail (postage prepaid, return receipt requested) to the applicable
party at the addresses indicated below:
If to Harris Trust:
311 West Monroe Street
12th Floor
Chicago, Illinois 60690
Telephone: (312) 461-2531
Telecopier No.: (312) 461-3525
Attention: Carolyn Potter
7
<PAGE>
If to the Company:
200 North LaSalle Street
Suite 1100
Chicago, Illinois 60601
Telephone: (312) 895-8400
Telecopier No.: (312)
Attention Renee M. Martin
Senior Vice President, General
Counsel and Secretary
or, as to each party, at such other address as shall be designated by such party
in a written notice complying as to delivery with the terms of this Section.
7. Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit
of each party hereto and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement. Without
limitation to the foregoing, the parties hereto expressly agree that no holder
of the Old Notes or the New Notes shall have any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
8. Counterparts; Severability.
This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which when so
executed shall be deemed an original, and all of such counterparts shall
together constitute one and the same agreement. If any term or other provision
of this Agreement or the application thereof is invalid, illegal or incapable of
being enforced by any rule of law, or public policy, all other provisions of
this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the agreements contained herein is not affected
in any manner adverse to any party. Upon such determination that any term or
provision or the application thereof is invalid, illegal or unenforceable, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the agreements contained herein may be performed
as originally contemplated to the fullest extent possible.
9. Headings.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10. Entire Agreement.
This Agreement constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof. This Agreement may not be
amended or modified nor may any provision hereof be waived except in writing
signed by each party to be bound thereby.
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<PAGE>
11. Termination.
This Agreement shall terminate upon the earlier of (a) the 90th day
following the expiration, withdrawal, or termination of the Exchange Offer, (b)
the close of business on the date of actual receipt of written notice by Harris
Trust from the Company stating that this Agreement is terminated, (c) one year
following the date of this Agreement, or (d) the time and date on which this
Agreement shall be terminated by mutual consent of the parties hereto.
12. Miscellaneous.
Harris Trust hereby acknowledges receipt of the Prospectus and the
Letter of Transmittal and the Notice of Guaranteed Delivery and further
acknowledges that it has examined each of them. Any inconsistency between this
Agreement, on the one hand, and the Prospectus and the Letter of Transmittal and
the Notice of Guaranteed Delivery (as they may be amended or supplemented from
time to time), on the other hand, shall be resolved in favor of the latter three
documents, except with respect to the duties, liabilities and indemnification of
Harris Trust as Exchange Agent shall be controlled by this Agreement.
Kindly indicate your willingness to act as Exchange Agent and Harris
Trust's acceptance of the foregoing provisions by signing in the space provided
below for that purpose and returning to the Company a copy of this Agreement so
signed, whereupon this Agreement and Harris Trust's acceptance shall constitute
a binding agreement between Harris Trust and the Company.
Very truly yours,
FOCAL COMMUNICATIONS CORPORATION
By: Name: ________________________
Title: _______________________
Accepted and Agreed to as of the date first written above:
HARRIS TRUST AND SAVINGS BANK
By: Name: _______________________
Title: ______________________
9
<PAGE>
Exhibit 12.1
Statement Regarding Computation of Ratios
<TABLE>
<CAPTION>
1996 1997 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss before provision for income taxes (514) (2,866) (3,309) (21,786)
Plus fixed charges:
Interest expense on debt - 128 16,134 21,639
Amortization of deferred finance charges - - 1,088 1,332
Estimated interest component of rental expense - 110 508 2,002
------------ ------------ ------------ ------------
Numerator (514) (2,628) 14,421 3,187
Divided by fixed charges - 238 17,730 24,973
Ratio of earnings to fixed charges - - - -
============ ============ ============ ============
</TABLE>
<PAGE>
Exhibit 21.1
FOCAL COMMUNICATIONS CORPORATION
List of Subsidiaries
Subsidiary State of Incorporation
---------- ----------------------
Focal Communications Corporation of California Delaware
Focal Communications Corporation of Colorado Delaware
Focal Communications Corporation of Florida Delaware
Focal Communications Corporation of Georgia Delaware
Focal Communications Corporation of Illinois Delaware
Focal Communications Corporation of Massachusetts Delaware
Focal Communications Corporation of Michigan Delaware
Focal Communications Corporation of Mid-Atlantic Delaware
Focal Communications Corporation of Minnesota Delaware
Focal Communications Corporation of Missouri Delaware
Focal Communications Corporation of New Jersey Delaware
Focal Communications Corporation of New York Delaware
Focal Communications Corporation of Ohio Delaware
Focal Communications Corporation of Pennsylvania Delaware
Focal Communications Corporation of Texas Delaware
Focal Communications Corporation of Virginia Virginia
Focal Communications Corporation of Washington Delaware
Focal Communications Corporation of Wisconsin Delaware
Focal Financial Services, Inc. Delaware
Focal International Corp. Delaware
Focal Telecommunications Corporation Delaware
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 9, 2000
included in Focal Communications Corporation's Form 10-K for the year ended
December 31, 1999, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
- -----------------------------------
Arthur Andersen LLP
Chicago, Illinois
April 7, 2000
<PAGE>
Exhibit 24.1
OFFICERS AND DIRECTORS OF
FOCAL COMMUNICATIONS CORPORATION
POWER OF ATTORNEY
The undersigned officers and/or directors of Focal Communications Corporation
(the "Company") hereby constitute and appoint Robert C. Taylor, Jr., John R.
Barnicle, Joseph A. Beatty and Renee M. Martin, or any of them, with full power
of substitution and resubstitution, as attorneys or attorney of the undersigned,
to sign and file under the Securities Act of 1933, as amended, (i) a
registration statement on Form S-4 relating to the registration of the Company's
11-7/8% Senior Notes due 2010, Series B to be issued in exchange for all of the
Company's outstanding 11-7/8% Senior Notes due 2010, Series A pursuant to a
public offering, (ii) any registration statement related to the offering which
is effective immediately upon filing pursuant to Rule 462(b) under said Act, and
(iii) any and all amendments, supplements and exhibits to such registration
statement, including post-effective amendments, and any and all applications or
other documents to be filed with the Securities and Exchange Commission
pertaining to such registration statements or amendments, with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, hereby ratifying and approving the acts of
said attorney and any of them and any such substitute.
EXECUTED this 5th day of April, 2000.
/s/ Robert C. Taylor, Jr. /s/ John R. Barnicle
- --------------------------------------- -------------------------------------
Robert C. Taylor, Jr., Director, John R. Barnicle, Director,
President and Chief Executive Officer Executive Vice President and
Chief Operating Officer
/s/ Joseph A. Beatty /s/ Gregory J. Swanson
- --------------------------------------- -------------------------------------
Joseph A. Beatty, Executive Vice Gregory J. Swanson, Controller
President and Chief Financial Officer
/s/ James E. Crawford, III /s/ John A. Edwardson
- --------------------------------------- -------------------------------------
James E. Crawford, III, Director John A. Edwardson, Director
/s/ Paul J. Finnegan /s/ Richard D. Frisbie
- --------------------------------------- -------------------------------------
Paul J. Finnegan, Director Richard D. Frisbie, Director
/s/ James N. Perry, Jr. /s/ Paul A. Yovovich
- --------------------------------------- -------------------------------------
James N. Perry, Jr., Director Paul A. Yovovich, Director
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ______
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Carolyn Potter, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
312-461-2531 phone 312-461-3525 facsimile
(Name, address and telephone number for agent for service)
FOCAL COMMUNICATIONS CORPORATION
(Obligor)
Delaware 36-4167094
(State of Incorporation) (I.R.S. Employer Identification No.)
200 North LaSalle Street Suite 1100
Chicago Illinois 60601
(Address of principal executive offices)
11.875% Senior Notes due 2010
(Title of indenture securities)
<PAGE>
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.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. through 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee as now in effect
which includes the authority of the trustee to commence business and to
exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in effect
and includes the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection with the
Registration Statement of Louisville Gas and Electric Company, File No.
2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation, File
No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
1
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 29th day of March, 2000.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
----------------------------
J. Bartolini
Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
----------------------------
J. Bartolini
Vice President
2
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of December 31, 1999, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on December 31, 1999, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
Cash and balances due from depository institutions:
<S> <C> <C>
Non-interest bearing balances and currency and coin..................... $ 1,424,033
Interest bearing balances............................................... $ 239,832
Securities:....................................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 6,265,013
Federal funds sold and securities purchased under agreements to resell $ 298,000
Loans and lease financing receivables:
Loans and leases, net of unearned income................................ $10,065,468
LESS: Allowance for loan and lease losses.............................. $ 113,702
--------------------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b).................................................... $ 9,951,766
Assets held in trading accounts................................................ $ 166,304
Premises and fixed assets (including capitalized leases)....................... $ 240,520
Other real estate owned........................................................ $ 690
Investments in unconsolidated subsidiaries and associated companies............ $ 0
Customer's liability to this bank on acceptances outstanding................... $ 43,599
Intangible assets.............................................................. $ 241,568
Other assets................................................................... $ 1,339,274
-------------------------
TOTAL ASSETS $20,210,599
=========================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
Deposits:
<S> <C> <C>
In domestic offices.......................................................... $ 9,863,116
Non-interest bearing.................................................... $3,548,093
Interest bearing........................................................ $6,315,023
In foreign offices, Edge and Agreement subsidiaries, and IBF's............... $ 1,365,514
Non-interest bearing.................................................... $ 35,537
Interest bearing........................................................ $1,329,977
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBF's:
Federal funds purchased & securities sold under agreements to repurchase....... $ 4,739,578
Trading Liabilities 99,379
Other borrowed money:..........................................................
a. With remaining maturity of one year or less $ 2,182,088
b. With remaining maturity of more than one year $ 0
Bank's liability on acceptances executed and outstanding $ 43,599
Subordinated notes and debentures.............................................. $ 225,000
Other liabilities.............................................................. $ 441,231
TOTAL LIABILITIES $18,959,505
=========================
EQUITY CAPITAL
Common stock................................................................... $ 100,000
Surplus........................................................................ $ 610,512
a. Undivided profits and capital reserves..................................... $ 678,275
b. Net unrealized holding gains (losses) on available-for-sale securities ($137,693)
TOTAL EQUITY CAPITAL $ 1,251,094
Total liabilities, limited-life preferred stock, and equity capital............ $20,210,599
=========================
</TABLE>
I, Christy Wipper, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
CHRISTY WIPPER
1/27/00
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
ALAN G. McNALLY,
EDWARD W. LYMAN,
RICHARD E. TERRY
Directors.
4
<PAGE>
Exhibit 99.1
[FORM OF LETTER OF TRANSMITTAL]
OFFER TO EXCHANGE ITS 11-7/8% SENIOR NOTES
DUE 2010, SERIES B, WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING
11-7/8% SENIOR NOTES DUE 2010, SERIES A
PURSUANT TO THE PROSPECTUS DATED __________, 2000
FOCAL COMMUNICATIONS CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME,
ON __________, 2000, UNLESS EXTENDED (THE "EXPIRATION DATE").
The Exchange Agent for the Exchange Offer is:
HARRIS TRUST AND SAVINGS BANK
<TABLE>
<CAPTION>
By Facsimile: By Mail: By Overnight Courier or Hand:
<C> <S> <C>
(212) 701-7636 Harris Trust and Savings Bank Harris Trust and Savings Bank
(212) 701-7637 c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station Wall Street Plaza
P. O. Box 1010 88 Pine Street, 19th Floor
New York, New York 10268-1010 New York, New York 10005
Attention: Reorganization Dept. Attention: Reorganization Dept.
Confirm by telephone to:
(212) 701-7624
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS
COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Outstanding
Notes (as defined below) either if Outstanding Notes are to be forwarded
herewith or if tenders of Outstanding Notes are to be made by book-entry
transfer to an account maintained by Harris Trust and Savings Bank
<PAGE>
(the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the
procedures set forth in "The Exchange Offer--Procedures for Tendering
Outstanding Notes" in the Prospectus.
Holders of Outstanding Notes whose certificates (the "Certificates") for
such Outstanding Notes are not immediately available or who cannot deliver their
Certificates, this Letter of Transmittal and all other required documents to the
Exchange Agent on or prior to the Expiration Date or who cannot complete the
procedures for book-entry transfer on a timely basis, may tender their
Outstanding Notes according to the guaranteed delivery procedures set forth in
"The Exchange Offer--Procedures for Tendering Outstanding Notes" in the
Prospectus.
2
<PAGE>
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
List below the Outstanding Notes of which you are a holder. If the space
provided below is inadequate, list the certificate numbers and principal amount
on a separate signed schedule and attach that schedule to this Letter of
Transmittal. See Instruction 3.
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF OUTSTANDING NOTES TENDERED
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES) OF
REGISTERED HOLDER
(FILL IN, IF BLANK) OUTSTANDING NOTES TENDERED
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRINCIPAL AMOUNT
CERTIFICATE NUMBER(S)* PRINCIPAL AMOUNT TENDERED ** (ATTACH
(ATTACH ADDITIONAL (ATTACH ADDITIONAL ADDITIONAL LIST IF
LIST IF NECESSARY) LIST IF NECESSARY) NECESSARY)
- -------------------------------------------------------------------------------------------
$ $
---------------------------------------------------------------
---------------------------------------------------------------
Total Amount Tendered: $ $
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders. Such holders should check the
appropriate box below and provide the requested information.
** Need not be completed if tendering for exchange all Outstanding Notes held.
Outstanding Notes may be tendered in whole or in part in integral multiples
of $1,000 stated principal amount at maturity. All Outstanding Notes held
shall be deemed tendered unless a lesser number is specified in this
column. See Instruction 4.
3
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY. SEE INSTRUCTION 1)
[_] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
--------------------------------------------------
DTC Account Number:
-------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):
------------------------------------------------
Window Ticket Number (if any):
--------------------------------------------------
Date of Notice of Guaranteed Delivery:
------------------------------------------
Institution Which Guaranteed Delivery:
------------------------------------------
If Guaranteed Delivery is to be made by book-entry transfer:
--------------------
Name of Tendering Institution:
--------------------------------------------------
DTC Account Number:
-------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OUTSTANDING NOTES FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone Number and Contact Person:
--------------------------------------------
4
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Focal Communications Corporation, a
Delaware corporation (the "Company"), the above described principal amount of
the Company's 11-7/8% Senior Notes due 2010, Series A (the "Outstanding Notes"),
in exchange for a like principal amount of the Company's 11-7/8% Senior Notes
due 2010, Series B (the "Exchange Notes") which have been registered under the
Securities Act of 1933 (the "Securities Act"), upon the terms and subject to the
conditions set forth in the Prospectus dated ,
2000 (as the same may be amended or supplemented from time to time, the
"Prospectus"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer").
Subject to and effective upon the acceptance for exchange of the
Outstanding Notes tendered herewith, the undersigned hereby sells, assigns and
transfers to or upon the order of the Company all right, title and interest in
and to such Outstanding Notes as are being tendered herewith. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting as
agent of the Company in connection with the Exchange Offer and as Trustee under
the Indenture for the Outstanding Notes and the Exchange Notes) with respect to
the tendered Outstanding Notes, with full power of substitution (such power of
attorney being an irrevocable power coupled with an interest), subject only to
the right of withdrawal described in the Prospectus, to: (i) deliver such
Outstanding Notes to the Company together with all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company upon receipt by
the Exchange Agent, as the undersigned's agent, of the Exchange Notes to be
issued in exchange for such Outstanding Notes; (ii) present Certificates for
such Outstanding Notes for transfer, and to transfer such Outstanding Notes on
the account books maintained by DTC; and (iii) receive for the account of the
Company all benefits and otherwise exercise all rights of beneficial ownership
of such Outstanding Notes, all in accordance with the terms and conditions of
the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OUTSTANDING NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE OUTSTANDING NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY
OR DESIRABLE TO COMPLETE THE EXCHANGE, SALE, ASSIGNMENT AND TRANSFER OF THE
OUTSTANDING NOTES TENDERED HEREBY. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF
THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Outstanding
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Outstanding Notes.
The Certificate number(s) and the Outstanding Notes that the undersigned wishes
to tender should be indicated in the appropriate boxes above.
5
<PAGE>
If any tendered Outstanding Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more
Outstanding Notes than are tendered or accepted for exchange, Certificates for
such unexchanged or untendered Outstanding Notes will be returned (or, in the
case of Outstanding Notes tendered by book-entry transfer, such Outstanding
Notes will be credited to an account maintained at DTC), without expense to the
tendering holder promptly following the expiration or termination of the
Exchange Offer.
The undersigned understands that tenders of Outstanding Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus and in the instructions herein
will, upon the Company's acceptance for exchange of such tendered Outstanding
Notes, constitute a binding agreement between the undersigned and the Company
upon the terms and subject to the conditions of the Exchange Offer. The
undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Outstanding Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Outstanding Notes, that such Exchange Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Outstanding Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Outstanding Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please deliver Exchange Notes to the undersigned at the address
shown below the undersigned's signature.
BY TENDERING OUTSTANDING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT: (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY (WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES
ACT), OR IF THE UNDERSIGNED IS AN AFFILIATE, THE UNDERSIGNED WILL COMPLY WITH
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT TO
THE EXTENT APPLICABLE; (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS; AND (III) THE
UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES
TO BE RECEIVED IN THE EXCHANGE OFFER. IF THE UNDERSIGNED IS NOT A BROKER-DEALER,
BY TENDERING OUTSTANDING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED REPRESENTS AND AGREES 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, BY TENDERING OUTSTANDING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
THE UNDERSIGNED REPRESENTS AND AGREES THAT SUCH OUTSTANDING NOTES WERE ACQUIRED
BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER A PROSPECTUS MEETING
THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF EXCHANGE
NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS,
6
<PAGE>
SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER"
WITHIN THE MEANING OF THE SECURITIES ACT). THE COMPANY HAS AGREED THAT STARTING
ON THE EXPIRATION DATE AND ENDING ON THE CLOSE OF BUSINESS ON THE FIRST
ANNIVERSARY OF THE EXPIRATION DATE, IT WILL MAKE THE PROSPECTUS AVAILABLE TO ANY
PARTICIPATING BROKER-DEALER IN CONNECTION WITH ANY SUCH RESALE.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus and in the Instructions contained in this Letter of
Transmittal, this tender is irrevocable.
7
<PAGE>
PLEASE SIGN HERE: PLEASE SIGN HERE:
- ----------------------------------- ------------------------------------
Name: Name:
------------------------------ -------------------------------
Title: Title:
----------------------------- ------------------------------
Address: Address:
--------------------------- ----------------------------
Telephone Number: Telephone Number:
------------------ -------------------
Dated: Dated:
----------------------------- ------------------------------
- ----------------------------------- ------------------------------------
Taxpayer Identification or Taxpayer Identification or
Social Security Number Social Security Number
(NOTE: Signature(s) must be guaranteed if required by Instructions 2 and 5.
This Letter of Transmittal must be signed by the registered holder(s) exactly as
the name(s) appear(s) on Certificate(s) for the Outstanding Notes hereby
tendered or on a security position listing, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith, including such opinions of counsel, certifications and other
information as may be required by the Company or the Trustee for the Outstanding
Notes to comply with the restrictions on transfer applicable to the Outstanding
Notes. If signature is by an attorney-in-fact, executor, administrator, trustee,
guardian, officer of a corporation or another acting in a fiduciary capacity or
representative capacity, please set forth the signer's full title. See
Instructions 2 and 5. Please complete substitute Form W-9 below.)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 2 AND 5)
Signature(s) Guaranteed by an
Eligible Institution: Date:
-------------- -------------------------------
8
<PAGE>
AUTHORIZED SIGNATURE
Name of Eligible Institution
Guaranteeing Signature: Address:
------------ ----------------------------
Capacity (full title):
------------- ------------------------------------
Telephone Number:
------------------ ------------------------------------
9
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 2, 5 AND 6) (SEE INSTRUCTIONS 2, 5 AND 6)
To be completed ONLY if the Exchange To be completed ONLY if Exchange
Notes or any Outstanding Notes that Notes or any Outstanding Notes that
are not tendered are to be issued in are not tendered are to be sent to
the name of someone other than the someone other than the registered
registered holder(s) of the Outstanding holder(s) of the Outstanding Notes
Notes whose name(s) appear(s) above. whose name(s) appear(s) above, or
to such registered holder at an
address other than that shown above.
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
Issue: Mail:
[ ] Outstanding Notes not tendered, [ ] Outstanding Notes, not tendered,
to: to:
[ ] Exchange Notes, to: [ ] Exchange notes, to:
Name: Name:
------------------------------ -------------------------------
Address: Address:
--------------------------- ----------------------------
Telephone Number: Telephone Number:
------------------ -------------------
- ----------------------------------- ------------------------------------
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER) SECURITY NUMBER)
10
<PAGE>
INSTRUCTIONS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER)
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Outstanding Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at DTC, as well as this
Letter of Transmittal (or manually-signed facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's
Message, in the case of a book-entry transfer, and any other documents required
by this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein on or prior to the Expiration Date. The term "book-
entry confirmation" means a timely confirmation of book-entry transfer of
Outstanding Notes into the Exchange Agent's account at DTC. Outstanding Notes
may be tendered in whole or in part in integral multiples of $1,000 principal
amount at maturity.
Holders who wish to tender their Outstanding Notes and: (i) whose
Certificates for such Outstanding Notes are not immediately available; (ii) who
cannot deliver their Certificates, this Letter of Transmittal and all other
required documents to the Exchange Agent prior to the Expiration Date; or (iii)
who cannot complete the procedures for delivery by book-entry transfer on a
timely basis, may tender their Outstanding Notes by properly completing and duly
executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer--Procedures for Tendering
Outstanding Notes" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined below);
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying this Letter of Transmittal, must be
received by the Exchange Agent prior to the Expiration Date; and (iii) the
Certificates (or a book-entry confirmation) representing all tendered
Outstanding Notes, in proper form for transfer, together with a Letter of
Transmittal (or manually-signed facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or an Agent's Message, in the
case of a book-entry transfer, and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent within three New York
Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed Delivery.
For Outstanding Notes to be properly tendered pursuant to the guaranteed
delivery procedure, the Exchange Agent must receive a Notice of Guaranteed
Delivery prior to the Expiration Date. As used herein and in the Prospectus,
"Eligible Institution" means a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as "an eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association.
11
<PAGE>
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. 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 TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE OBTAINED. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
manually-signed facsimile thereof), waives any right to receive any notice of
the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if: (i) this Letter of Transmittal is signed by the
registered holder (which shall include any participant in DTC whose name appears
on a security position listing as the owner of the Outstanding Notes) of
Outstanding Notes tendered herewith, unless such holder has completed either the
box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" above; or (ii) such Outstanding Notes are tendered for
the account of a firm that is an Eligible Institution. In all other cases, an
Eligible Institution must guarantee the signature(s) on this Letter of
Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned "Description
of Outstanding Notes Tendered" is inadequate, the Certificate number(s) and/or
the principal amount of Outstanding Notes and any other required information
should be listed on a separate signed schedule and attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Outstanding Notes will be
accepted only in integral multiples of $1,000 stated principal amount at
maturity. If less than all the Senior Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Outstanding Notes
which are to be tendered in the box entitled "Principal Amount Tendered (if less
than all)." In such case, new Certificate(s) for the remainder of the
Outstanding Notes that were evidenced by the old Certificate(s) will be sent to
the tendering holder, unless the appropriate boxes on this Letter of Transmittal
are completed, promptly after the Expiration Date. All Outstanding Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to the Expiration Date. In order for a withdrawal to
be effective, a written, telegraphic or facsimile transmission of such notice of
withdrawal must be timely received by the Exchange Agent at its address set
forth above prior to the Expiration Date. Any such notice of withdrawal must
specify the name of the person who tendered the Outstanding Notes to be
withdrawn, the aggregate principal amount of Outstanding Notes to be withdrawn,
and (if Certificates for such Outstanding Notes have been tendered) the name of
the registered holder of the Outstanding Notes as set forth on the
Certificate(s), if different from that of the person who tendered such
Outstanding Notes. If
12
<PAGE>
Certificates for Outstanding Notes have been delivered or otherwise identified
to the Exchange Agent, the notice of withdrawal must specify the serial numbers
on the particular Certificates for the Outstanding Notes to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Outstanding Notes tendered for the account of
an Eligible Institution. If Outstanding Notes have been tendered pursuant to the
procedures for book-entry transfer set forth in "The Exchange Offer--Procedures
for Tendering Outstanding Notes," the notice of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawal of
Outstanding Notes and must otherwise comply with the procedures of DTC.
Withdrawals of tenders of Outstanding Notes may not be rescinded. Outstanding
Notes properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all parties.
Neither the Company, any affiliates of the Company, the Exchange Agent or any
other person shall be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Outstanding Notes which have been tendered but
which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this
Letter of Transmittal is signed by the registered holder(s) of the Outstanding
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) or on a security position listing,
without alteration, enlargement or any change whatsoever.
If any of the Outstanding Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Outstanding Notes are registered in different names on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are names in
which Certificates are registered.
If this Letter of Transmittal or any Certificates 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 must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Outstanding Notes listed and transmitted hereby, the
Certificate(s) must be endorsed or accompanied by appropriate bond power(s),
signed exactly as the name(s) of the registered owner appear(s) on the
Certificate(s), and also must be accompanied by such opinions of counsel,
certifications and other information as the Company or the Trustee for the
Outstanding Notes may require in accordance with the restrictions on transfer
applicable to the Outstanding Notes. Signature(s) on such Certificate(s) or bond
power(s) must be guaranteed by an Eligible Institution.
13
<PAGE>
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes or
Certificates for Outstanding Notes not exchanged are to be issued in the name of
a person other than the signer of this Letter of Transmittal, or are to be sent
to someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. In the case of issuance in a different name, the taxpayer
identification number of the person named must also be indicated. Holders
tendering Outstanding Notes by book-entry transfer may request that Outstanding
Notes not exchanged be credited to such account maintained at DTC as such holder
may designate. If no such instructions are given, Outstanding Notes not
exchanged will be returned by mail or, if tendered by book-entry transfer, by
crediting the account indicated above maintained at DTC.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Outstanding Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders determined by it not to be in proper form or the acceptance for exchange
of which may, in the view of counsel to the Company, be unlawful. The Company
also reserves the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offer set forth in the Prospectus under "The Exchange
Offer--Conditions to the Exchange Offer" or any defect or irregularity in any
tender of Outstanding Notes of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding. No
tender of Outstanding Notes will be deemed to have been validly made until all
defects or irregularities with respect to such tender have been cured or waived.
Neither the Company, any affiliates of the Company, the Exchange Agent, or any
other person shall be under any duty to give any notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth above. Additional copies of the Prospectus, the
Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from
the Exchange Agent or from your broker, dealer, commercial bank, trust company
or other nominee.
9. BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law,
a holder whose tendered Outstanding Notes are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Outstanding Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 3 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is
14
<PAGE>
completed, the Exchange Agent will withhold 31% of all payments made prior to
the time a properly certified TIN is provided to the Exchange Agent. The
Exchange Agent will retain such amounts withheld during the 60 day period
following the date of the Substitute Form W-9. If the holder furnishes the
Exchange Agent with its TIN within 60 days after the date of the Substitute Form
W-9, the amounts retained during the 60 day period will be remitted to the
holder and no further amounts shall be retained or withheld from payments made
to the holder thereafter. If, however, the holder has not provided the Exchange
Agent with its TIN within such 60 day period, amounts withheld will be remitted
to the IRS as backup withholding. In addition, 31% of all payments made
thereafter will be withheld and remitted to the IRS until a correct TIN is
provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Outstanding Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Outstanding Notes. If the Outstanding Notes are
registered in more than one name or are not in the name of the actual owner,
consult the Instructions to Form W-9 (Request for Identification Number and
Certification) for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the Instructions to Form W-9 (Request for Identification Number
and Certification) for additional guidance on which holders are exempt from
backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. MUTILATED, LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate
representing Outstanding Notes has been mutilated, lost, destroyed or stolen,
the holder should promptly notify the Exchange Agent. The holder will then be
instructed as to the steps that must be taken in order to replace the
Certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing mutilated, lost, destroyed or
stolen Certificates have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Outstanding Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith, except that if Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the
Outstanding Notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of Outstanding Notes in connection with the Exchange Offer,
then the amount of any such transfer tax (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such transfer tax or exemption therefrom is
not submitted with the Letter of Transmittal, the amount of such transfer tax
will be billed directly to such tendering holder.
15
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY-SIGNED FACSIMILE
THEREOF), TOGETHER WITH CERTIFICATES REPRESENTING TENDERED OUTSTANDING NOTES OR
A BOOK ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY
THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS:
(SEE INSTRUCTION 9)
PAYER'S NAME: HARRIS TRUST AND SAVINGS BANK
<TABLE>
<S> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE SOCIAL SECURITY NUMBER
YOUR TIN ON THE LINE AT OR EMPLOYER IDENTIFICA-
RIGHT AND CERTIFY BY TION NUMBER
SIGNING AND DATING BELOW
FORM W-9
----------------------------------------------------------------------------------
PART 2--CERTIFICATION--Under penalties of perjury, I certify that:
----------------------------------------------------------------------------------
DEPARTMENT OF THE (1) The number shown on this form is my correct taxpayer identification
TREASURY INTERNAL number (or I am waiting for a number to be issued to me);
REVENUE SERVICE
----------------------------------------------------------------------------------
PAYER'S REQUEST FOR (2) I am not subject to backup withholding either because: (a) I am exempt
TAXPAYER'S from backup withholding; (b) I have not been notified by the Internal
IDENTIFICATION Revenue Service ("IRS") that I am subject to backup withholding as a
NUMBER (TIN) result of a failure to report all interest or dividends; or (c) the IRS has
notified me that I am no longer subject to backup withholding; and
----------------------------------------------------------------------------------
(3) Any other information provided on this form is true and correct.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup withholding because
of under reporting interest or dividends on your tax return and you have not been
notified by the IRS that you are no longer subject to backup withholding.
----------------------------------------------------------------------------------
SIGNATURE: PART 3 -- Awaiting TIN [ ]
------------------------------
DATE:
-----------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN
CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU
PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
16
<PAGE>
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
SIGNATURE: DATE:
------------------------- -------------------------------
17
<PAGE>
Exhibit 99.2
[FORM OF NOTICE OF GUARANTEED DELIVERY]
FOR TENDER OF
11-7/8% SENIOR NOTES DUE 2010, SERIES A
(THE "SENIOR NOTES")
OF
FOCAL COMMUNICATIONS CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to tender Senior Notes pursuant to the Exchange Offer
described in the Prospectus dated __________, 2000 (as the same may be amended
or supplemented from time to time, the "Prospectus") of Focal Communications
Corporation, a Delaware corporation (the "Company"), if certificates for the
Senior Notes are not immediately available, or time will not permit the Senior
Notes, the Letter of Transmittal and all other required documents to be
delivered to Harris Trust and Savings Bank (the "Exchange Agent") prior to 5:00
p.m., New York City time, on __________, 2000 or such later date and time to
which the Exchange Offer may be extended (the "Expiration Date"), or the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be delivered by hand or sent by facsimile transmission or mail
to the Exchange Agent, and must be received by the Exchange Agent prior to the
Expiration Date. See "The Exchange Offer--Procedures for Tendering Senior Notes"
in the Prospectus. Capitalized terms used but not defined herein shall have the
same meaning given them in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
HARRIS TRUST AND SAVINGS BANK
<TABLE>
<CAPTION>
By Facsimile: By Mail: By Overnight Courier or Hand:
<C> <S> <C>
(212) 701-7636 Harris Trust and Savings Bank Harris Trust and Savings Bank
(212) 701-7637 c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station Wall Street Plaza
P. O. Box 1010 88 Pine Street, 19th Floor
New York, New York 10268-1010 New York, New York 10005
Attention: Reorganization Dept. Attention: Reorganization Dept.
Confirm by telephone to:
(212) 701-7624
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, the Senior Notes indicated below pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer--Procedures for Tendering Senior Notes."
Name(s) of Registered Holder(s):
------------------------------------------------
(Please Print or Type)
Signature(s):
------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code(s) and Telephone Number(s):
-------------------------------------------
Account Number:
-----------------------------------------------------------------
Date:
---------------------------------------------------------------------------
Certificate No(s). Principal Amount of
(if available) Senior Notes Tendered*
- ---------------------------------- ------------------------------------
- ---------------------------------- ------------------------------------
- ---------------------------------- ------------------------------------
- ---------------------------------- ------------------------------------
- ---------------------------------- ------------------------------------
* Must be in integral multiples of $1,000 stated principal amount at maturity.
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, 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 a correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing the
Senior Notes being tendered hereby in proper form for transfer (or a
confirmation of book-entry transfer of such Senior Notes, into the Exchange
Agent's account at the book-entry transfer facility
<PAGE>
of The Depository Trust Company ("DTC")) with delivery of a properly completed
and duly executed Letter of Transmittal (or manually-signed facsimile thereof),
with any required signature guarantees, or an Agent's Message, in the case of a
book-entry transfer, and any other required documents, all within three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
The institution that completes this form must communicate the guarantee to
the Exchange Agent and must deliver the certificates representing any Senior
Notes (or a confirmation of book-entry transfer of such Senior Notes into the
Exchange Agent's account at DTC) and the Letter of Transmittal to the Exchange
Agent within the time period shown herein. Failure to do so could result in a
financial loss to such institution.
Name of Firm
--------------------- ------------------------------------
Authorized Signature
Address Name
-------------------------- --------------------------------
Please Print or Type
Zip Code Title
- -------------------------- -------------------------------
Telephone No. Dated
-------------------- -------------------------------
