<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
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
---------------
WAM!NET INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 7379 41-1795247
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
6100 WEST 110TH STREET,
MINNEAPOLIS, MINNESOTA 55438
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
EDWARD J. DRISCOLL III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WAM!NET INC.
6100 WEST 110TH STREET
MINNEAPOLIS, MINNESOTA 55438
(612) 886-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
DANIEL D. RUBINO, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
---------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be 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 filed to register additional securities for an offering
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
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE MAXIMUM AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) OFFERING PRICE(2) PRICE(2)(3) FEE(3)
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<S> <C> <C> <C> <C>
13 1/4% Senior Discount
Notes due 2005,
Series B.............. $208,530,000 100% $69,510,000 $20,505.45
</TABLE>
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(1) The "Amount to be registered" with respect to the 13 1/4% Senior Discount
Notes due 2005, Series B (the "Exchange Notes") represents the maximum
amount at maturity of Exchange Notes that may be issued pursuant to the
exchange offer described in the Registration Statement. The 13 1/4% Senior
Discount Notes due 2005, Series A (the "Original Notes"), into which the
Exchange Notes are hereby offered in exchange, were sold at a substantial
discount from their principal amount at maturity.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
(3) The registration fee for the Exchange Notes offered hereby, $20,505.45, is
calculated under Rule 457(f)(2) of the Securities Act as follows: the
product of .000295 and $69,510,000, one third of the aggregate principal
amount at maturity of the outstanding Original Notes, that may be tendered
to the Registrant (which has an accumulated capital deficit) in exchange
for the Exchange Notes.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN SUBJECT TO COMPLETION OR AMENDMENTS. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion dated May 28, 1998
PROSPECTUS
[LOGO]
WAM!NET INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 13 1/4% SENIOR DISCOUNT NOTES
DUE 2005, SERIES B, FOR EACH $1,000 IN
PRINCIPAL AMOUNT OF OUTSTANDING 13 1/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES
A, THAT WERE ISSUED AND SOLD IN RELIANCE ON EXEMPTIONS FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
-----------
WAM!NET, a Minnesota corporation ("WAM!NET" or the "Company"), hereby offers
to exchange (the "Exchange Offer") $208,530,000 in aggregate principal amount
at maturity of its 13 1/4% Senior Discount Notes due 2005, Series B (the
"Exchange Notes") for $208,530,000 in aggregate principal amount at maturity of
its 13 1/4% Senior Discount Notes due 2005, Series A (the "Original Notes" and,
together with the Exchange Notes, the "Notes"), that were issued and sold in
reliance on exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act").
The terms of the Exchange Notes are substantially similar (including
principal amount, interest rate, maturity and ranking) to the terms of the
Original Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes (i) are freely transferable by holders thereof
(except as provided below) and are issued without any covenant regarding their
registration. The Exchange Notes will be issued under the indenture governing
the Original Notes. The Exchange Notes will be, and the Original Notes are,
general unsecured obligations of the Company and, as such, will rank pari passu
in right of payment with all existing and future unsecured and unsubordinated
Indebtedness (as defined herein) of the Company. The Exchange Notes will be,
and the Original Notes are, effectively subordinated in right of payment to all
secured Indebtedness of the Company to the extent of the value of the assets
securing such Indebtedness. As of March 31, 1998, the Company had outstanding
approximately $10.4 million of secured Indebtedness (consisting principally of
equipment financing), which would have effectively ranked senior in right of
payment to the Notes, no Indebtedness which would have ranked pari passu in
right of payment with the Notes and $25.9 million of Indebtedness which would
have been subordinated in right of payment to the Notes. The Indenture (as
defined herein) does not limit the amount of secured Permitted Equipment
Financing (as defined herein) that may be incurred by the Company. The Exchange
Notes will be, and the Original Notes are, fully and unconditionally guaranteed
on an unsecured and unsubordinated basis by all Material Restricted
Subsidiaries (as defined herein), which guarantees may be released under
certain circumstances. As of the date hereof, the Company does not have any
Material Restricted Subsidiaries, and no Subsidiary (as defined herein) of the
Company has any Indebtedness. For a complete description of the terms of the
Exchange Notes, including provisions relating to the ability of the Company to
create indebtedness that is senior or pari passu to the Exchange Notes, see
"Description of the Notes." There will be no cash proceeds to the Company from
the Exchange Offer.
For each Original Note accepted for exchange the holder of such Original Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Original Note. Original Notes accepted for exchange will cease to
accrete value or accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Original Notes whose Old Notes are accepted for
exchange will not receive any payment of accrued interest on such Original
Notes.
The Original Notes were originally issued and sold on March 5, 1998 (the
"Issue Date") in transactions exempt from registration under the Securities
Act, in reliance upon the exemption provided in Section 4(2) of the Securities
Act and Rule 144A of the Securities Act and pursuant to offers and sales that
occurred outside the United States within the meaning of Regulation S of the
Securities Act (collectively, the "Initial Offering"). Accordingly, the
Original Notes may not be reoffered, resold or otherwise pledged, hypothecated
or transferred in the United States unless so registered or unless an
applicable exemption from the registration requirements of the Securities Act
is available. Based upon its view of interpretations provided to third parties
by the Staff (the "Staff") of the Securities and Exchange Commission (the
"Commission"), the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder or any such other person which
(continued on next page)
SEE "RISK FACTORS" ON PAGE 12 HEREOF FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998
<PAGE>
(continued from previous page)
is (i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Original
Notes directly from the Company or (iii) a broker-dealer who acquired Original
Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of business of such holder and any beneficial owner, and such holders
are not engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such
Exchange Notes. Each broker-dealer who acquired Original Notes directly from
the Company and is participating in the Exchange Offer must comply with the
registration and prospectus delivery provisions of the Securities Act. Broker-
dealers who acquired Original Notes as a result of market making or other
trading activities may use this Prospectus, as supplemented or amended, in
connection with resales of the Exchange Notes. The Company has agreed that it
will make this Prospectus available to broker-dealers for use in connection
with any such resale. Each broker-dealer who receives Exchange Notes 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
that is filed as an exhibit to the Registration Statement of which this
Prospectus is a part (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. Any holder that cannot rely upon such interpretations must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
The Original Notes and the Exchange Notes constitute new issues of
securities with no established public trading market. Any Original Notes not
tendered and accepted in the Exchange Offer will remain outstanding. To the
extent that Original Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered, and tendered but unaccepted, Original
Notes could be adversely affected. Following consummation of the Exchange
Offer, the holders of Original Notes will continue to be subject to the
existing restrictions on transfer thereof and the Company will have no further
obligation to such holders to provide for the registration under the
Securities Act of the Original Notes except under certain limited
circumstances. (See "Note Registration Rights.") No assurance can be given as
to the liquidity of the trading market for either the Original Notes or the
Exchange Notes.
This Prospectus and the Letter of Transmittal are first being mailed to
holders of Original Notes on , 1998. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Original Notes
being tendered or accepted for exchange. The Exchange Offer will expire at
5:00 p.m., New York City time, on , 1998 unless extended (the "Expiration
Date"). The date of acceptance for exchange of the Original Notes (the
"Exchange Date") will be the first business day following the Expiration Date,
upon surrender of the Original Notes. Original Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable.
The Original Notes were issued originally in global form (the "Global
Original Notes"). The Global Original Notes were deposited with, or on behalf
of, The Depository Trust Company ("DTC"), as the initial depository with
respect to the Original Notes (in such capacity, the "Depositary"). The Global
Original Notes are registered in the name of Cede & Co. ("Cede"), as nominee
of DTC, and beneficial interests in the Global Original Notes are shown on,
and transfers thereof are effected only through, records maintained by the
Depositary and its participants. The use of the Global Original Notes to
represent certain of the Original Notes permits the Depositary's participants,
and anyone holding a beneficial interest in an Original Note registered in the
name of such a participant, to transfer interests in the Original Notes
electronically in accordance with the Depositary's established procedures
without the need to transfer a physical certificate. Exchange Notes issued in
exchange for the Global Original Notes will also be issued initially as a note
in global form (the "Global Exchange Notes," and, together with the Global
Original Notes, the "Global Notes") and deposited with, or on behalf of, the
Depositary. After the initial issuance of the Global Exchange Notes, Exchange
Notes in certificate form will be issued in exchange for a holder's
proportionate interest in the appropriate Global Exchange Note only as set
forth in the Indenture.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to in the Registration Statement are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
The Registration Statement may be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Registration Statement may be
obtained from the Commission at prescribed rates at such address, and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
Suite 1300, New York, New York 10048. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the Commission. The address
of such site is http://www.sec.gov.
The Company's obligation to file periodic reports with the Commission
pursuant to the Exchange Act may be suspended if the Notes are held of record
by fewer than 300 Holders at the beginning of the fiscal year of the Company,
other than the fiscal year in which the Registration Statement or any Shelf
Registration Statement (as defined) becomes effective. The Company has agreed
that, whether or not it is required to do so by the rules and regulations of
the Commission, for so long as any of the Notes remain outstanding, they will
furnish to the Holders of the Notes and submit to the Commission (unless the
Commission will not accept such materials) (i) all quarterly and annual
financial information that would be required to be contained in filings with
the Commission on Forms 10-Q and 10-K if the Company was required to file such
forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company' certified independent
accountants, and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company was required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available upon request to any prospective purchaser of, or
beneficial owner of Notes in connection with any offer or sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
iii
<PAGE>
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER
FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS," BEGINNING ON PAGE 12
OF THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO CAREFULLY CONSIDER
SUCH FACTORS.
----------------
Certain statistical data included in this Prospectus has been derived from a
publicly available study authorized by the Association for Suppliers of
Printing and Publishing Technologies prepared by the research firm Mills Davis
(the "Mills Davis Report"), a publicly available paper published in the
Proceedings of the International Society for Optical Engineering, Volume 2165,
titled "Can Hospitals Afford Digital Storage for Imagery?" (the "SPIE Paper")
and a publicly available paper published by GISTICS Incorporated titled "Media
Asset Management Market Report--Key Trends, Opportunities and Challenges for
1998" (the "GISTICS Brief"). The Company has retained Morlok Research to
extrapolate certain information from the Mills Davis Report and apply it to
the Company's target markets (the "Morlok Research"). Although the Company
believes the assumptions made in the Mills Davis Report, the SPIE Paper, the
GISTICS Brief and the Morlok Research are reasonable, no assurance can be
given that such assumptions will prove accurate. Although believed by the
Company to be reliable, no representation is made, nor any assurance given, by
the Company as to the accuracy of the information contained in the Mills Davis
Report, the SPIE Paper, the GISTICS Brief or the Morlok Research.
WAM!NET (R), ! (R) (stylized exclamation mark, design only), WAM!PROOF(TM),
WAM!BASE(TM), Industry Smart(TM), Industry Smart Network(TM), and Industry
Smart Application(TM) are trademarks of the Company or its subsidiaries.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information.................................................... iii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 12
Use of Proceeds.......................................................... 21
The Exchange Offer....................................................... 22
Capitalization........................................................... 30
Selected Financial Data.................................................. 31
Pro Forma Financial Data................................................. 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Business................................................................. 44
Management............................................................... 60
Ownership of the Company................................................. 66
Certain Transactions and Relationships................................... 67
Description of the Company's Securities.................................. 71
Description of Certain Indebtedness...................................... 75
Description of the Notes................................................. 77
Note Registration Rights................................................. 104
Book Entry; Delivery and Form............................................ 106
Certain Federal Income Tax Considerations................................ 108
Plan of Distribution..................................................... 112
Legal Matters............................................................ 113
Experts.................................................................. 113
Index to Financial Statements............................................ F-1
Glossary................................................................. A-1
</TABLE>
v
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Certain
capitalized terms used but not defined in this summary are used herein as
defined elsewhere in this Prospectus. Unless the context otherwise requires,
references herein to "WAM!NET" or the "Company" are to WAM!NET Inc. (formerly
known as NetCo Communications Corporation), a Minnesota corporation, and its
subsidiaries. Capitalized terms used in this Prospectus, which are not
otherwise defined herein, have the respective meanings ascribed to them in
"Glossary." All Common Stock share and per share amounts in this Prospectus
have been adjusted to reflect a five-for-one stock split which occurred on
February 26, 1998. See the "Risk Factors" included in this Prospectus for a
description of certain factors that should be considered by participants in the
Exchange Offer. See "Risk Factors--Forward-Looking Statements" for certain
information relating to statements contained in this Prospectus that are not
historical facts.
THE COMPANY
OVERVIEW
WAM!NET provides a managed, high speed digital data delivery network service
(the "WAM!NET(R) Service") that integrates the Company's industry-specific work
flow applications with commercially available computer and telephony
technologies. The Company, an affiliate of WorldCom Inc. ("WorldCom"), offers
an "Industry Smart(TM)" service designed to provide its subscribers with a
turn-key single source solution for the rapid, secure, accurate and reliable
transportation and management of information, with a simple "pay by the
megabyte" pricing plan requiring no capital investment. The WAM!NET Service
provides seamless digital connectivity among "communities of interest," drawing
together customers and trading partners which have collaborative work flows.
The Company has developed advanced WAM!NET Service applications, including an
on-line digital job tracking and billing system (Customer Information System or
"CIS"), an application enabling remote proofing ("WAM!PROOF(TM)") and a remote
data archiving, retrieval and distribution system ("WAM!BASE(TM)"). WAM!PROOF
was commercially released in the second quarter of 1998 and WAM!BASE is
scheduled for commercial release in the second half of 1998.
The Company has initially capitalized on the growing need for managed digital
data delivery services in the printing, publishing, advertising, pre-press,
corporate communication and graphic arts industries (collectively, "Graphic
Arts"). The Company believes that the WAM!NET Service is achieving wide
acceptance among leading firms within the Graphic Arts community of interest,
which in turn encourages those with whom such firms share digital information
to subscribe to the WAM!NET Service. Since it commercially released and
commenced marketing of the WAM!NET Service in March 1996, the Company has
established a subscriber base of more than 1,500 customer locations, including
at Time Inc. ("Time"), R.R. Donnelley & Sons Company ("Donnelley"), The Walt
Disney Company ("Disney"), J.C. Penney Company, Inc. ("J.C. Penney"), Fox
Broadcasting Company ("Fox Broadcasting") and Macy's West (formerly known as
Macy's California) department stores ("Macy's"). In October 1997, the WAM!NET
Service received the Graphic Arts Technical Foundation (an independent trade
association) award for the product or service that will most likely change the
manner in which the Graphic Arts industry conducts business.
MARKET OPPORTUNITY
The Company believes that the increasing digitalization of work product and
work flow in data intensive and time sensitive industries is driving demand for
managed, secure and reliable electronic data transportation and archiving
services. Based on information derived from independent studies, the Company
believes that the Graphic Arts industry will spend approximately $10.0 billion
between 1998 and 2000 on the digitalization of its production and printing
process, including the introduction by commercial printers of computer-to-plate
1
<PAGE>
("CTP") technology, which facilitates a fully digital work product. Despite
this movement toward the digital creation, storage and outputting of data, the
lack of reliable, cost effective electronic transport mechanisms has resulted
in many companies continuing to use overland or air courier services to deliver
magnetic tape or optical disk copies of data to others who desire access to
such data. This non-digital step results in a method of transporting data which
can be inefficient, significantly lengthening production cycle time and leading
to possible errors. The Company believes the potential market for managed
digital data transportation and asset storage services is $4.3 billion and $2.3
billion, respectively, in the Graphic Arts industry alone.
The Company believes that existing electronic means for transporting large
digital data files have proven to be ineffective and/or prohibitively expensive
for most companies. Large files may take up to several days to transport using
the Internet or the fastest standard telephone modems (56,000 bps) and may lose
significant quality in transmission. The use of the Internet and standard
telephone modems can also lead to other significant disadvantages, most notably
high telephone usage charges and a lack of security, accountability and
reliability of transmission. Other non-dedicated technologies offer more speed
than the Internet or a standard telephone modem, but at a significantly higher
cost. Such technologies may also lead to data degradation and integration
obstacles. Large data files can be transported reliably in minutes over
dedicated point to point telephone lines (such as DS1 and DS3); however, the
substantial equipment necessary at each dedicated connecting point and the
sizable costs of leasing a dedicated point to point telephone line makes this
means of transport uneconomical for most companies transporting large data
files.
COMPETITIVE ADVANTAGES
The Company believes it is uniquely positioned to meet the growing need for a
cost-effective and reliable means of electronically transporting, storing and
retrieving digital data due to the following competitive advantages:
. Purpose-Built, Industry Smart Network. The WAM!NET Service operates via a
nationwide network that integrates the Company's proprietary, value-added
Industry Smart applications with a purpose-built network of Company owned
national, regional and local hubs ("Distribution Hubs") interconnected
redundantly with high-bandwidth leased telephone circuits (the "WAM!NET
Network"). The Company currently maintains 23 Distribution Hubs, located in
major United States and Canadian cities, London, England and Paris, France.
The Company operates two mirrored network operations centers ("NOCs") in
Minneapolis and Las Vegas through which it monitors all data transmission on
a 24 hour a day, 7 day a week basis. The Company believes the WAM!NET
Service offers reliable and secure data transmissions with no degradation in
quality and guaranteed delivery and throughput.
. Single Source, Turn-Key Service Solution. The Company provides each
subscriber with all of the hardware, software, transmission facilities and
management services necessary to use the WAM!NET Service. Installation of
the service, which is performed on behalf of the Company by national service
providers, consists of connecting the customer to the nearest Distribution
Hub through a Company-owned network access device ("NAD") and an appropriate
communications link (such as T1, ISDN, frame relay, ADSL or other suitable
facility) matched to the customer's transfer speed and throughput
requirements. The WAM!NET Service is designed for ease of use, with a point
and click e-mail type interface and a simple "pay by the megabyte" pricing
model. The Company's strategy is to offer customers the WAM!NET Service at
rates competitive with overland and air courier services furnished on an
annual or multi-year subscription basis. There is no up-front capital
investment by the customer, who is charged based on a minimum monthly usage
fee and volume of data sent per transaction.
. Industry Smart Applications. The Company collaborates with leading
participants in its target markets and designs applications addressing
industry-specific work product and work flow requirements. These Industry
Smart applications combined with the guaranteed delivery and throughput of
the WAM!NET Service allow work partners in distant geographic locations to
collaborate digitally in real time. The WAM!PROOF
2
<PAGE>
application will allow customers to directly output across the WAM!NET
Network to proofing devices in remote locations, thereby eliminating the
need to deliver physical proofs by overnight courier. The WAM!BASE
application will provide a collaborative digital asset management service
that can eliminate the need for redundant archives and shrink work cycle
time by providing more immediate access to desired data files.
. Customer Support and CIS. The Company has implemented extensive customer
service functions, including customer support technicians who are available
24 hours a day, 7 days a week, are trained extensively in the Company's
service offerings and who understand the industry-specific work flow of the
Company's customers. CIS allows customers to view data files, verify
account information and check the status of transactions on-line, as well
as to log help requests. The Company provides its customers itemized
information regarding the size, cost, and destination of each "shipment"
that may be electronically imported directly into the customer's own
accounting system, which facilitates capturing of project-specific costs
and billing of services on a job-by-job basis.
. First to Market Advantage. By being the first to market a managed, high
speed digital data delivery network with Industry Smart applications, the
Company believes it is becoming the industry standard in the Graphic Arts
industry and is positioned to become the industry standard in its other
target industries. The Company has found that industry leaders such as Time
and Donnelley (early WAM!NET Service customers) actively encourage their
work flow partners to subscribe to the WAM!NET Service to increase work
flow efficiencies. Potential entrants into the managed digital data
delivery field would need to deploy a nationwide, purpose-built network
integrated with customized value-added applications, and simultaneously
convert industry leaders and their work flow partners, more than 900 of
whom have contracted with the Company for the WAM!NET Service at more than
1,500 locations. Customers currently subscribing to the WAM!NET Service
include 11 of the 20 largest publishers, 9 of the 20 largest printers, 16
of the 20 largest advertising agencies, and 10 of the 20 largest pre-press-
graphic arts agencies in the United States, as well as the corporate
communications and advertising departments of many United States
corporations.
. Strategic Relationship with WorldCom. The Company has entered into a
strategic alliance with WorldCom which includes equity and debt investments
and operating loan guarantees totaling approximately $50 million. WorldCom
is currently entitled to designate a majority of the Board of Directors of
the Company and, through its ownership of convertible debt and warrants,
has the right to acquire a majority of the Common Stock of the Company.
WorldCom also provides telecommunication and other services to the Company
on a non-exclusive basis. The Company anticipates that its relationship
with WorldCom will enable it to access the worldwide infrastructure, sales
and marketing work force, telephony technologies, high bandwidth carrier
service and other services of WorldCom and its affiliates, including UUNet
Technologies, Inc. ("UUNet").
BUSINESS STRATEGY
The Company's objective is to become the leading provider of enhanced,
managed digital data delivery and archiving services to industries comprised
of interdependent participants requiring industry specific, high speed digital
connectivity. WAM!NET's strategy to achieve this objective and to build a
long-term sustainable competitive advantage is to:
. Increase its Customer Base to Create Critical Mass. The Company's sales and
marketing strategy has been designed to rapidly penetrate its initial
target market, the Graphic Arts industry. Elements of this strategy
include: (i) creating the WAM!NET Service as a turn-key, single source
service solution; (ii) implementing an easy to understand "pay by the
megabyte" pricing model (which eliminates the need for any capital
investment by customers); (iii) designing aggressive advertising, trade
show, event marketing and direct selling to drive trials, including
introductory risk-free product evaluations for industry leaders; (iv)
building a direct sales force to target leading industry participants who,
in turn, encourage their work
3
<PAGE>
flow partners to subscribe to the WAM!NET Service; and (v) implementing
programs in which large receivers of data (e.g., printers) promote and
market the WAM!NET Service, along with the WAM!NET direct sales force, to
customers and work flow partners. The Company believes that the customer
benefits of the WAM!NET Service will increase exponentially as the total
number of WAM!NET Service subscribers increases.
. Apply Industry Smart Network Model to Other Industries. The Company
believes that the WAM!NET Industry Smart network model can provide the
benefits and advantages it offers the Graphic Arts industry to other
industries with similar data transportation, storage and retrieval
requirements. Some of the Company's customers that are in the entertainment
industry, such as Fox Broadcasting and Disney, currently subscribe to the
WAM!NET Service for their Graphic Arts-related needs. The Company is
presently developing Industry Smart applications suitable to the
entertainment industry and is developing corresponding marketing and sales
strategies. The Company is also collaborating with industry leaders in the
medical imaging industry to develop and implement Industry Smart
applications in connection with marketing to that industry.
. Drive Utilization Through Value-Added Services and Volume Discounts. The
Company incorporates, develops and implements value-added Industry Smart
applications for customers, such as CIS, WAM!PROOF and WAM!BASE, which the
Company believes will provide significant benefits to its customers and
stimulate increased usage of the WAM!NET Service. The Company also offers
volume discounts and a variety of promotional programs for industry leaders
to induce customers to send increasingly large volumes of data traffic
across the WAM!NET Network.
. Expand and Enhance Infrastructure and Develop Worldwide Capabilities. The
Company intends to invest in resources and systems to ensure that the
WAM!NET Network's operating infrastructure and support services provide
optimal digital connectivity to its subscribers in a guaranteed performance
and competitive rate environment. The Company is currently preparing to
expand into parts of Europe and Asia for the purpose of providing its
customers with desired international connectivity. The Company expects to
expand the WAM!NET Network into approximately 10 countries by the end of
1998, and will initially locate additional Distribution Hubs in London,
Frankfurt, Paris, Amsterdam, Milan, Tokyo, Hong Kong, and Sydney. The
London and Paris Distribution Hubs were recently installed and the Company
is currently in the process of installing a Distribution Hub in Amsterdam.
During 1998, the Company expects to further develop its international
service infrastructure by providing installation and customer support via
third parties, developing local sales and distribution relationships and
may establish additional Distribution Hubs and regional NOCs in selected
countries. The Company's acquisition of 4-Sight Limited ("4-Sight") will
permit subscribers, including 4-Sight's 30,000 customers in 44 countries,
to gain remote access to the WAM!NET Network through transmission software
being developed by 4-Sight. The Company may also establish its
international presence through other acquisitions, joint ventures or other
similar business transactions. See "Recent Developments."
. Reduce Costs and Improve Operating Margins. The Company seeks to reduce
costs and improve operating margins by (i) spreading the cost of installing
and operating the WAM!NET Network over a large base of customers; (ii)
designing the network to use more expensive hub equipment in a few national
and regional operational centers and less expensive equipment at each
customer site; (iii) deploying cost-reduced NADs for less volume intense
customers; (iv) pursuing programs to reduce the costs of capital equipment,
including obtaining mass purchasing discounts for network infrastructure
and customer premise equipment; (v) utilizing network management tools to
optimize existing and planned network capacity as volume increases and
traffic patterns begin to emerge; (vi) deploying new, lower-cost last mile
local loop technologies to connect customer sites to Distribution Hubs,
including wireless technologies and remote dial-up capabilities; and (vii)
deriving other incremental revenue from value-added services such as
WAM!BASE, which can be delivered over the existing WAM!NET Network
infrastructure. The Company also believes its operating margins will
improve as a result of anticipated cost reductions associated with
increasing competition in both the local and long distance markets.
4
<PAGE>
RECENT DEVELOPMENTS
On March 13, 1998, the Company purchased the entire share capital of 4-Sight
Limited, a private limited company incorporated under the laws of England and
Wales (the "4-Sight Acquisition"), for $20.0 million in cash, which was paid
out of the proceeds of the Initial Offering, and 2,500,000 shares of Common
Stock which, subject to the satisfaction of certain conditions, may be
increased to 3,250,000 shares of Common Stock.
4-Sight develops and distributes ISDN data transmission software and related
products and applications targeted to the Graphic Arts industry, with
particular emphasis on European, Asian and North American markets. 4-Sight
software users are generally responsible for all software and hardware
installation, procuring an ISDN telephony connection and verifying the
integrity of their files being sent over a public network infrastructure. The
Company believes that there are potential synergies in adapting and integrating
4-Sight's data transmission software into WAM!NET's managed network
infrastructure. At December 31, 1997, 4-Sight's customer base exceeded 30,000
locations, including 3,000 sites in the United States. The Company expects that
the 4-Sight Acquisition will enable the Company to achieve broader market
coverage in the Graphic Arts market by combining 4-Sight's international
presence and penetration of the lower volume user market with the Company's
domestic presence and penetration of the higher volume user market.
COMPANY HISTORY
The Company was incorporated in Minnesota in September 1994. From
incorporation through March 1996, the Company was principally engaged in the
development of the WAM!NET Service. In March 1996, the Company commercially
released and began marketing the WAM!NET Service. Between September and
December 1996, the Company entered into its strategic alliance with WorldCom.
In 1997, the Company expanded its marketing efforts, increased its sales and
installation of the WAM!NET Service, continued development of WAM!PROOF and
WAM!BASE and other advanced applications, and prepared for expansion into
overseas markets and for the application of WAM!NET Services to other targeted
industries. WAM!PROOF was commercially released in the second quarter of 1998
and WAM!BASE is currently scheduled for commercial release in the second half
of 1998.
The Company's principal executive offices are located at 6100 West 110th
Street, Minneapolis, Minnesota 55438. The Company's telephone number is (612)
886-5100; its facsimile number is (612) 885-0687; its Internet e-mail address
is [email protected]; and its homepage address on the world wide web is
www.wamnet.com.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.... The Company is offering to exchange up to $208,530,000
aggregate principal amount at maturity of 13 1/4%
Senior Discount Notes due 2005, Series B, for each
$1,000 in principal amount of outstanding 13 1/4%
Senior Discount Notes due 2005, Series A, that were
issued and sold in reliance upon an exemption from
registration under the Securities Act. The terms of the
Exchange Notes will be substantially identical in all
respects (including principal amount, interest rate,
maturity and ranking) to the terms of the Original
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that (i) the Exchange Notes will
be freely transferable by Holders thereof except as
provided herein (see "The Exchange Offer--Terms of the
Exchange" and "The Exchange Offer--Terms and Conditions
of the Letter of Transmittal") and (ii) the Exchange
Notes will be issued without any covenant regarding
registration under the Securities Act.
Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by Holders
thereof (other than any Holder which is (i) an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act, (ii) a broker-dealer who
acquired Original Notes directly from the Company or
(iii) broker-dealers who acquired Original Notes as a
result of market making or other trading activities)
without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that
such Exchange Notes are acquired in the ordinary course
of such Holders' business and such Holders are not
engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes.
Minimum Condition..... The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Original Notes being
tendered for exchange.
Expiration Date....... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1998 unless extended.
Exchange Date......... The first date of acceptance for exchange for the
Original Notes will be the first business day following
the Expiration Date.
Conditions to the
Exchange Offer.......
The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions. See
"The Exchange Offer--Conditions to the Exchange Offer."
The Company reserves the right to terminate or amend
the Exchange Offer at any time prior to the Expiration
Date upon the occurrence of any such condition.
Withdrawal Rights..... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Original Notes not accepted for
any reason will be returned without expense to the
tendering Holders thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Procedures for
Tendering Original
Notes................ See "The Exchange Offer--How to Tender."
6
<PAGE>
Federal Income Tax
Consequences......... The exchange of Original Notes for Exchange Notes by
Holders will not be a taxable exchange for federal
income tax purposes, and Holders should not recognize
any taxable gain or loss or any interest income as a
result of such exchange. See "Certain Federal Income
Tax Considerations."
Effect on Holders of
Original Notes....... As a result of the making of this Exchange Offer, and
upon acceptance for exchange of all validly tendered
Original Notes pursuant to the terms of this Exchange
Offer, the Company will have fulfilled a covenant
contained in the terms of the Original Notes and the
Registration Rights Agreement (the "Registration Rights
Agreement") dated as of March 5, 1998, among the
Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation
and First Chicago Capital Markets, Inc. (collectively,
the "Initial Purchasers"), and, accordingly, the
Holders of the Original Notes will have no further
registration or other rights under the Registration
Rights Agreement, except under certain limited
circumstances. See "Original Notes Registration
Rights." Holders of the Original Notes who do not
tender their Original Notes in the Exchange Offer will
continue to hold such Original Notes and will be
entitled to all the rights and limitations applicable
thereto under the Indenture, dated as of March 5, 1998
among the Company and U.S. Bank Trust National
Association (f/k/a First Trust National Association),
as Trustee (the "Trustee"), relating to the Original
Notes and the Exchange Notes (the "Indenture"). All
untendered, and tendered but unaccepted, Original Notes
will continue to be subject to the restrictions on
transfer provided for in the Original Notes and the
Indenture. To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Notes could be
adversely affected. See "Risk Factors--Consequences of
Failure to Exchange."
THE NOTES
Notes................. $208,530,000 aggregate principal amount at maturity of
13 1/4% Senior Discount Notes due 2005. The Original
Notes were issued on March 5, 1998 (the "Issue Date")
at a discount to their aggregate principal amount at
maturity and generated gross proceeds to the Company of
approximately $125.0 million. The yield to maturity of
the Notes is 14.59% (computed on a semi-annual bond
equivalent basis).
Maturity.............. March 1, 2005.
Interest.............. Cash interest does not accrue nor is payable on the
Notes prior to March 1, 2002. Thereafter, cash interest
on the Notes will accrue at a rate of 13 1/4% per annum
(calculated on a semi-annual bond equivalent basis) and
will be payable semi-annually in arrears on March 1 and
September 1 of each year, commencing September 1, 2002.
Ranking............... The Notes are general senior obligations of the Company
and, as such, rank pari passu in right of payment with
all existing and future unsecured and unsubordinated
Indebtedness of the Company. The Notes are effectively
subordinated to all secured Indebtedness of the Company
to the extent of the
7
<PAGE>
value of the assets securing such Indebtedness. As of
March 31, 1998, the Company had outstanding
approximately $10.4 million of secured Indebtedness
(consisting principally of equipment financing), which
effectively ranked senior in right of payment to the
Notes, no Indebtedness which ranked pari passu in right
of payment to the Notes and $25.9 million of
Indebtedness which would have been subordinated in
right of payment to the Notes. Although the Indenture
contains limitations on the amount of additional
Indebtedness which the Company may incur, under certain
circumstances the amount of such Indebtedness could be
substantial, and the Indenture does not limit the
amount of secured Permitted Equipment Financing that
may be incurred by the Company. See "Description of the
Notes--Ranking."
Subsidiary
Guarantees........... The Indenture provides that each Material Restricted
Subsidiary (as defined herein) will become a guarantor
of the Notes (a "Subsidiary Guarantor"). As of the date
hereof, the Company has no Material Restricted
Subsidiaries. The guarantees of the Subsidiary
Guarantors (collectively, the "Subsidiary Guarantees"),
if any, will be general unsecured senior obligations of
the Subsidiary Guarantors and will rank pari passu in
right of payment with all unsecured and unsubordinated
Indebtedness of the Subsidiary Guarantors and senior in
right of payment to all subordinated Indebtedness of
the Subsidiary Guarantors. The Subsidiary Guarantees
may be released under certain circumstances. See
"Description of the Notes--Certain Covenants--Issuances
of Guarantees by Certain Restricted Subsidiaries;
Release of Guarantees." The Subsidiary Guarantees are
limited to the extent of any payment that would
constitute a fraudulent transfer under federal or state
law. See "Risk Factors--Fraudulent Conveyance
Considerations Relating to Subsidiary Guarantees."
Optional Redemption... The Notes are redeemable at the option of the Company,
in whole or in part, at any time upon not less than 30
nor more than 60 days written notice, on or after March
1, 2002, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of
redemption. In addition, at any time prior to March 1,
2001 (i) the Company may redeem up to 25% of the
originally issued aggregate principal amount at
maturity of Notes, other than in any circumstance
resulting in a Change of Control, at a redemption price
equal to 113.25% of the Accreted Value of the Notes so
redeemed as of the date of redemption, with the net
cash proceeds of an Initial Public Equity Offering
resulting in gross cash proceeds to the Company of at
least $35.0 million in the aggregate; provided that not
less than 75% of the originally-issued aggregate
principal amount at maturity of Notes is outstanding
immediately following such redemption. See "Description
of the Notes--Redemption--Optional Redemption."
Change of Control..... In the event of a Change of Control, the Company is
required to make an offer to purchase all outstanding
Notes at a purchase price equal to 101% of the Accreted
Value thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase. See
"Description of the Notes--Certain Covenants--Change of
Control."
Asset Sale Offer...... The Company, subject to certain conditions, is
obligated to make an offer to purchase Notes with the
Net Cash Proceeds of certain Asset Sales at a purchase
price equal to 100% of the Accreted Value thereof, plus
accrued and
8
<PAGE>
unpaid interest thereon, if any, to the date of
purchase. See "Description of the Notes--Certain
Covenants--Disposition of Proceeds of Asset Sales."
Certain Covenants..... The Indenture contains certain covenants, including,
among others, covenants with respect to the following
matters: (i) limitation on additional indebtedness,
(ii) limitation on restricted payments, (iii)
limitation on liens securing certain indebtedness, (iv)
issuance of guarantees by certain Restricted
Subsidiaries; release of guarantees, (v) change of
control, (vi) limitation on dividends and other payment
restrictions affecting Restricted Subsidiaries, (vii)
disposition of proceeds of Asset Sales, (viii)
limitation on issuances and sales of capital stock of
Restricted Subsidiaries, (ix) limitation on
transactions with affiliates, (x) reports, (xi)
limitation on designations of Unrestricted
Subsidiaries, (xii) limitation on status as investment
company, and (xiii) consolidation, merger, sale of
assets, etc. These covenants are subject to important
exceptions and qualifications. See "Description of
Notes--Certain Covenants" and "--Consolidation, Merger,
Sale of Assets, Etc."
Exchange Offer; Note
Registration
Rights............... Pursuant to the Registration Rights Agreement, the
Company agreed (i) to file a registration statement
(the "Exchange Offer Registration Statement") with
respect to an offer to exchange the Original Notes (the
"Exchange Offer") for senior debt securities of the
Company with terms identical to the Original Notes (
i.e., the Exchange Notes) (except that the Exchange
Notes will not contain terms with respect to transfer
restrictions) on or prior to the 90th day after the
Issue Date, (ii) to use its best efforts to have the
Exchange Offer Registration Statement be declared
effective by the Commission on or prior to the 150th
day after the Issue Date and (iii) commence the
Exchange Offer and use its best efforts to issue the
Exchange Notes on or prior to the 30th day after the
date on which the Exchange Offer Registration Statement
was declared effective by the Commission. In the event
that applicable law or interpretations of the staff of
the Commission do not permit the Company to file the
Exchange Offer Registration Statement or to effect the
Exchange Offer, if the Exchange Offer is not for any
other reason consummated within 180 days after the
Issue Date or if certain holders of the Original Notes
notify the Company they are not permitted to
participate in, or would not receive freely tradable
Notes pursuant to, the Exchange Offer, the Company will
file and will use its best efforts to cause to become
effective a registration statement (the "Shelf
Registration Statement") with respect to the resale of
the Original Notes and to keep the Shelf Registration
effective until up to two years after the effective
date thereof. The Company may be required to make cash
payments to holders of Notes under certain
circumstances if the Company is not in compliance with
its obligations under the Registration Rights
Agreement. See "Note Registration Rights."
RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider all
of the information set forth in this Prospectus and, in particular, should
evaluate the specific risk factors set forth under "Risk Factors," beginning on
page 12, for a discussion of certain risks involved in the Exchange Offer.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth (i) selected historical consolidated financial
data for the Company and its subsidiaries for each of the years in the three
year period ended December 31, 1997, and for the three month periods ended
March 31, 1997 and 1998, (ii) selected historical consolidated financial data
for 4-Sight and its subsidiaries for the year ended August 31, 1996, the month
ended September 30, 1996, the year ended September 30, 1997 and the twelve
months ended December 31, 1997 and (iii) selected pro forma financial data that
gives effect to the Offering and the 4-Sight Acquisition as if they had
occurred on January 1, 1997. The 4-Sight Acquisition occurred on March 13, 1998
and the operating results of 4-Sight are included in the Company's operating
results from that date through March 31, 1998. The Company's summary historical
consolidated financial data as of and for the three months ended March 31, 1997
and 1998 and 4-Sight's selected historical consolidated financial data as of
and for the twelve months ended December 31, 1997 have been derived from the
respective companies' unaudited financial statements and have been prepared on
the same basis as the historical information derived from audited financial
statements. In the opinion of the management of the Company and the management
of 4-Sight, the unaudited financial statements of the respective companies,
from which such data have been derived, contain all adjustments, consisting
only of normal recurring accruals, necessary for the fair presentation of the
results for and as of the end of such periods. The Company's development and
expansion activities during the periods presented below significantly affect
the period-to-period comparability of the historical data presented for the
Company. The historical data with respect to the three months ended March 31,
1998 should not be regarded as necessarily indicative of the results that may
be expected for the entire year. The following information is qualified in its
entirety by, and should be read in conjunction with, the consolidated financial
statements and the notes thereto of the Company and 4-Sight, "Pro Forma
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
WAM!NET INC.
---------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ 180 $ 279 $ 1,555 $ 122 $ 1,880
Operating expenses......... 1,437 7,036 31,037 4,205 25,412
Operating income (loss).... (1,257) (6,757) (29,482) (4,083) (23,532)
Interest income (expense),
net....................... (20) (839) (4,154) (628) (3,151)
Income (loss) before income
taxes..................... (1,277) (7,596) (33,636) (4,711) (26,683)
Net income (loss).......... (1,277) (7,596) (33,636) (4,711) (26,683)
OTHER DATA:
EBITDA(1).................. $(1,226) $(6,310) $(26,814) $(3,796) $(21,611)
Depreciation and
amortization.............. 31 447 2,668 287 1,921
Capital expenditures....... 657 4,244 16,599 3,904 10,143
Net cash used in operating
activities................ (747) (6,218) (23,917) (3,345) (9,743)
Net cash used in investing
activities................ (657) (5,244) (15,599) (2,904) (30,396)
Net cash provided by (used
in) financing activities.. 2,732 24,578 25,346 (1,096) 102,687
Ratio of earnings to fixed
charges(2)................ -- -- -- -- --
BALANCE SHEET DATA (END OF
PERIOD):
Cash and cash equivalents.. $ 1,328 $15,444 $ 274 $ 7,099 $ 66,760
Total assets............... 2,075 20,070 21,086 15,390 137,770
Total debt(3).............. 1,900 20,473 45,778 20,049 143,478
Shareholders' deficit(4)... (371) (2,683) (30,671) (6,412) (15,316)
</TABLE>
Footnotes on the following page.
10
<PAGE>
<TABLE>
<CAPTION>
4-SIGHT LIMITED
-----------------------------------------------------------------------------
TWELVE MONTHS
YEAR ENDED MONTH ENDED YEAR ENDED ENDED
AUGUST 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997(5) DECEMBER 31, 1997(6)
--------------- ------------------ --------------------- --------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $11,446 $1,065 $18,264 $19,278
Operating expenses...... 9,380 1,124 15,817 16,031
Operating income
(loss)................. 2,066 (59) 2,447 3,247
Interest income
(expense), net......... 18 (9) 57 140
Income (loss) before
income taxes........... 2,084 (68) 2,504 3,387
Net income (loss)....... 1,478 (61) 1,588 2,109
OTHER DATA:
EBITDA(1)............... $ 2,372 $ (20) $ 3,050 $ 3,874
Depreciation and
amortization........... 306 39 603 627
Capital expenditures.... 465 87 545 636
Net cash provided by
(used in) operating
activities............. 380 (759) 707 1,626
Net cash used in
investing activities... (327) (87) (540) (633)
Net cash provided by
(used in) financing
activities............. (249) (5) 3,380 3,128
Ratio of earnings to
fixed charges(2)....... 39.6x -- 42.7x 100.6x
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents............ $ 1,290 $ 439 $ 3,986 $ 4,253
Total assets............ 6,927 6.095 10,473 11,382
Total debt(3)........... 225 267 206 332
Shareholders' equity.... 2,565 2,531 2.554 3,165
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(7)
---------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 20,833 $ 5,363
Operating expenses.................................. 53,483 30,064
Operating income (loss)............................. (32,650) (24,707)
Interest income (expense), net...................... (26,828) (6,035)
Net income (loss)................................... (60,756) (30,967)
OPERATING AND OTHER DATA:
EBITDA(1)........................................... $(22,940) $(21,381)
Depreciation and amortization....................... 11,359 3,320
Capital expenditures................................ 17,235 10,143
Ratio of earnings to fixed charges(2)............... -- --
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents........................... $ 84,146 --
Total assets........................................ 149,916 --
Total debt(3)....................................... 146,291 --
Shareholders' equity (deficit)...................... (4,983)(4) --
</TABLE>
- --------
(1) EBITDA represents earnings (loss) from operations before taking into
consideration net interest expense, income tax expense, depreciation
expense and amortization expense. The Company has included information
concerning EBITDA as it is used by certain investors as a measure of a
company's ability to service its debt. EBITDA should not be considered as
an alternative to net income or any other measure of performance or
liquidity as determined in accordance with generally accepted accounting
principles or as an indicator of the Company's overall financial
performance.
(2) The ratio of earnings to fixed charges is calculated by dividing (i) net
income (loss) before taxes plus fixed charges by (ii) fixed charges. Fixed
charges consist of interest incurred and the portion of rent expense which
is deemed representative of interest. Earnings were insufficient to cover
fixed charges by $1,242, $6,653 and $29,180 for the Company for the years
ended December 31, 1995, 1996 and 1997, and $3,907 and $23,184 for the
three month period ending March 31, 1997 and 1998, and $33,433 for the pro
forma financial data for the year ended December 31, 1997 and $32,448 for
the pro forma financial data for the three month period ended March 31,
1998, respectively.
(3) Total debt includes long-term debt, current portion of long-term debt and
obligations under capitalized leases, net of the unamortized value of
warrants issued to debtholders.
(4) The estimated value of warrants issued to debtholders and of options issued
to consultants is reflected as both a debt discount and an element of paid
in capital.
(5) 4-Sight changed its fiscal year end to September 30 during 1997.
(6) 4-Sight's fiscal year ends on September 30. The financial data of 4-Sight
for the twelve months ended December 31, 1997 is presented for comparative
purposes and in connection with the pro forma data.
(7) The pro forma financial data is not necessarily indicative of either future
results of operations or the results that might have occurred if the
foregoing transactions had been consummated on the indicated dates.
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RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider the
following risk factors, as well as other information contained in this
Prospectus, before participating in the Exchange Offer. This Prospectus
contains statements which constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the
Company, its directors or its officers, primarily with respect to the future
operating performance of the Company. Prospective participants in the Exchange
Offer are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors. The accompanying information
contained in this Prospectus, including the information set forth below,
identifies important factors that could cause such differences. See "--
Forward-Looking Statements" below.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Company
does not intend to register the Original Notes under the Securities Act. In
addition, any Holder of Original Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent
Original Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for the Original Notes not tendered could be adversely
affected. See "Note Registration Rights."
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; NO ASSURANCE OF PROFITABILITY
The Company was formed in September 1994 and has a limited history of
operations. It began operations in March 1995 and has operated at a net loss
since inception. The Company expects to incur substantial losses for the
foreseeable future as it continues to expand the WAM!NET Network, develop
other products and applications and improve and market its services. The
Company incurs significant sales commissions and installation costs as
customers initially subscribe to the WAM!NET Service. As part of its sales and
marketing efforts, the Company offers certain customers, including potentially
influential industry leaders, free service for an initial evaluation period.
Accordingly, management expects that operating costs will remain high as a
percentage of revenue as the Company seeks to continue its rapid growth in
subscribers. Since the Company's inception on September 9, 1994, the Company
has incurred operating losses of $61.0 million and as of March 31, 1998 had a
shareholders' deficit of $15.3 million. The likelihood of the Company
achieving profitability must be considered in light of the problems frequently
encountered by a new business and the competitive environment in which the
Company operates. To keep the price of the WAM!NET Service competitive, the
Company must enter into service contracts with and retain additional customers
which will enable the Company to increasingly spread the fixed costs of the
WAM!NET Service over many customers. There can be no assurance that the
Company will develop an adequate revenue generating customer base or will
achieve or sustain profitability or generate sufficient positive operating
cash flow to service its debt. See "--Requirements for Additional Capital,"
"--Competition; Technological Change," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the Company's
consolidated financial statements, including the notes thereto, included
elsewhere herein.
REQUIREMENTS FOR ADDITIONAL CAPITAL
The Company's ability to meet its projected growth is dependent upon its
ability to secure substantial additional financing in the future. The Company
expects to meet its additional capital needs with the proceeds
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from sales or issuance of equity securities, credit facilities and other
borrowings, or additional debt securities, each to the extent permissible
under the Indenture. See "Description of the Notes--Certain Covenants." The
Company also intends to pursue one or more financings in 1998 totalling
approximately $100.0 million, for which it has received indications of
interest from certain financial institutions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." The Company believes that the net proceeds of the Initial
Offering and such financings, together with expected cash from operations,
will be sufficient to fund the Company's operations through September 30,
1999. There can be no assurance that the Company will be able to obtain such
financing if and when it is needed or that, if available, such financing will
be on terms acceptable to the Company. Further, there can be no assurance that
expenses will not exceed the Company's estimate or that the financing need
will not likewise be higher. If the Company is unable to obtain additional
financing when needed, it may be required to significantly scale back
expansion plans and, depending upon cash flow from its existing business,
reduce the scope of its plans and operations. Any additional debt financing,
if available, may involve restrictive covenants that attempt to address
interests different than those of the holders of the Notes. Further, there can
be no assurance that such covenants will not adversely affect the Company's
ability to finance its future operations or capital needs or to engage in
other business activities that may be in the interest of the Company. The
Company's financing needs may vary significantly from its current expectations
if it is unable to generate anticipated cash flows or if the Company requires
more funds for equipment investments than it currently anticipates,
particularly as a result of future network infrastructure installation
requirements. No assurance can be given that the Company's current
expectations regarding its cash needs will prove accurate, and there can be no
assurance that the Company's operations will produce positive cash flow in
sufficient amounts to service the Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
LEVERAGE AND DEBT SERVICE
The Company is highly leveraged. As of March 31, 1998, the Company had
approximately $161.5 million of Indebtedness. As a result of the substantial
indebtedness of the Company following the Initial Offering, fixed charges are
expected to exceed its operating cash flow for the foreseeable future and
there can be no assurance that the Company's operating cash flow will be
sufficient to pay cash debt service on the Notes when cash interest begins to
accrue on the Notes commencing 2002. In addition, the Indenture permits the
Company to incur additional indebtedness under certain conditions, including
an unlimited amount of secured equipment financing. The leveraged nature of
the Company could limit the ability of the Company to effect future financings
or may otherwise restrict the Company's activities. Substantial leverage poses
the risk that the Company may not be able to generate sufficient cash flow to
service its indebtedness, including the Notes, and to adequately fund its
operations. See "Description of the Notes--Ranking."
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may
be impaired in the future; (ii) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of debt service, thereby
reducing the funds available to the Company for other purposes; (iii) the
Company's leverage may hinder its ability to adjust rapidly to changing market
conditions; and (iv) the Company's leverage could make the Company more
vulnerable in the event of a downturn in general economic conditions or in its
business.
RISKS ASSOCIATED WITH A CHANGE OF CONTROL
The Indenture contains provisions relating to certain events constituting a
"change of control" of the Company. Upon the occurrence of such a change of
control, the Company would be obligated to make an offer to purchase all of
the Notes then outstanding at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of purchase.
There can be no assurance that the Company would have sufficient funds, or be
able to obtain such funds on commercially reasonable terms, to purchase all of
the Notes tendered pursuant to such an offer. A failure by the Company to
purchase all Notes validly tendered pursuant to such an offer would result in
an Event of Default under the Notes and could result in an event of
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default under other indebtedness of the Company. See "Description of the
Notes--Certain Covenants--Change of Control."
RISK OF NETWORK FAILURE; LIABILITY FOR DATA
The Company's operations are dependent upon its ability to protect its
network infrastructure against damage from natural disasters, power loss,
telecommunications failures and similar events. Despite the current redundancy
of the WAM!NET Service's infrastructure (other than from a customer's NAD to a
Distribution Hub), and other precautions taken by the Company, the occurrence
of a natural disaster or other unanticipated problem could cause interruptions
to the WAM!NET Service. Additionally, failure of the Company's
telecommunications providers to provide the telephony capacity required by the
Company as a result of operational disruption or for any other reason could
cause interruptions in the services provided by the Company.
The WAM!NET Service uses an assemblage of telecommunications equipment,
software, operating protocols and proprietary applications for high speed
transportation of large quantities of digital data among multiple locations.
Given the complexity of the WAM!NET Service, it is possible that data files
may be lost or distorted. Moreover, most of the Company's customers' needs are
extremely time sensitive, and delays in data delivery may cause significant
losses to a customer using the WAM!NET Service. The WAM!NET Service and future
enhancements or adaptations may contain undetected design faults and software
"bugs" that, despite testing by the Company, are discovered only after the
WAM!NET Service has been installed and used by customers. The failure of any
equipment or facility on the WAM!NET Network could result in the interruption
of service to the customers serviced by such equipment or facility until
necessary repairs are effected or replacement equipment is installed. Such
failures, faults or errors could cause delays or require modifications that
could have a material adverse effect on the Company's business, financial
condition, competitive position and results of operations.
Although the Company's contracts with most WAM!NET Service subscribers limit
the Company's liability for damages resulting from any failure in the
transportation of data to $100 per transmission, with a maximum liability
equal to the subscriber's monthly maximum subscription rate, the Company may
nevertheless be subject to significant claims for data losses or delays in the
transportation of data over the WAM!NET Network. In addition to general
business liability coverage, the Company presently maintains errors and
omissions insurance coverage in the amount of $1.0 million per occurrence and
$5.0 million for all occurrences relating to the transportation of data over
the WAM!NET Network. There can be no assurance that this amount of insurance
coverage will be adequate to cover all data loss claims, or that additional
coverage will be available on affordable terms to the Company. See "Business--
Liability and Insurance."
SECURITY RISKS
Despite the WAM!NET Service's extensive security measures, including audit
software that constantly monitors security breaches or tampering, the WAM!NET
Service is vulnerable to unauthorized access, computer viruses and other
disruptive problems. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
the Company's customers which could have a material adverse effect on the
Company's business, financial condition, competitive position and results of
operations.
DEPENDENCE UPON NETWORK INFRASTRUCTURE AND AVAILABLE BANDWIDTH
The Company's ability to generate positive cash flows from operations will
depend upon its ability to increase its existing subscriber base, which is a
function, in part, of its ability to expand its national network
infrastructure and support services in order to supply enhanced capacity,
reliability and security to subscribers at an acceptable cost. The continued
development and expansion of the Company's national network will require that
it enter into additional agreements, on acceptable terms and conditions, with
various providers of infrastructure capacity and equipment and support
services. No assurance can be given that any or all of the requisite
agreements can be obtained on satisfactory terms and conditions.
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The Company anticipates that future expansions and adaptation of its network
infrastructure may be necessary in order to respond to growth in the number of
customers served, increased demands to transmit larger amounts of data and
changes to its customers' service requirements as customers become more
familiar and comfortable with the WAM!NET Service and its various
applications. The expansion and adaptation of the Company's network
infrastructure will require substantial financial, operational and managerial
resources. There can be no assurance that the Company will be able to expand
or adapt its network infrastructure to meet the evolving standards or demands
of its targeted industries and customers and changing requirements on a timely
basis, at a commercially reasonable cost, if at all, or that the Company will
be able to deploy successfully any expanded and adapted network
infrastructure.
REGULATORY MATTERS
North America. The Company purchases telephone equipment, routers and relays
that are used in the WAM!NET Network from manufacturers and combines that
equipment with Company provided software and telephone circuits provided by
common carriers regulated by the Federal Communications Commission ("FCC"),
the Canadian Radio-Television and Telecommunications Commission ("CRTC") and
various state regulatory agencies. The Company believes that under the FCC's
interpretation of the Communications Act of 1934, as amended, the services
which it offers to its customers are interstate information (enhanced)
services. Consequently, it is not required to obtain licenses or other
approvals from the FCC or state regulatory agencies to offer such services. If
the Company's services were deemed to be intrastate services, certain state
regulatory agencies might seek to assert jurisdiction over the Company's
offerings. If that were to occur, the Company could be required to expend
substantial time and money to acquire the appropriate licenses and to comply
with state regulations. The Company also believes that under the CRTC's
interpretation of Canadian law, the services that the Company offers do not
require it to obtain telecommunications permits or approvals in Canada.
Worldwide. The Company believes that European Union directives require that
member states permit the provision of the Company's services on a competitive
basis. Bilateral agreements have been negotiated between the United States and
Japan and the United States and Hong Kong which encourage cross-border
provision of enhanced services like those offered by the Company. Pursuant to
commitments in the World Trade Organization's ("WTO") General Agreement on
Trade in Services, over 50 governments have agreed to permit provision of
enhanced services (i.e., value-added) by nationals of WTO member countries.
Nevertheless, certain other countries in Europe, Asia and elsewhere might seek
to license and regulate the Company's services. Any such license or regulation
may limit, delay or increase the costs of operations associated with
international locations to which the Company may desire to expand.
Medical Imaging. The Company intends to offer its WAM!NET Service and
WAM!BASE service as medical imaging applications for transmitting, storing and
retrieving medical data for primary diagnostic purposes. Any medical imaging
application offered for primary diagnostic purposes is required to comply with
the Food, Drug and Cosmetic Act, as amended (the "Food and Drug Act"), and
regulations promulgated thereunder by the Food and Drug Administration (the
"FDA"). Under proposed FDA rules, the Company's storage and transmission
facilities would likely be classified as Class I devices that do not perform
"irreversible data compression," which would be exempt from the premarket
notification procedures under the Food and Drug Act, and could therefore be
marketed without pre-approval from the FDA. The Company's proprietary software
applications, however, which operate the storage and retrieval function of the
WAM!NET Network's components, would likely be classified as Class II devices.
In January 1998 the Company submitted a Premarket Notification 510(k) to the
FDA to obtain marketing clearance from the FDA. The Company has adapted the
medical imaging applications of its WAM!NET Service and WAM!BASE services to
conform to the Digital Imaging and Communications in Medicine ("DICOM")
industry standards, which are the standards used by other medical imaging
providers who have received FDA marketing clearance for their medical imaging
devices and applications. There can be no assurance that the FDA will approve
the Company's 510(k) submission or grant marketing clearance for the Company's
medical imaging application in a timely fashion, if at all. See "Business--
Government Regulation."
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DEPENDENCE ON MANAGEMENT
The Company is dependent primarily on the services of Edward J. Driscoll
III, its Chief Executive Officer, and is also dependent on the services of
certain of its other officers and significant employees. The loss of the
services of any of these persons could have a material adverse effect on the
Company. The Company has employment agreements with substantially all of its
officers and significant employees, including Mr. Driscoll, and has purchased
life insurance policies on certain employees, including Mr. Driscoll. See
"Management." The Company believes its future success will depend in large
part on its ability to retain the services of these personnel and to attract
and retain qualified technical and marketing personnel. There can be no
assurance that the Company will be able to continue to attract and retain the
personnel necessary for the successful conduct of its business.
RAPID EXPANSION; MANAGEMENT OF GROWTH
The Company rapidly expanded its distribution network and added subscribers
to the WAM!NET Service during fiscal 1997, and must continue to aggressively
expand its network and add subscribers in order to achieve its business
objectives. During 1998, the Company intends to expand the WAM!NET Service
into international markets. Whether the Company can meet its goal of
increasing its customer base while maintaining its price structure and
managing costs will depend upon, among other things, the Company's ability to
manage its growth effectively. To manage growth effectively, the Company must
continue to develop its sales force, external installation capability,
customer service teams and information systems, and must maintain its
relationships with third-party vendors. The Company's management will also be
required to assume greater levels of responsibility. If the Company is unable
to manage its growth effectively, the Company's business and results of
operations could be materially adversely affected.
The 4-Sight Acquisition will require the management of the Company and 4-
Sight to spend substantial time integrating the network operations of the
Company with the software transmission and services business of 4-Sight. 4-
Sight's transmission software and services are sold primarily to customers
with lower bandwidth and throughput requirements than that needed by most
current subscribers to the WAM!NET Service. Also, the use of 4-Sight's current
products requires the use of ISDN lines.
DEPENDENCE ON THIRD-PARTY SUPPLIERS FOR EQUIPMENT AND SERVICES
The Company is dependent on its third-party local and long distance carriers
and on third-party suppliers of the computers, software, routers and related
components that the Company assembles and integrates into the WAM!NET Service.
Most of these supplier arrangements are for terms of less than one year and
are terminable by the other party in certain circumstances. The Company is
also dependent on the services of third parties with whom it has contracted or
may contract in the future for customer site installations, routine
maintenance and on-call repair services. While the Company believes that its
relationships with these vendors and suppliers are satisfactory, and that
suitable alternative products and services are available, the Company may
experience delays and additional costs if any of these relationships is
terminated and the Company is unable to reach suitable agreements with
alternate vendors, suppliers or carriers in a timely manner. Furthermore, to
the extent that the Company is unable to secure suitable installation,
maintenance or on call repair services from third-party vendors, the Company
may be required to substantially increase its own work force to perform these
services, and the Company's growth may be constrained while it builds and
trains that work force. See "Business--Supplier Relationships."
The Company has historically experienced a 60 to 90 day delay in obtaining
telephone line extensions at subscriber premises following the execution of a
WAM!NET Service contract. There can be no assurance that the Company will be
able to obtain such telephone lines on the scale and within the time frames
required by the Company at a commercially reasonable cost, or at all.
AFFILIATION OF WORLDCOM
Through its ownership of debt and equity securities of the Company, as well
as its designation of a majority of the directors of the Board of Directors of
the Company, WorldCom has the ability to exercise considerable
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influence and control over the affairs of the Company. Other than as required
under Minnesota law, no formal policies or guidelines have been adopted by the
Board of Directors of the Company to deal with Board actions that may involve
actual or potential conflicts of interest between the Company and WorldCom. No
assurance can be given that any conflict of interest that may arise will not
be resolved in a manner adverse to the holders of Notes. In addition, WorldCom
and its affiliates are non-exclusive suppliers of telecommunication and other
services to the Company. The Company has no contractual right to obtain
technological assistance from WorldCom. WorldCom has no obligation to
contribute funds to the Company (except with respect to its obligations in
connection with the Company's contractual relationship with Time and under the
Company's revolving credit facility (the "Revolving Credit Facility"), which
obligations are described herein under "Certain Transactions and
Relationships"), maintain its equity interest in the Company or support any
obligation of the Company with respect to the Notes. Further, a loss of its
strategic relationship with WorldCom could have a materially adverse effect on
the business and operations of the Company and on the market for the Notes.
See "Certain Transactions and Relationships."
COMPETITION; TECHNOLOGICAL CHANGE
The Company operates in a highly competitive industry which includes many
companies that have greater resources and market presence than the Company.
The Company's potential competitors have invested and continue to invest
substantial sums in research and development which may result in products and
services that have a competitive advantage over the WAM!NET Service. A new
service called the Graphic Arts Digital Network, which will be a direct
competitor of the WAM!NET Service, has been announced but not yet released. As
announced, the service will be provided by a joint venture between British
Telecommunications and Scytek Inc. ("Scytek"). There are relatively few
barriers to entry into the marketplace for the high speed delivery of digital
data files, and additional competitors could enter the market at any time. The
Company is also at risk from fundamental technological changes in the way
connectivity solutions are marketed and delivered. As is typical in the case
of a new and evolving industry characterized by rapidly changing technology,
evolving industry standards and new product and service introductions, demand
and market acceptance for recently introduced products and services are
subject to uncertainty of customer acceptance. There can be no assurance that
the Company will be able to adapt to future technological changes or that
developments by competitors will not render the WAM!NET Service and related
services obsolete or noncompetitive. See "Business--Competition" and "--
Intellectual Property and Proprietary Rights."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success may depend, in part, on its ability to maintain its
proprietary rights in certain technology underlying the WAM!NET Service and
related applications. The Company has applications for three United States
patents pending for certain aspects of its technology. To protect its
proprietary rights in the technology utilized in the WAM!NET Service, the
Company relies on a combination of trade secret and copyright protection as
well as patents. The Company also relies on trademark protection concerning
various names, marks, logos and other devices which serve to identify the
Company as the source for and originator of the WAM!NET Service and related
applications. The Company may choose not to apply for patent protection in all
foreign countries in which it eventually markets the WAM!NET Service.
Consequently, the Company's proprietary rights in the technology underlying
the WAM!NET Service and related applications will be protected only to the
extent that trade secret, copyright or other non-patent protection is
available in such countries and to the extent the Company is able to enforce
such rights.
Intellectual property litigation is complex and there can be no assurance of
the outcome of any such litigation. Any future litigation, regardless of
outcome, could result in substantial expense to the Company and significant
diversion of the efforts of the Company's technical and management personnel.
An adverse determination in any such proceeding could subject the Company to
significant liabilities to third parties, require disputed rights to be
licensed from such parties, if licenses to such rights could be obtained,
and/or require the Company to cease using such technology. There can be no
assurance that any such license would or could be obtained at costs reasonable
to the Company. If forced to cease using such technology, there can be no
assurance
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that the Company would be able to develop or obtain alternate technology.
Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing, using or selling certain of its products, which could have
a material adverse effect on the Company's financial condition and business
results of operations. See "Business--Intellectual Property and Proprietary
Rights."
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
During fiscal 1997, Time and WorldColor Press Inc. ("WorldColor") were the
Company's largest customers, representing 10.9% and 9.6%, respectively, of the
Company's total net sales. In the event Time or WorldColor significantly
reduced, for any reason, or terminated (at the end of its current service
contract or otherwise), its use of the WAM!NET Service, the Company's
financial condition and business results of operations could be materially
adversely affected, both as a direct result of such reduction or termination
and through the potential reduction of use of the WAM!NET Service by Time or
WorldColor's work flow partners that are, or potentially would be, subscribers
to the WAM!NET Service.
DISCRETIONARY AUTHORITY OVER USE OF NET PROCEEDS
The Company retains a significant amount of discretion over the application
of the net proceeds of the Initial Offering. Because of the number and
variability of factors that determine the Company's use of the net proceeds of
the Initial Offering, there can be no assurance that such applications will
not vary substantially from the Company's current intentions. Pending such
utilization, the Company invests the net proceeds of the Offering in short-
term investment grade and government securities. See "Use of Proceeds."
ABSENCE OF PUBLIC MARKET; RESTRICTION ON RESALE
The Exchange Notes are a new issue of securities for which there is
currently no established market. There can be no assurance as to (i) the
liquidity of any such market that may develop, (ii) the ability of the holders
of Exchange Notes to sell any of their Exchange Notes, or (iii) the price at
which the holders of Exchange Notes would be able to sell any of their
Securities. The Company does not presently intend to apply for listing of any
of the Exchange Notes on any national securities exchange or on The Nasdaq
Stock Market. The Initial Purchasers have advised the Company that they
presently intend to make a market in Exchange Notes, if and when issued. The
Initial Purchasers are not obligated, however, to make a market in the
Exchange Notes and any such market-making may be discontinued at any time at
the sole discretion of the Initial Purchasers and without notice. Accordingly,
no assurance can be given as to the development or liquidity of any market for
any of the Exchange Notes. If a market for any of the Exchange Notes were to
develop, such Exchange Notes could trade at prices that may be higher or lower
than reflected by their initial offering price depending on many factors,
including prevailing interest rates, the Company's operating results and
prospects for its performance, the market for similar securities and general
economic conditions. Historically, the market for securities such as the Notes
has been subject to disruptions that have caused substantial volatility in the
prices of similar securities. There can be no assurance that if a market for
any of the Notes were to develop, such a market would not be subject to
similar disruptions.
FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO SUBSIDIARY GUARANTEES
The Company's obligations under the Notes will be guaranteed on an unsecured
senior basis by the Subsidiary Guarantors, if any. Various fraudulent
conveyance laws have been enacted for the protection of creditors and may be
utilized by a court of competent jurisdiction to subordinate or avoid any
Subsidiary Guarantee issued by a Subsidiary Guarantor. It is also possible
that under certain circumstances a court could hold that the direct
obligations of a Subsidiary Guarantor could be superior to the obligations
under its Subsidiary Guarantee.
To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by a Subsidiary Guarantor with the intent to hinder, delay or defraud
any present or future creditor or that the Subsidiary
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Guarantor contemplated insolvency with a design to favor one or more creditors
to the exclusion in whole or in part of others or (y) a Subsidiary Guarantor
did not receive fair consideration or reasonably equivalent value for issuing
a Subsidiary Guarantee and, at the time it issued such Subsidiary Guarantee,
the Subsidiary Guarantor (i) was insolvent or rendered insolvent by reason of
the issuance of the Subsidiary Guarantee, (ii) was engaged or about to engage
in a business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital or (iii) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, the court could avoid or subordinate such Subsidiary Guarantee
in favor of the Subsidiary Guarantor's other creditors. Among other things, a
legal challenge of a Subsidiary Guarantee issued by a Subsidiary Guarantor on
fraudulent conveyance grounds may focus on the benefits, if any, realized by
such Subsidiary Guarantor as a result of the issuance by the Company of the
Notes. To the extent any Subsidiary Guarantee is avoided as a fraudulent
conveyance or held unenforceable for any other reason, the holders of the
Notes would cease to have any claim in respect of the applicable Subsidiary
Guarantor and would be creditors solely of the Company.
RISKS OF FOREIGN INVESTMENT
The Company has expanded its operations into international markets in the
first half of 1998. Risks inherent in foreign operations include loss of
revenue, property and equipment from expropriation, nationalization and
confiscatory taxation. The Company is also exposed to the risk of changes to
laws and policies that govern foreign investment in countries where it has
operations as well as, to a lesser extent, changes in United States laws and
regulations relating to investing in or trading with countries in which the
Company may have investments.
Certain of the countries in which the Company operates or may operate may be
subject to a substantially greater degree of social, political and economic
instability than is the case in other countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, and changes in
government through coups or other extra-constitutional means; (ii) social
unrest associated with demands for improved economic, social and political
conditions; (iii) internal insurgencies and terrorist activities; and (iv)
hostile relations with neighboring countries. Risks associated with social,
political and economic instability in a particular country could materially
adversely affect the results of operations and financial condition of the
Company and could result in the loss of the Company's assets in such country.
FOREIGN CURRENCY EXCHANGE RATES; REPATRIATION
As the Company expands its operations into countries outside of the United
States, its results of operations and the value of its assets will be affected
by the currency exchange rates between the U.S. dollar and the functional
currency of countries in which it has assets. The Company may also sell
products and services in certain countries in the local functional currency or
in a currency other than the U.S. dollar. As a result, the Company may
experience an economic loss solely as a result of foreign currency exchange
rate fluctuations, which include foreign currency devaluations against the
dollar. The Company may in the future acquire interests in companies that
operate in countries where the removal or conversion of currency is
restricted. There can also be no assurance that countries that do not have
such restrictions at the time the Company establishes operations in those
countries will not subsequently impose them, especially in situations where
there is a deterioration in a country's balance of payments or where the local
currency is being heavily converted into other currencies.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF THE NOTES
The Original Notes were sold with original issue discount ("OID") for United
States federal income tax purposes. Thus, although cash interest will not be
payable on the Notes prior to 2002, the holders of the Notes (including cash
basis holders) that are subject to U.S. federal income taxation will be
required to include such OID in income, on a constant yield to maturity method
basis, in advance of the receipt of the cash payments to which such income is
attributable. See "Certain Federal Income Tax Considerations" for a more
detailed discussion of the U.S. federal income tax consequences to the U.S.
Holders of the Notes of the purchase, ownership and disposition of the Notes.
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FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical fact are
"forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks
and uncertainties. Management wishes to caution the reader that these forward-
looking statements such as the revenue and profitability levels of the WAM!NET
Service and other matters contained above and herein in this Prospectus
regarding matters that are not historical facts, are only predictions. No
assurances can be given that the future results indicated, whether expressed
or implied, will be achieved. While sometimes presented with numerical
specificity, these projections and other forward-looking statements are based
upon a variety of assumptions relating to the business of the Company, which,
although considered reasonably by the Company, may not be realized. Because of
the number and range of the assumptions underlying the Company's projections
and forward-looking statements, many of which are subject to significant
uncertainties and contingencies that are beyond the reasonable control of the
Company, some of the assumptions inevitably will not materialize and
unanticipated events and circumstances may occur subsequent to the date of
this Prospectus. These forward-looking statements are based on current
expectations, and the Company assumes no obligation to update this
information. Therefore, the actual experience of the Company and results
achieved during the period covered by any particular projections or forward-
looking statements may differ substantially from those projected.
Consequently, the inclusion of projections and other forward-looking
statements should not be regarded as a representation by the Company or any
other person that these estimates and projections will be realized, and actual
results may vary materially. There can be no assurance that any of these
expectations will be realized or that any of the forward-looking statements
contained herein will prove to be accurate.
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USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer. The net
proceeds of the Initial Offering were approximately $120.6 million. The net
proceeds were or are expected to be used as follows: (i) $20.0 million was
used to pay the cash portion of the 4-Sight Acquisition, (ii) approximately
$25.0 million was used to repay the Revolving Credit Facility and (iii) the
balance is being, and will be, used to further the Company's business
development and expansion strategy, to enhance the WAM!NET Service
infrastructure and develop additional value-added features and services, to
optimize marketing, sales and customer support and service capabilities, and
for working capital and other general corporate purposes. The Revolving Credit
Facility matures and becomes payable on September 23, 2000. At December 31,
1997, the aggregate principal outstanding under the Revolving Credit Facility
was $18.8 million, which bore interest at a rate equal to LIBOR (as defined
herein) plus 55 basis points per annum (6.27% at December 31, 1997). The
proceeds of the Revolving Credit Facility were used for equipment purchases
and working capital purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Certain
Indebtedness" for a discussion of the Company's funding requirements.
Pending such utilization, the Company invests the net proceeds of the
Initial Offering in short-term investment grade and government securities.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the Registration Rights Agreement.
The Original Notes were originally issued and sold on March 5, 1998. Such
sales were not registered under the Securities Act (i) in reliance upon the
exemption provided by Section 4(2) of the Securities Act and Rule 144A of the
Securities Act, and (ii) pursuant to offers and sales that occurred outside
the United States within the meaning of Regulation S under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company agreed to file with
the Commission the Exchange Offer Registration Statement on an appropriate
form under the Securities Act with respect to an offer to exchange the
Original Notes for the Exchange Notes. Upon the effectiveness of the Exchange
Offer Registration Statement, the Company will offer to the holders of
Original Notes who are able to make certain representations the opportunity to
exchange their Original Notes for Exchange Notes. If (i) the Company is not
permitted to file the Exchange Offer Registration Statement or to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable
law or Commission policy, (ii) the Exchange Offer is not for any other reason
consummated within 180 days after the Issue Date, (iii) any holder of Original
Notes notifies the Company within a specified time period that (a) due to a
change in law or policy it is not entitled to participate in the Exchange
Offer, (b) due to a change in law or policy it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and (x) the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such holder and
(y) such prospectus is not promptly amended or modified in order to be
suitable for use in connection with such resales for such holder and all
similarly situated holders or (c) it is a broker-dealer and owns Original
Notes acquired directly from the Company or an affiliate of the Company or
(iv) the holders of a majority of the Original Notes may not resell the
Exchange Notes acquired by them in the Exchange Offer to the public without
restriction under the Securities Act and without restriction under applicable
blue sky or state securities laws, the Company will file with the Commission
the Shelf Registration Statement to cover resales of the Transfer Restricted
Notes (as defined below) by the holders thereof. The Company agreed to use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Notes" means each Original Note until (i) the
date on which such Original Note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Original Note for an
Exchange Note, the date on which such Exchange 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 Original Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iv) the date on which such Original Note is
distributed to the public pursuant to Rule 144(k) under the Securities Act (or
any similar provision then in force, but not Rule 144A under the Securities
Act), (v) such Original Note shall have been otherwise transferred by the
holder thereof and a new Note not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition
of such Note shall not require registration or qualification under the
Securities Act or any similar state law then in force or (vi) such Original
Note ceases to be outstanding.
The Registration Rights Agreement provides that: (i) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the
Company will file the Exchange Offer Registration Statement with the
Commission on or prior to the 90th day after the Issue Date, (ii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will use its best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission on or prior to the 150th day
after the Issue Date (the "Target Effectiveness Date"), (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to
issue, on or prior to the date which is 30 days after the date on which the
Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in Exchange for all Original Notes tendered prior
thereto
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in the Exchange Offer and (iv) if obligated to file the Shelf Registration
Statement, the Company will use its best efforts to file prior to the later of
(a) the 90th day after the Issue Date or (b) the 30th day after such filing
obligation arises and will use its best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior
to the 60th day after such obligation arises; provided that if the Company has
not consummated the Exchange Offer within the date which is 180 days after the
Issue Date, then the Company will file the Shelf Registration Statement with
the Commission on or prior to the 30th day after such date. The Company shall
use its best efforts to keep such Shelf Registration Statement continuously
effective, supplemented and amended until the earlier of (i) the second
anniversary of the effective date of the Shelf Registration Statement and (ii)
such time as all of the Transfer Restricted Notes covered by the Shelf
Registration Statement have been sold thereunder or otherwise cease to be
Transfer Restricted Notes. If (i) the Company fails to file any of the
registration statements required by the Registration Rights Agreement on or
before the date specified for such filing, (ii) any of such registration
statements is not declared effective by the Commission on or prior to the
Target Effectiveness Date (subject to certain limited exceptions), (iii) the
Company fails to consummate the Exchange Offer within 30 days of the Target
Effectiveness Date with respect to the Exchange Offer Registration Statement,
or (iv) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter, subject to certain limited
exceptions, ceases to be effective or usable in connection with the Exchange
Offer or resales of Transfer Restricted Notes, as the case may be, during the
periods specified in the Registration Rights Agreement (each such event
referred to in clauses (i) through (iv) above, a "Registration Default"), then
the Company shall pay as liquidated damages interest on the Transfer
Restricted Notes as to which any Registration Default exists. If a
Registration Default exists with respect to Transfer Restricted Notes, the
Company will, with respect to the first 90-day period (or portion thereof)
while such Registration Default is continuing immediately following the
occurrence of such Registration Default, make cash payments at a rate of .50%
per annum multiplied by the Accreted Value of the Transfer Restricted Notes as
of the date such payment is required to be made. The rate of such cash payment
shall increase by an additional .50% per annum at the beginning of each
subsequent 90-day period (or portion thereof) while such Registration Default
is continuing until such Registration Default is cured, up to a maximum rate
of 1.5% per annum. Following the cure of all Registration Defaults, the making
of cash payments with respect to the Notes will cease and the interest rate on
the Notes will revert to zero. See "Note Registration Rights."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Original Notes. The terms of the Exchange Notes are identical in all respects
to the terms of the Original Notes for which they may be exchanged pursuant to
this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof ("Holders"), and the Holders of the Exchange
Notes (as well as remaining Holders of any Original Notes) will not be
entitled to registration rights under the Registration Rights Agreement. The
Exchange Notes will evidence the same debt as the Original Notes and will be
entitled to the benefits of the Indenture. See "Description of the Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by Holders thereof (other than any
Holder which is (i) an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes
directly from the Company or (iii) broker-dealers who acquired Original Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business, and such Holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes. If a Holder is not a
broker-dealer, it will be required to represent that it is not engaged in, and
does not intend to engage in,
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a distribution of the Exchange Notes. Each broker-dealer that receives
Exchange Notes 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. Broker-dealers who
acquired Original Notes as a result of market making or other trading
activities may use this Prospectus, as supplemented or amended, in connection
with resales of the Exchange Notes. The Company have agreed that, for a period
not to exceed 180 days after the Exchange Date, they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. Any
Holder that cannot rely upon such interpretations must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
Tendering Holders of Original Notes 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 the Original Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Original Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance
of the Exchange Notes, such interest to be payable with the first interest
payment on the Exchange Notes, but will not receive any payment in respect of
interest on the Original Notes accrued after the issuance of the Exchange
Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1998, unless the Company
in its sole discretion extend the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Company, expires. The
Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to U.S.
Bank Trust National Association (f/k/a First Trust National Association) (the
"Exchange Agent") and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all
Original Notes previously tendered pursuant to the Exchange Offer will remain
subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Notes for any reason,
including if any of the events set forth below under "--Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent in writing and
will either issue a press release or give written notice to the Holders of the
Original Notes as promptly as practicable. Unless the Company terminates the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Company will exchange the Exchange Notes for the Original Notes on the
Exchange Date.
If the Company waives any material condition to the Exchange Offer, or amend
the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent or given to
Holders of Original Notes in the manner specified above, the Exchange Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the fifth business day from, and including, the date that such notice is
first so published, sent or given, then the Exchange Offer will be extended
until the expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record Holders of Original Notes
and will be furnished to brokers, banks and similar persons whose names, or
the names of whose nominees, appear on the lists of Holders for subsequent
transmittal to beneficial owners of Original Notes.
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HOW TO TENDER
The tender to the Company of Original Notes by a Holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between
such Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A Holder of an Original Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof) and delivering the same, together
with the certificate or certificates representing the Original Notes being
tendered and any required signature guarantees (or a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") pursuant to the procedure
described below), to the Exchange Agent at its address set forth on the back
cover of this Prospectus on or prior to the Expiration Date or (ii) complying
with the guaranteed delivery procedures described below.
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Original Notes are to be reissued) in the
name of the registered Holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Original Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered Holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a firm (an
"Eligible Institution") that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Exchange Act.
If the Exchange Notes and/or Original Notes not exchanged are to be delivered
to an address other than that of the registered Holder appearing on the note
register for the Original Notes, the signature on the Letter of Transmittal
must be guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such Holder promptly and instruct such
Holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Original Notes, either make appropriate arrangements to
register ownership of the Original Notes in such beneficial owner's name or
follow the procedures described in the immediately preceding paragraph. The
transfer of record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Original Notes at The Depository Trust Company
(the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within
two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Original Notes by causing the Book-
Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Original Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address specified on
the back cover page of this Prospectus on or prior to the Expiration Date or
the guaranteed delivery procedures described below must be complied with.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a Holder pursuant to the Exchange Offer if the Holder
does not provide his taxpayer identification number (social security number or
employer identification number) and certify that such
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number is correct. Each tendering Holder should complete and sign the main
signature form and the Substitute Form W-9 included as part of the Letter of
Transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to the Company and the Exchange Agent.
Guaranteed Delivery Procedures. If a Holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected
if the Exchange Agent has received at its office listed on the back cover
hereof on or prior to the Expiration Date a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address
of the tendering Holder, the names in which the Original Notes are registered
and, if possible, the certificate numbers of the Original Notes to be
tendered, and stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, the Original Notes, in proper form for transfer, will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Original Notes being tendered by the above-described method (or a timely Book-
Entry Confirmation) are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are being delivered with this Prospectus and the related Letter of
Transmittal.
A tender will be deemed to have been received as of the date when the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Original Notes
(or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel
to the Company, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or
irregularities in tenders of any particular Holder whether or not similar
defects or irregularities are waived in the case of other Holders. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or shall incur any
liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire Exchange Notes issuable upon the exchange of such
tendered Original Notes, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title to the tendered Original
Notes, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The Transferor also warrants that it will,
upon request, execute and deliver any additional documents deemed by the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of
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tendered Original Notes. The Transferor further agrees that acceptance of any
tendered Original Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the Registration Rights Agreement and that the Company shall
have no further obligations or liabilities thereunder (except in certain
limited circumstances). All authority conferred by the Transferor will survive
the death or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from the Company or an affiliate of the Company, that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes or (b) that it is an
"affiliate" (as defined) of the Company or of the initial purchasers in the
Initial Offering of the Original Notes, and that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable to it.
WITHDRAWAL RIGHTS
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus. Any such notice of withdrawal must
specify the person named in the Letter of Transmittal as having tendered
Original Notes to be withdrawn, the certificate numbers of Original Notes to
be withdrawn, the principal amount of Original Notes to be withdrawn (which
must be an authorized denomination), a statement that such Holder is
withdrawing his election to have such Original Notes exchanged, and the name
of the registered Holder of such Original Notes, and must be signed by the
Holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender
has succeeded to the beneficial ownership of the Original Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Original
Notes promptly following receipt of notice of withdrawal. All questions as to
the validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered and not withdrawn
and the issuance of the Exchange Notes will be made on the Exchange Date. For
the purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Original Notes when, as and if the
Company has given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders of Original
Notes for the purposes of receiving Exchange Notes from the Company and
causing the Original Notes to be assigned, transferred and exchanged. Upon the
terms and subject to the conditions of the Exchange Offer, delivery of
Exchange Notes to be issued in exchange for accepted Original Notes will be
made by the Exchange Agent promptly after acceptance of the tendered Original
Notes. Original Notes not accepted for exchange by the Company will be
returned without expense to the tendering Holders (or in the case of Original
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the procedures described above, such
non-exchanged Original Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) promptly following the Expiration Date or,
if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
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CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange
Notes in respect of any properly tendered Original Notes not previously
accepted and may terminate the Exchange Offer (by oral or written notice to
the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service) or, at its option, modify or otherwise amend the
Exchange Offer, if (a) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have
been issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain or
prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, (ii) assessing or seeking any
damages as a result thereof, or (iii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of the
Original Notes pursuant to the Exchange Offer; (b) any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the sole judgment of the Company, might
result in the Holders of Exchange Notes having obligations with respect to
resales and transfers of Exchange Notes which are greater than those described
in the interpretations of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or (c) a material adverse change shall have occurred in the
business, condition (financial or otherwise), operations, or prospects of the
Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in its sole discretion. The
failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may be asserted at any time or from time to time. In
addition, the Company has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Original Notes
tendered and no Exchange Notes will be issued in exchange for any such
Original Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or qualification of the Indenture under the Trust Indenture
Act of 1939 (the "Trust Indenture Act").
EXCHANGE AGENT
U.S. Bank Trust National Association (formerly First Trust National
Association) has been appointed as the Exchange Agent for the Exchange Offer.
Letters of Transmittal must be addressed to the Exchange Agent at its address
set forth on the back cover page of this Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has 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 for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable and customary fees
for its services and
28
<PAGE>
will reimburse it for reasonable out-of-pocket expenses in connection
therewith. The Company will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by
them in forwarding tenders for their customers. The expenses to be incurred in
connection with the Exchange Offer, including the fees and expenses of the
Exchange Agent and printing, accounting and legal fees, will be paid by the
Company and are estimated at approximately $500,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) Holders of Original Notes
in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, at their discretion, take such action
as it may deem necessary to make the Exchange Offer in any such jurisdiction
and extend the Exchange Offer to Holders of Original Notes in such
jurisdiction. In any jurisdiction the securities laws or blue sky laws of
which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by Holders will not be a
taxable exchange for federal income tax purposes, and Holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Original Notes are urged
to consult their financial and tax advisors in making their own decisions on
what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Company will have fulfilled a covenant contained in the terms of the
Original Notes and the Registration Rights Agreement. Holders of the Original
Notes who do not tender their certificates in the Exchange Offer will continue
to hold such certificates and will be entitled to all the rights, and
limitations applicable thereto, under the Indenture, except for any such
rights under the Registration Rights Agreement, which by their terms terminate
or cease to have further effect as a result of the making of this Exchange
Offer. See "Description of the Notes." All untendered Original Notes will
continue to be subject to the restriction on transfer set forth in the
Indenture. To the extent that Original Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Original Notes could be
adversely affected. See "Risk Factors--Consequences of Failure to Exchange."
The Company may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
29
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of December 31, 1997, (ii) the pro forma capitalization of the
Company, adjusted to give effect to the 4-Sight Acquisition and (iii) the pro
forma capitalization of the Company, as further adjusted to give effect to the
Initial Offering as if it had occurred on December 31, 1997 and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds," and (iv) the historical capitalization of the Company as of March
31, 1998. The 4-Sight Acquisition was consummated on March 13, 1998. The
table, including the notes thereto, should be read in conjunction with the
Company's and 4-Sight's respective consolidated financial statements included
elsewhere in this Offering Memorandum, "Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." See the footnotes included in "Pro Forma Financial Data" for an
explanation of adjustments made to arrive at the pro forma amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1998
--------------------------------- --------------
ACTUAL PRO PRO FORMA
WAM!NET FORMA (1) AS ADJUSTED(2) ACTUAL
------- --------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Cash and cash
equivalents.............. $ 274 $ 4,527 $ 84,146(3) 66,760
======= ======= ======== ========
Current portion of long-
term debt................ $ 3,129 $ 3,367 $ 3,129 3,541
------- ------- -------- --------
Long-term debt:
13 1/4% Senior Discount
Notes.................. -- -- $114,944(3)(4) 110,686
WorldCom Subordinated
Note................... 16,784 16,784 16,784(5) 17,115(5)
WorldCom Convertible
Note................... 5,000 5,000 5,000(5) 5,253(5)
Revolving Credit
Facility............... 14,431 14,525 -- --
Equipment financing..... 6,434 6,434 6,434 6,883
------- ------- -------- --------
Total long-term debt,
net of
current portion...... 42,649 42,743 143,162 139,937
------- ------- -------- --------
Total debt.......... 45,778 46,110 146,291 143,478
------- ------- -------- --------
Redeemable 7% Preferred
Stock, Class A,
$10 par value, 100,000
authorized, issued,
and outstanding(6)....... 1,000 1,000 1,000 1,000
------- ------- -------- --------
Stockholders' equity (def-
icit)(4):................ (30,671) (10,671) (4,983) (15,316)
------- ------- -------- --------
Total
capitalization..... $16,107 $36,439 $142,308 $129,162
======= ======= ======== ========
</TABLE>
- --------
(1) Gives effect to the 4-Sight Acquisition as if it had occurred on December
31, 1997. See "Pro Forma Financial Data."
(2) Adjusts the pro forma information to give effect to the Initial Offering
and the application of the estimated net proceeds therefrom as described
under "Use of Proceeds."
(3) Reflects the gross proceeds of $125,001, net of expenses of $5,750
incurred in connection with the offering of the Notes, offset by the
repayment of $18,800 of the line of credit and the repayment of the 4-
Sight mortgage of $332, and the payment of $20,000 to shareholders of 4-
Sight and $500 for related expenses in connection with the acquisition of
4-Sight.
(4) The estimated value of warrants issued to debtholders and of options
issued to consultants is reflected as both a debt discount and an element
of additional paid-in capital.
(5) Interest is payable semiannually in kind. WorldCom has agreed to defer all
cash payments on such indebtedness until a date that is 180 days following
the Stated Maturity of the Notes. See "Description of Certain
Indebtedness."
(6) Dividends are payable quarterly in kind. WorldCom has agreed that no cash
dividends or distributions will be payable by the Company on the Class A
Preferred Stock owned by WorldCom, and the Class A Preferred Stock owned
by WorldCom will not be redeemed by the Company for cash, until a date
that is 180 days following the Stated Maturity of the Notes. WorldCom is
the sole holder of shares of Class A Preferred Stock. See "Description of
Certain Indebtedness."
30
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth (i) selected historical consolidated
financial data for the Company and its subsidiaries for each of the years in
the three year period ended December 31, 1997, and for the three month periods
ended March 31, 1997 and 1998 and (ii) selected historical consolidated
financial data for 4-Sight and its subsidiaries for the year ended August 31,
1996, the month ended September 30, 1996, the year ended September 30, 1997,
and the twelve months ended December 31, 1997. The 4-Sight Acquisition
occurred on March 13, 1998 and the operating results of 4-Sight are included
in the Company's operating results from that date through March 31, 1998. The
Company's selected historical consolidated financial data as of and for the
three months ended March 31, 1997 and 1998 and 4-Sight's selected historical
consolidated financial data as of and for the twelve months ended December 31,
1997 have been derived from the respective companies' unaudited financial
statements and have been prepared on the same basis as the historical
information derived from audited financial statements. In the opinion of the
management of the Company and the management of 4-Sight, the unaudited
financial statements of the respective companies, from which such data have
been derived, contain all adjustments, consisting only of normal recurring
accruals, necessary for the fair presentation of the results for and as of the
end of such periods. The historical data with respect to the three months
ended March 31, 1998 should not be regarded as necessarily indicative of the
results that may be expected for the entire year. The Company's development
and expansion activities during the periods presented below significantly
affect the period-to-period comparability of the historical data presented for
the Company. The following information is qualified in its entirety by, and
should be read in conjunction with, the consolidated financial statements and
the notes thereto of the Company and 4-Sight and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
WAM!NET INC.
---------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 180 $ 279 $ 1,555 $ 122 $ 1,880
Operating expenses............. 1,437 7,036 31,037 4,205 25,412
Interest income (expense),
net........................... (20) (839) (4,154) (628) (3,151)
Income (loss) before income
taxes......................... (1,277) (7,596) (33,636) (4,711) (26,683)
Net income (loss).............. (1,277) (7,596) (33,636) (4,711) (26,683)
OTHER DATA:
EBITDA(1)...................... $(1,226) $(6,310) $(26,814) $(3,796) $(21,611)
Depreciation and amortization.. 31 447 2,668 287 1,921
Capital expenditures........... 657 4,244 16,599 3,904 10,143
Net cash used in operating
activities.................... (747) (6,218) (23,917) (3,345) (9,743)
Net cash used in investing
activities.................... (657) (5,244) (15,599) (2,904) (30,396)
Net cash provided by (used in)
financing activities.......... 2,732 24,578 25,346 1,096 102,687
Ratio of earnings to fixed
charges(2).................... -- -- -- -- --
BALANCE SHEET DATA (END OF
PERIOD):......................
Cash and cash equivalents...... $ 1,328 $15,444 $ 274 $ 7,099 $ 66,760
Total assets................... 2,075 20,070 21,086 15,390 137,770
Total debt(3).................. 1,900 20,473 45,778 20,049 143,478
Shareholders' deficit(4)....... (371) (2,683) (30,671) (6,412) (15,316)
</TABLE>
Footnotes on following page.
31
<PAGE>
<TABLE>
<CAPTION>
4-SIGHT LIMITED
--------------------------------------------------------------
TWELVE MONTHS
YEAR ENDED ENDED
YEAR ENDED MONTH ENDED SEPTEMBER 30, DECEMBER 31,
AUGUST 31, 1996 SEPTEMBER 30, 1996 1997(5) 1997(6)
--------------- ------------------ ------------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $11,446 $1,065 $18,264 $19,278
Operating expenses...... 9,380 1,124 15,817 16,031
Interest income
(expense), net......... 18 (9) 57 140
Income (loss) before
income taxes........... 2,084 (68) 2,504 3,387
Net income (loss)....... 1,478 (61) 1,588 2,109
OTHER DATA:
EBITDA(1)............... $ 2,372 $ (20) $ 3,050 $ 3,874
Depreciation and
amortization........... 306 39 603 627
Capital expenditures.... 465 87 545 636
Net cash provided by
(used in) operating
activities............. 380 (759) 707 1,626
Net cash used in
investing activities... (327) (87) (540) (633)
Net cash provided by
(used in) financing
activities............. (249) (5) 3,380 3,128
Ratio of earnings to
fixed charges(2)....... 39.6x -- 42.7x 100.6x
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents............ $ 1,290 $ 439 $ 3,986 $ 4,253
Total assets............ 6,927 6,095 10,473 11,382
Total debt(3)........... 225 267 206 332
Redeemable preferred
stock.................. -- -- 5,157 5,256
Shareholders' equity.... 2,565 2,531 2,554 3,165
</TABLE>
- --------
(1) EBITDA represents earnings (loss) from operations before taking into
consideration net interest expense, income tax expense, depreciation
expense and amortization expense. The Company has included information
concerning EBITDA here as it is used by certain investors as a measure of
a company's ability to service its debt. EBITDA should not be considered
as an alternative to net income or any other measure of performance or
liquidity as determined in accordance with generally accepted accounting
principles or as an indicator of the Company's overall financial
performance.
(2) The ratio of earnings to fixed charges is calculated by dividing (i) net
income (loss) before taxes plus fixed charges by (ii) fixed charges. Fixed
charges consist of interest incurred and the portion of rent expense which
is deemed representative of interest. The Company's earnings were
insufficient to cover fixed charges by $1,242, $6,653 and $29,180 for the
years ended December 31, 1995, 1996 and 1997, and $3,907 and $23,184 for
the three month periods ended March 31, 1997 and 1998, respectively.
(3) Total debt includes long-term debt, current portion of long-term debt and
obligations under capitalized leases, net of the unamortized value of
warrants ($3,679) issued to debtholders.
(4) The estimated value of warrants issued to debtholders and of options
issued to consultants is reflected as both a debt discount and an element
of paid in capital.
(5) 4-Sight changed its fiscal year end to September 30 during 1997.
(6) 4-Sight's fiscal year ends on September 30. The financial data of 4-Sight
for the twelve months ended December 31, 1997 is presented for comparative
purposes.
32
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Pro Forma Financial
Data") of the Company has been derived from and should be read in conjunction
with (i) the audited consolidated financial statements of the Company and the
related notes thereto, included elsewhere herein, which statements have been
audited by Ernst & Young LLP, independent auditors, whose report is included
elsewhere herein, (ii) the audited consolidated financial statements as of
September 30, 1997 and for the thirteen month period then ended of 4-Sight and
the related notes thereto included elsewhere herein, which statements have
been audited by Ernst & Young, Chartered Accountants, independent auditors,
whose report is included elsewhere herein and (iii) the unaudited consolidated
financial statements as of December 31, 1997 and for the twelve month period
then ended of 4-Sight. The Pro Forma Financial Data has been prepared to
illustrate the effects of the 4-Sight Acquisition and the Initial Offering,
including the application of the net proceeds therefrom. This Pro Forma
Financial Data does not necessarily present the financial position or results
of operations as they would have been if the companies involved had
constituted one entity for the period presented. See "Offering Memorandum
Summary--Recent Developments" and "Use of Proceeds."
The pro forma balance sheet data as of December 31, 1997 gives effect to the
4-Sight Acquisition and the Initial Offering as if they had occurred on
December 31, 1997. The pro forma statement of operations data for the twelve
month period ended December 31, 1997 gives effect to the 4-Sight Acquisition
and the Initial Offering as if they had occurred on January 1, 1997. The Pro
Forma Financial Data is not necessarily indicative of either future results of
operations or the results that might have occurred if the foregoing
transactions had been consummated on the indicated date.
The acquisition of 4-Sight was accounted for using the purchase method.
After the acquisition, the total purchase price of the acquisition was
allocated to the assets and liabilities based upon the estimated fair value of
the assets and liabilities acquired. The actual purchase accounting
adjustments were not materially different from the pro forma adjustments.
33
<PAGE>
PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
WAM!NET 4-SIGHT PRO FORMA PRO FORMA
DECEMBER 31, 1997 DECEMBER 31, 1997 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equiva-
lents................ $ 274 $ 4,253 $125,001 (1) $ 84,146
(19,132)(2)
(20,500)(3)
(5,750)(4)
Accounts receivable... 459 3,179 -- 3,638
Inventories........... -- 1,313 -- 1,313
Prepaid expenses and
other current
assets............... 554 414 -- 968
-------- ------- -------- ---------
Total current
assets............. 1,287 9,159 79,619 90,065
Property and
equipment, net....... 19,320 1,684 -- 21,004
Deferred taxes........ -- 54 -- 54
Goodwill.............. 479 485 32,079 (5) 33,043
Deferred financing
costs................ -- -- 5,750 (4) 5,750
-------- ------- -------- ---------
Total assets........ $ 21,086 $11,382 $117,448 $149,916
======== ======= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and
accrued expenses..... $ 4,979 $ 1,730 $ -- $ 6,709
Income taxes payable.. -- 899 -- 899
Current portion of
long-term debt and
obligations under
capitalized leases... 3,129 238 (238)(2) 3,129
-------- ------- -------- ---------
Total current
liabilities........ 8,108 2,867 (238) 10,737
Long-term debt, less
current maturities... 42,649 94 100,419 (1)(6) 143,162
-------- ------- -------- ---------
Total liabilities... 50,757 2,961 100,181 153,899
Redeemable preferred
stock................ 1,000 5,256 (5,256)(7) 1,000
Shareholders' equity
(deficit)............ (30,671) 3,165 20,000 (3) (4,983)
(4,369)(8)
(3,165)(7)
10,057 (6)
-------- ------- -------- ---------
Total liabilities
and shareholders'
equity (deficit)... $ 21,086 $11,382 $117,448 $ 149,916
======== ======= ======== =========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
34
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
4-SIGHT
WAM!NET TWELVE MONTHS
YEAR ENDED ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1997 DECEMBER 31, 1997 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
<S> <C> <C> <C> <C>
Gross Revenues........ $ 1,628 $ 19,278 $ -- $ 20,906
Less rebates.......... (150) -- -- (150)
--------- --------- -------- ---------
Net revenues.......... 1,478 19,278 -- 20,756
Other service fees.... 77 -- -- 77
--------- --------- -------- ---------
Total revenues...... 1,555 19,278 -- 20,833
Cost of revenues........ -- 5,013 -- 5,013
Operating expenses:
Network communication
fees................. 7,364 -- -- 7,364
Network operations.... 7,478 -- -- 7,478
Sales and marketing... 9,207 5,989 -- 15,196
General and
administrative....... 4,320 5,029 6,415 (9) 15,764
Depreciation and
amortization......... 2,668 -- -- 2,668
--------- --------- -------- ---------
Total operating ex-
penses............. 31,037 11,018 6,415 48,470
--------- --------- -------- ---------
(Loss) income from oper-
ations................. (29,482) 3,247 (6,415) (32,650)
Other income (expenses):
Interest income....... 202 168 -- 370
Interest (expense).... (4,356) (28) (22,814)(8) (27,198)
--------- --------- -------- ---------
(Loss) income before
income taxes........... (33,636) 3,387 (29,229) (59,478)
Income taxes............ -- 1,278 -- 1,278
--------- --------- -------- ---------
(Loss) income before
preferred stock
dividend............... (33,636) 2,109 (29,229) (60,756)
Preferred stock
dividend............... (70) (-- ) (-- ) (70)
--------- --------- -------- ---------
(Loss) income related to
common shareholders.... $ (33,706) $ 2,109 $(29,229) $ (60,826)
========= ========= ======== =========
Net income (loss) per
common share........... $ (5.19) $ .84 -- $ (6.76)
========= ========= ======== =========
Weighted average number
of common shares
outstanding............ 6,496,345 2,500,000 -- 8,996,345
========= ========= ======== =========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
35
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
WAM!NET 4-SIGHT FOR THE
THREE MONTHS PERIOD FROM
ENDED JANUARY 1, 1998 PRO FORMA PRO FORMA
MARCH 31, 1998 TO MARCH 12, 1998 ADJUSTMENTS COMBINED
-------------- ----------------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
<S> <C> <C> <C> <C>
Gross Revenues........ $ 1,320 $4,305 $ -- $ 5,625
Less rebates.......... (271) -- -- (271)
--------- ------ ------- ---------
Net revenues.......... 1,049 4,305 -- 5,354
Other service fees.... 9 -- -- 9
--------- ------ ------- ---------
Total revenues...... 1,058 4,305 -- 5,363
Cost of revenues........ -- 1,364 -- 1,364
Operating expenses:
Network communication
fees................. 3,152 -- -- 3,152
Network operations.... 3,259 -- -- 3,254
Sales and marketing... 2,352 -- -- 2,352
General and
administrative....... 13,947 2,670 -- 16,617
Depreciation and
amortization......... 1,867 157 1,296 (10) 3,320
--------- ------ ------- ---------
Total operating ex-
penses............. 24,577 2,827 1,296 28,700
--------- ------ ------- ---------
(Loss) income from oper-
ations................. (23,519) 114 (1,296) (24,701)
Other income (expenses):
Interest income....... 277 74 -- 351
Interest (expense).... (3,417) (5) (2,964)(11) (6,386)
--------- ------ ------- ---------
(Loss) income before
income taxes........... (26,659) 183 (4,260) (30,736)
Income taxes............ -- (231) -- (231)
--------- ------ ------- ---------
(Loss) income before
preferred stock
dividend............... (26,659) (48) (4,260) (30,967)
Preferred stock
dividend............... (18) -- -- (18)
--------- ------ ------- ---------
(Loss) income related to
common shareholders.... $ (26,677) $ (48) $(4,260) $ (30,985)
========= ====== ======= =========
Net income (loss) per
common share........... $ (3.65) $ (4.24)
========= =========
Weighted average number
of common shares
outstanding............ 7,305,734 7,305,734
========= =========
</TABLE>
See Notes to Pro Forma Financial Statements.
36
<PAGE>
WAM!NET INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<C> <S> <C>
(1) Reflects the gross proceeds of $125,001, net of expenses of
$5,750 incurred and the value ($10,057) of the Warrants to
purchase 1,257,436 shares of Common Stock at an exercise
price of $.01 per share issued in connection with the
Original Notes, offset by the repayment of $18,800 of the
line of credit and the repayment of the 4-Sight mortgage of
$332, and the payment of $20,000 to shareholders of 4-Sight
and $500 for related expenses in connection with the 4-Sight
Acquisition................................................. $125,001
========
(2) Repayment of debt
Total gross amount--WAM!NET................................. 18,800
--4-Sight................................. 94
--Current portion--4-Sight................ 238
--------
19,132
Unamortized value of Class A warrants....................... (4,369)
--------
$ 14,763
========
(3) 4-Sight Acquisition
Cash payment to 4-Sight shareholders and related
acquisition expenses....................................... $ 20,500
========
Represents the issuance of 2,500,000 shares of the
Company's common stock related to the 4-Sight
acquisition................................................ $ 5
Additional paid-in capital.................................. 19,995
--------
$ 20,000
========
(4) Estimated expenses of the Offering.......................... $ 5,750
========
(5) Reflects the Company's preliminary estimate of the
allocation of the purchase price to the fair value of the
net assets acquired. The excess of the purchase price over
the fair market value of net assets acquired is $32,079 and
is being amortized over a five year period. The annual
amortization is $6,511...................................... $ 32,079
========
(6) The estimated value of the Warrants is reflected as both a
debt discount and an element of additional paid-in capital.. $ 10,057
========
(7) Elimination of 4-Sight's historical equity in accordance
with the purchase method of accounting
Redeemable preferred shares................................. $ 5,256
Common stock................................................ 903
Retained earnings........................................... 2,262
--------
$ 8,421
--------
(8) Represents the incremental interest expense to be incurred
by the Company related to the Notes offered hereby plus
amortization of deferred financing costs, offset by interest
expense related to the repayment of the Line of Credit and
the repayment of the 4-Sight mortgage as follows:
Write off of unamortized portion of value assigned to Class
A warrants................................................. $ 4,369
Interest on Notes offered hereby........................... 17,111
Amortization of value of Warrants.......................... 1,049
Amortization of deferred financing costs................... 600
Interest on Line of Credit--principal to be paid upon
completion of the Offering................................. (315)
--------
Incremental interest expenses.............................. $ 22,814
========
(9) Additional amortization expense with respect to intangible
assets purchased in the 4-Sight Acquisition using the
straight line method over a period of 5 years for the year
ended December 31, 1997..................................... $ 6,415
========
(10) Additional amortization expense with respect to intangible
assets purchased in the 4-Sight Acquisition using the
straight line method over a period of five years for the
three month period ended March 31, 1998..................... $ 1,296
========
(11) Represents the incremental interest expense to be incurred
by the Company related to the Initial Offering of the Notes
for the quarter ended March 31, 1998........................ $ 2,964
========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the historical and pro
forma results of the Company and should be read in conjunction with the
Company's Financial Statements and "Pro Forma Financial Data" included herein.
Certain statements set forth below constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward-looking
statements. See "Risk Factors--Forward-Looking Statements."
OVERVIEW
The Company was organized in September 1994 and commenced operations in
March 1995. From March 1995 through February 1996, the Company was engaged
primarily in the design and development of the WAM!NET Network and the WAM!NET
Service. The Company announced the commercial release of the WAM!NET Service
in February 1996 at a major Graphic Arts industry trade show. Through March
31, 1998, approximately 830 customers had contracted for the WAM!NET Service
at a total of 1,370 customer sites. As of that date, the WAM!NET Service had
been installed at 816 customer sites, with the balance of the contracted sites
expected to be installed during the first half of 1998.
On March 13, 1998, the Company consummated the purchase of 4-Sight. 4-Sight
develops and distributes ISDN data transmission software and related products
and applications targeted to the Graphic Arts industry, with particular
emphasis on European, Asian and North American markets. At December 31, 1997,
4-Sight's customer base exceeded 30,000 locations, including 3,000 sites in
the United States. The Company expects that the 4-Sight Acquisition will
enable the Company to achieve broader market coverage in the Graphic Arts
market by combining 4-Sight's international presence and penetration of the
lower volume user market with the Company's domestic presence and penetration
of the higher volume user market.
Due to costs associated with the design, development, installation and
operation of the WAM!NET Network and its related applications, the Company has
operated at a loss since inception and expects to incur substantial operating
losses for the years ending December 31, 1998 and 1999. The Company has
incurred an accumulated deficit of approximately $69,192 million through March
31, 1998.
Revenue. The Company's revenue is derived primarily from WAM!NET Service
contracts which are usually annual, automatically renewable service contracts
with a minimum monthly fee and additional charges for usage exceeding the
monthly minimum. The Company offers the WAM!NET Service at scaled minimum
usage fees, generally ranging from $250 per month to $3,000 per month. Service
installation typically lags contract signing by approximately 90 days due to
the time required to obtain telephone service installation from local
telephone companies. The Company begins to earn gross revenue following
installation of service at a customer's premise and the expiration of a
promotional period, if any, extended to such customer. The Company also incurs
service rebates that offset the gross revenue generated by the Company. Free
trial periods under the Company's various promotional programs have ranged
from 60 days to six months and have been extended to 47.9% of the Company's
customer base to date. As a result, the Company's generation of net revenue
from any customer may lag contract signing by a period of three to nine
months. The Company's experience with promotional programs has been favorable
to date, with approximately 97% of customers continuing to subscribe to the
WAM!NET Service following expiration of the promotional period extended to
them. The Company expects the use of promotional programs in the Graphic Arts
industry to decline with increasing penetration of the market, but the Company
will likely use similar promotional programs to introduce the WAM!NET Service
to its other targeted industries. The Company also plans to continue to
develop new, Industry Smart applications to increase the volume of files
transferred over the network.
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Revenue is primarily driven by the number of installed customer locations,
the length of time a customer has been using the service, the number of work
flow partners with whom a customer exchanges data and the size of the files
exchanged.
Network Communications Fees. Network communications fees include both the
costs of the high bandwidth carrier services interconnecting the Company's
national infrastructure of NOCs and Distribution Hubs and the costs of local
telephone circuits connecting NADs to the nearest Distribution Hub. Local
telephone circuit ("last mile") connections account for approximately 60% of
these charges, with significant differences between urban and rural connection
costs. National carrier service, provided primarily by WorldCom, accounts for
most of the balance of these charges. Network communication fees are generally
a fixed monthly cost per circuit. The excess of these fees over revenue
represents excess capacity costs which the Company expects will decline with
increasing utilization of the WAM!NET Network. The Company actively seeks to
obtain and deploy technologies that will reduce the costs of last mile
connections, including wireless technologies and remote dial-up capabilities.
The Company also intends to use its network management tools to optimize
existing and planned network capacity as volume increases and traffic patterns
begin to emerge. The Company plans to consider new pricing for its services
which take into account the significant cost differential between urban and
rural last mile connections. The Company also believes it may benefit from
growing competition among telephony and communications providers for the
provision of last mile connectivity.
Network Operations Expense. Network operations expense represents costs
directly associated with developing, maintaining, managing and servicing the
WAM!NET Network. Such costs include direct labor, vendor service fees, point-
of-presence charges and research and development charges which are often
incurred in advance of receiving revenue. The Company's currently installed
NOCs, which account for the substantial majority of direct labor and network
operating costs, are capable of providing for and managing the Company's
current and planned North American operations. Costs associated with the
development of WAM!BASE, WAM!PROOF and other network applications are also
contained in network operations expense and are incurred in advance of revenue
receipt. The Company expects that network operations costs will increase as
the WAM!NET Network expands; however, the cost of network operations as a
percentage of revenue is expected to decline.
Sales and Marketing Expense. The Company's sales and marketing efforts are
intended to create awareness of the WAM!NET Service, communicate its potential
for work flow enhancement, demonstrate its reliability and establish strong
brand recognition. As a result, the Company aggressively markets the WAM!NET
Service through a combination of trade journal advertising, trade show
attendance, promotional programs, direct field sales, tele-sales, cooperative
sales presentations and active participation in industry sponsored seminars
and publications. The Company expects to continue to incur significant sales
and marketing expenses to obtain increased penetration of the Graphic Arts
industry, to generate increased traffic among customers and to market the
WAM!NET Service to other targeted industries.
General and Administrative Expense. The Company's general and administrative
expense includes administrative salaries, related overhead and professional
service fees. These costs reflect expenditures related to the rapid growth and
expansion of the Company's administrative infrastructure necessary to manage
its expanding operations, costs incurred in 1997 for relocation to its new
administrative and network operations facility and professional service fees
for financing activities, contract negotiations and acquisitions. The Company
expects to continue to incur substantial general and administrative expense as
the Company deploys the WAM!NET Service internationally.
Depreciation and Amortization. To facilitate entry into its target markets,
the Company furnishes its customers with all the hardware and software
necessary for them to use the WAM!NET Service on a turn-key, pay-by-use basis.
As a result, the Company retains ownership of the NADs it furnishes to
customers for their use of the WAM!NET Service. Depreciation and amortization
expense includes depreciation of NADs, Distribution Hubs and equipment located
in the NOCs. The Company's network infrastructure is organized to use the most
expensive equipment in the NOCs, less expensive equipment for Distribution
Hubs and the least
39
<PAGE>
expensive equipment in the NADs. The Company anticipates substantial capital
investments for additional Distribution Hubs to be located in North America
and internationally, WAM!BASE storage facilities to be located in the existing
NOCs and NADs to be located at customer premises. As a result, the Company
anticipates that depreciation and amortization expense will continue to
increase in future periods commensurate with future equipment purchases.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1998 COMPARED WITH THREE MONTH PERIOD ENDED
MARCH 31, 1997
Revenue
Revenue from the WAM!NET Service for the three month period ended March 31,
1998 was $1,320,026, compared to $116,678 for the three month period ended
March 31, 1997, an increase of $1,203,348, or 1,031%. This increase was due to
a 486.3% increase in the number of subscribers to the WAM!NET Service from
approximately 153 installed customer sites on March 31, 1997 to approximately
744 installed customer sites on March 31, 1998. At March 31, 1998, the Company
had contracts to install NAD's at 625 customer sites awaiting installation of
telephony services. Service rebates for the three month period ended March 31,
1998 were $271,000, or 20.5% of revenue. Service rebates for the three month
period ended March 31, 1997 were $0.
Revenue from software and hardware sales for the three month period ended
March 31, 1998 was $822,000, compared to $0 for the three month period ended
March 31, 1997. Revenues from software and hardware sales are a result of the
Company's acquisition of 4-Sight, which was consummated as of March 13, 1998.
Other service fee revenue for the three month period ended March 31, 1998
was $9,000, compared to $5,108 for the three month period ending March 31,
1997, an increase of $3,892, or 76.2%. Other service fees revenue is primarily
derived from ancillary transactions with existing WAM!NET Service customers
which includes consulting services and hardware sales. The increase reflects a
minor increase in customer consulting hours during the three month period
ended March 31, 1998.
Operating Expenses
Network communications fees for the three month period ended March 31, 1998
were $3,151,571, compared to $862,369 for the three month period ended March
31, 1997, an increase of $2,289,202 or 376.7%. Network operations expense for
the three month period ended March 31, 1998 was $3,259,126, compared to
$848,834 for the three month period ended March 31, 1997, an increase of
$2,410,292 or 283.9%. These increases were primarily due to the 386.3%
increase in customers that subscribed to the WAM!NET Service during the three
month period ending March 31, 1998.
Cost of software and hardware sales for the three month period ended March
31, 1998 was $261,000, compared to $0 for the three month period ended March
31, 1997. Costs of software and hardware sales are a result of the Company's
acquisition of 4-Sight, which was consummated as of March 13, 1998.
Sales and marketing expenses for the three month period ended March 31, 1998
were $2,352,529, compared to $1,229,345 for the three month period ended March
31, 1997, an increase of $1,123,184, or 91.4%. This increase primarily
resulted from the costs associated with building the Company's direct sales
force and marketing department, and higher outside advertising agency and
trade show expenditures.
General and administrative expense for the three month period ended March
31, 1998 was $14,466,910, compared to $977,318 for the three month period
ended March 31, 1997, an increase of $13,489,592, or 1,380.3%. This increase
is primarily due to a $11,423,502 non-cash charge relating to officer
compensation expense arising from the Company's election to accelerate the
vesting period for options granted to selected officers. The additional
increase in general and administrative expenses of $2,066,090 during the three
month
40
<PAGE>
period ended March 31, 1998 as compared to the three month period ending March
31, 1997 was due to increased operational support requirements due to the
rapid expansion of the Company's services and corporate facilities.
Depreciation and amortization for the three month period ended March 31,
1998 was $1,921,248, compared to $287,302 for the three month period ended
March 31, 1997, an increase of $1,633,946, or 568.72%. As a percentage of
gross WAM!NET Service revenue, depreciation and amortization was 246.2% in
1997, compared to 68.7% for the same period in 1998. This increase is
primarily due to an increase in the installed customer premise and
communications backbone equipment as a result of the increase in the number of
customers that are being provided with the WAM!NET Service.
Interest expense for the three month period ended March 31, 1998 was
$3,444,282, compared to $778,297 for the three month period ended March 31,
1997, an increase of $2,665,985, or 342.5%. The increase was primarily due to
the Company's financing of its 1997 and 1998 operations through the issuance
of various debt instruments including $24 million of long-term subordinated
notes to WorldCom, $9.6 million of equipment financing and $208.5 million of
Notes issued in the Initial Offering.
Income Taxes
For the three months ended March 31, 1998, the Company experienced net
operating losses of $26,682,969 and paid no income taxes. These losses are
available to offset future taxable income through the year 2013 and are
subject to the limitations of Section 382 of the Internal Revenue Code of
1986, as amended. These limitations may result in expiration of net operating
loss carryforwards before they can be utilized.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Revenue
Revenue for the year ended December 31, 1997 was $1,627,590 compared to
$110,424 for the year ended December 31, 1996, an increase of $1,517,166, or
1,373.9%. This was primarily due to a 1,375.8% increase in the number of
subscribers to the WAM!NET Service from approximately 33 installed customer
sites on December 31, 1996 to approximately 487 installed customer sites on
December 31, 1997. At December 31, 1997, the Company had contracts to install
NADs at 578 customer sites awaiting installation of telephony services.
Service rebates for the year ended December 31, 1997 were $150,400, or 9.2% of
revenue. Service rebates for the year ended December 31, 1996 were $0.
Other service fees revenue for the year ended December 31, 1997 was $77,748,
compared to $168,290 for the year ended December 31, 1996, a decrease of
$90,542, or 53.8%. Other service fees revenue is primarily derived from minor
transactions with currently existing WAM!NET Service customers which includes
consulting services and hardware sales. The decrease was primarily due to the
expiration of a contractual consulting relationship that the Company had in
place with a customer during 1996.
Operating Expenses
Network communications fees for the year ended December 31, 1997 were
$7,363,667, compared to $816,403 for the year ended December 31, 1996, an
increase of $6,547,264, or 802.0%. Network operations expense for the year
ended December 31, 1997 was $7,477,753, compared to $1,108,807 for the year
ended December 31, 1996, an increase of $6,368,946, or 574.4%. These increases
were primarily due to the 1375.8% increase in customers that subscribed to the
WAM!NET Service during 1997.
Sales and marketing expense for the year ended December 31, 1997 was
$9,207,486, compared to $2,052,860 for the year ended December 31, 1996, an
increase of $7,154,626, or 348.5%. This increase primarily resulted from costs
associated with building the Company's direct sales force and marketing
department, and higher outside advertising agency and trade show expenditures.
41
<PAGE>
General and administrative expense for the year ended December 31, 1997 was
$4,320,128, compared to $2,609,879 for the year ended December 31, 1996, an
increase of $1,710,249, or 65.5%. General and administrative expense increased
during 1997 as operational support requirements intensified due to the rapid
expansion of the Company's services and corporate facilities.
Depreciation and amortization for the year ended December 31, 1997 was
$2,668,177, compared to $447,233 for the year ended December 31, 1996, an
increase of $2,220,944, or 496.6%. As a percentage of total revenue,
depreciation and amortization was 171.6% in 1997 compared to 160.5% in 1996.
This increase is primarily due to an increase in the installed customer
premise and communications backbone equipment as a result of the increase in
the number of customers.
Interest expense for the year ended December 31, 1997 was $4,355,676,
compared to $903,443 for the year ended December 31, 1996, an increase of
$3,452,233, or 382.1%. The increase was primarily due to the Company's
financing of its 1997 operations through the issuance of various debt
instruments, including $24 million of long term subordinated notes to
WorldCom, $18.8 million in borrowings from the Revolving Credit Facility and
$9.6 million of equipment financing.
Income Taxes
For the year ended December 31, 1997, the Company experienced net operating
losses of $29,482,273 and paid no income taxes. These losses are available to
offset future taxable income through the year 2013 and are subject to the
limitations of Section 382 of the Internal Revenue Code of 1986, as amended.
These limitations may result in expiration of net operating loss carryforwards
before they can be utilized.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenue
Revenue for the year ended December 31, 1996 was $110,424, compared to
$20,480 for the year ended December 31, 1995, an increase of $89,944 or
439.2%. This was due primarily to the increase in the number of customers
using the WAM!NET Service. On December 31, 1995, the Company serviced
approximately 6 installed customer sites and on December 31, 1996 serviced 33
installed customer sites.
Other service fees revenue for the year ended December 31, 1996 was
$168,290, compared to $159,851 for the year ended December 31, 1995, an
increase of $8,439 or 5.3%. Other service fees revenue is primarily derived
from minor transactions with currently existing WAM!NET Service customers
which includes consulting services and hardware sales.
Operating Expenses
Network communication fees for the year ended December 31, 1996 were
$816,403, compared to $46,267 for the year ended December 31, 1995, an
increase of $770,136, or 1,664.5%. Network operations expense for the year
ended December 31, 1996 was $1,108,807, compared to $539,003 for the year
ended December 31, 1995, an increase of $569,804, or 105.7%. These increases
were primarily due to the 450.0% increase in the number of WAM!NET Service
customers during 1996 and the installation of certain Distribution Hubs
throughout the United States.
Sales and marketing expense for the year ended December 31, 1996 was
$2,052,860, compared to $93,832 for the year ended December 31, 1995, an
increase of $1,959,028, or 2,087.8%. This increase, to a large extent,
represents the significant costs associated with building and supporting a
dedicated direct sales force and product marketing organization.
General and administrative expense for the year ended December 31, 1996 was
$2,609,879, compared to $727,434 for the year ended December 31, 1995, an
increase of $1,882,445, or 258.8%. General and
42
<PAGE>
administrative expense increased during 1996 as operational support
requirements intensified due to the expansion of the Company's services and
corporate facilities.
Depreciation and amortization for the year ended December 31, 1996 was
$447,233, compared to $30,677 for the year ended December 31, 1995, an
increase of $416,556, or 1,357.9%. As a percentage of gross revenue,
depreciation and amortization was 160.5% in 1996 compared to 17.0% in 1995.
This increase is primarily due to the intense expansion of the WAM!NET Network
during 1996 and the corresponding requirement for both customer premise and
communications backbone equipment.
The Company's results of operations for the years ended December 31, 1996
and 1997 are not necessarily indicative of future periods. The Company's
principal focus during such time was the selection and hiring of personnel for
sales, marketing operations, customer service, development, network
infrastructure implementation and maintenance necessary to conduct its
activities, and the development and release of various proprietary WAM!NET
Service products. The Company expects that future results will reflect the
commercial operations of the WAM!NET Service.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1998, the Company has derived substantially
all of its operating capital from the issuance of short- and long-term debt
instruments. At March 31, 1998, the Company had a total of approximately
$143.4 million in long-term debt, of which approximately $2.7 million becomes
payable during 1998.
During September of 1997, the Company established the Revolving Credit
Facility, the proceeds of which are being used by the Company to fund its
operations and purchase WAM!NET Network equipment. The Revolving Credit
Facility was established under an agreement with WorldCom, by which WorldCom
guaranteed the Company's obligations under the Revolving Credit Facility. At
March 31, 1998, the Company had $0 borrowed under the Revolving Credit
Facility. Interest and principal on the Revolving Credit Facility become
payable in July 1999. Borrowings by the Company under the Revolving Credit
Facility require the prior consent of WorldCom.
On March 5, 1998, the Company consummated the Initial Offering, and received
net proceeds therefrom of approximately $120.6 million. Cash interest does not
accrue nor is payable on the Notes prior to March 1, 2002. Thereafter, cash
interest on the Notes will accrue at a rate of 13 1/4% per annum (calculated
on a semi-annual bond equivalent basis) and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing September 1, 2002.
The Company used the proceeds of the Initial Offering as follows: (i) $20.0
million to pay the cash portion of the 4-Sight Acquisition, (ii) approximately
$25.0 million to repay the borrowings under the Revolving Credit Facility and
(iii) the balance to be used further the Company's business development and
expansion strategy, to enhance the WAM!NET Service infrastructure and develop
additional value-added features and services, to optimize marketing, sales and
customer support and service capabilities, and for working capital and other
general corporate purposes.
The Company intends to pursue one or more financings in 1998, totalling
approximately $100.0 million, for which it has received indications of
interest from certain financial institutions. The Company believes that the
net proceeds of the Offering and such financings together with expected cash
from operations will be sufficient to finance the Company's operations through
September 30, 1999. This includes the purchase and installation of all
necessary WAM!NET Network and WAM!BASE equipment required for both national
and international operations, marketing and sales activities, continued
development of enhancements to the WAM!NET Service and service of its debt
obligations.
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BUSINESS
OVERVIEW
WAM!NET provides a managed, high speed digital data delivery network
service, the WAM!NET Service, that integrates the Company's industry-specific
work flow applications with commercially available computer and telephony
technologies. The Company, an affiliate of WorldCom, offers an Industry Smart
service designed to provide its subscribers with a turn-key single source
solution for the rapid, secure, accurate and reliable transportation and
management of information, with a simple "pay by the megabyte" pricing plan
requiring no capital investment. The WAM!NET Service provides seamless digital
connectivity among "communities of interest," drawing together customers and
trading partners which have collaborative work flows. The Company has
developed advanced WAM!NET Service applications, including an on-line digital
job tracking and billing system, CIS, an application enabling remote proofing,
WAM!PROOF, and a remote data archiving, retrieval and distribution system
WAM!BASE. WAM!PROOF was commercially released in the second quarter of 1998
and WAM!BASE is scheduled for commercial release in the second half of 1998.
The Company has initially capitalized on the growing need for managed
digital data delivery services in the printing, publishing, advertising, pre-
press, corporate communication and graphic arts industries (collectively,
"Graphic Arts"). The Company believes that the WAM!NET Service is achieving
wide acceptance among leading firms within the Graphic Arts community of
interest, which in turn encourages those with whom such firms share digital
information to subscribe to the WAM!NET Service. Since it commercially
released and commenced marketing of the WAM!NET Service in March 1996, the
Company has established a subscriber base of more than 1,500 customer
locations, including Time, Donnelley, Disney, J.C. Penney, Fox Broadcasting
and Macy's. In October 1997, the WAM!NET Service received the Graphic Arts
Technical Foundation (an independent trade association) award for the product
or service that will most likely change the manner in which the Graphic Arts
industry conducts business.
MARKET OPPORTUNITY
The Company believes that the increasing digitalization of work product and
work flow in data intensive and time sensitive industries is driving demand
for managed, secure and reliable electronic data transportation and archiving
services. Based on information derived by Morlok Research from independent
studies, the Company believes that the Graphic Arts industry will spend
approximately $10.0 billion between 1998 and 2000 on the digitalization of its
production and printing process, including the introduction by commercial
printers of CTP technology, which facilitates a fully digital work product.
Despite this movement toward the digital creation, storage and outputting of
data, the lack of reliable, cost effective electronic transport mechanisms has
resulted in many companies continuing to use overland or air courier services
to deliver magnetic tape or optical disk copies of data to others who require
access to such data. This non-digital step results in a method of transporting
data which can be inefficient, significantly lengthening production cycle time
and leading to possible errors. The Company believes the potential market for
managed digital data transportation and asset storage services is $4.3 billion
and $2.3 billion, respectively, in the Graphic Arts industry alone.
The Company believes that existing electronic means for transporting large
digital data files have proven to be ineffective and/or prohibitively
expensive for most companies. Large files may take up to several days to
transport using the Internet or the fastest standard telephone modems (56,000
bps) and may lose significant quality in transmission. The use of the Internet
and standard telephone modems can also lead to other significant
disadvantages, most notably high telephone usage charges and a lack of
security, accountability and reliability of transmission. Other non-dedicated
technologies offer more speed than the Internet or a standard telephone modem,
but at a significantly higher cost. Such technologies may also lead to data
degradation and integration obstacles. Large data files can be transported
reliably in minutes over dedicated point to point telephone lines (such as DS1
and DS3); however, the substantial equipment necessary at each dedicated
connecting point and the sizable costs of leasing a dedicated point to point
telephone line makes this means of transport uneconomical for most companies
transporting large data files.
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COMPETITIVE ADVANTAGES
The Company believes it is uniquely positioned to meet the growing need for
a cost-effective and reliable means of electronically transporting, storing
and retrieving digital data due to the following competitive advantages:
. Purpose-Built, Industry Smart Network. The WAM!NET Service operates via a
nationwide network that integrates the Company's proprietary, value-added
Industry Smart applications with a purpose-built network of Company owned
Distribution Hubs interconnected redundantly with high-bandwidth leased
telephone circuits. The Company currently maintains 23 Distribution Hubs,
located in major United States and Canadian cities, London, England and
Paris, France. The Company operates two NOCs in Minneapolis and Las Vegas
through which it monitors all data transmission on a 24 hour a day, 7 day a
week basis. The Company believes the WAM!NET Service offers reliable and
secure data transmissions with no degradation in quality and guaranteed
delivery and throughput.
. Single Source, Turn-Key Service Solution. The Company provides each
subscriber with all of the hardware, software, transmission facilities and
management services necessary to use the WAM!NET Service. Installation of
the service, which is performed on behalf of the Company by national
service providers, consists of connecting the customer to the nearest
Distribution Hub through a Company-owned NAD and an appropriate
communications link (such as T1, ISDN, frame relay, ADSL or other suitable
facility) matched to the customer's transfer speed and throughput
requirements. The WAM!NET Service is designed for ease of use, with a point
and click e-mail type interface and a simple "pay by the megabyte" pricing
model. The Company's strategy is to offer customers the WAM!NET Service at
rates competitive with overland and air courier services furnished on an
annual or multi-year subscription basis. There is no up-front capital
investment by the customer, who is charged based on a minimum monthly usage
fee and volume of data sent per transaction.
. Industry Smart Applications. The Company collaborates with leading
participants in its target markets and designs applications addressing
industry-specific work product and work flow requirements. These Industry
Smart applications combined with the guaranteed delivery and throughput of
the WAM!NET Service allow work partners in distant geographic locations to
collaborate digitally in real time. The WAM!PROOF application will allow
customers to directly output across the WAM!NET Network to proofing devices
in remote locations, thereby eliminating the need to deliver physical
proofs by overnight courier. The WAM!BASE application will provide a
collaborative digital asset management service that can eliminate the need
for redundant archives and shrink work cycle time by providing more
immediate access to desired data files.
. Customer Support and CIS. The Company has implemented extensive customer
service functions, including customer support technicians who are available
24 hours a day, are trained extensively in the Company's service offerings
and who understand the industry-specific work flow of the Company's
customers. CIS allows customers to view data files, verify account
information and check the status of transactions on-line, as well as to log
help requests. The Company provides its customers itemized information
regarding the size, cost, and destination of each "shipment" that may be
electronically imported directly into the customer's own accounting system,
which facilitates capturing of project-specific costs and billing of
services on a job-by-job basis.
. First to Market Advantage. By being the first to market a managed, high
speed digital data delivery network with Industry Smart applications, the
Company believes it is becoming the industry standard in the Graphic Arts
industry and is positioned to become the industry standard in its other
target industries. The Company has found that industry leaders such as Time
and Donnelley (early WAM!NET Service customers) actively encourage their
work flow partners to subscribe to the WAM!NET Service to increase work
flow efficiencies. Potential entrants into the managed digital data
delivery field would need to deploy a nationwide, purpose-built network
integrated with customized value-added applications, and simultaneously
convert industry leaders and their work flow partners, more than 900 of
whom have contracted with the Company for the WAM!NET Service at more than
1,500 locations. Customers currently subscribing to the WAM!NET Service
include 11 of the 20 largest publishers, 9 of the 20 largest printers,
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16 of the 20 largest advertising agencies, and 10 of the 20 largest pre-
press-graphic arts agencies in the United States, as well as the corporate
communications and advertising departments of many United States
corporations.
. Strategic Relationship with WorldCom. The Company has entered into a
strategic alliance with WorldCom which includes equity and debt investments
and operating loan guarantees totaling approximately $50.0 million.
WorldCom is currently entitled to designate a majority of the Board of
Directors of the Company and, through its ownership of convertible debt and
warrants, has the right to acquire a majority of the Common Stock of the
Company. WorldCom also provides telecommunication and other services to the
Company on a non-exclusive basis. The Company anticipates that its
relationship with WorldCom will enable it to access the worldwide
infrastructure, sales and marketing work force, telephony technologies,
high bandwidth carrier service and other services of WorldCom and its
affiliates, including UUNet.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of enhanced,
managed digital data delivery and archiving services to industries comprised
of interdependent participants requiring industry specific, high speed digital
connectivity. WAM!NET's strategy to achieve this objective and to build a
long-term sustainable competitive advantage is to:
. Increase its Customer Base to Create Critical Mass. The Company's sales and
marketing strategy has been designed to rapidly penetrate its initial
target market, the Graphic Arts industry. Elements of this strategy
include: (i) creating the WAM!NET Service as a turn-key, single source
service solution; (ii) implementing an easy to understand "pay by the
megabyte" pricing model (which eliminates the need for any capital
investment by customers); (iii) designing aggressive advertising, trade
show, event marketing and direct selling to drive trials, including
introductory risk-free product evaluations for industry leaders; (iv)
building a direct sales force to target leading industry participants who,
in turn, encourage their work flow partners to subscribe to the WAM!NET
Service; and (v) implementing programs in which large receivers of data
(e.g., printers) promote and market the WAM!NET Service, along with the
WAM!NET direct sales force, to customers and work flow partners. The
Company believes that the customer benefits of the WAM!NET Service will
increase exponentially as the total number of WAM!NET Service subscribers
increases.
. Apply Industry Smart Network Model to Other Industries. The Company
believes that the WAM!NET Industry Smart network model can provide the
benefits and advantages it offers the Graphic Arts industry to other
industries with similar data transportation, storage and retrieval
requirements. Some of the Company's customers that are in the entertainment
industry, such as Fox Broadcasting and Disney, currently subscribe to the
WAM!NET Service for their Graphic Arts-related needs. The Company is
presently developing Industry Smart applications suitable to the
entertainment industry and is developing corresponding marketing and sales
strategies. The Company is also collaborating with industry leaders in the
medical imaging industry to develop and implement Industry Smart
applications in connection with marketing to that industry.
. Drive Utilization Through Value-Added Services and Volume Discounts. The
Company incorporates, develops and implements value-added Industry Smart
applications for customers, such as CIS, WAM!PROOF and WAM!BASE, which the
Company believes will provide significant benefits to its customers and
stimulate increased usage of the WAM!NET Service. The Company also offers
volume discounts and a variety of promotional programs for industry leaders
to induce customers to send increasingly large volumes of data traffic
across the WAM!NET Network.
. Expand and Enhance Infrastructure and Develop Worldwide Capabilities. The
Company intends to invest in resources and systems to ensure that the
WAM!NET Network's operating infrastructure and support services provide
optimal digital connectivity to its subscribers in a guaranteed performance
and competitive rate environment. The Company is currently preparing to
expand into parts of Europe and Asia for the purpose of providing its
customers with desired international connectivity. The Company expects to
expand
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the WAM!NET Network into approximately 10 countries by the end of 1998, and
will initially locate additional Distribution Hubs in London, Frankfurt,
Paris, Amsterdam, Milan, Tokyo, Hong Kong, and Sydney. The London and Paris
Distribution Hubs were recently installed and the Company is currently in
the process of installing a Distribution Hub in Amsterdam. During 1998, the
Company expects to further develop its international service infrastructure
by providing installation and customer support via third parties,
developing local sales and distribution relationships and may establish
additional Distribution Hubs and regional NOCs in selected countries. The
Company's acquisition of 4-Sight will permit subscribers, including 4-
Sight's 30,000 customers in 44 countries, to gain remote access to the
WAM!NET Network through transmission software being developed by 4-Sight.
The Company may also establish its international presence through other
acquisitions, joint ventures or other similar business transactions.
. Reduce Costs and Improve Operating Margins. The Company seeks to reduce
costs and improve operating margins by (i) spreading the cost of installing
and operating the WAM!NET Network over a large base of customers; (ii)
designing the network to use more expensive hub equipment in a few national
and regional operational centers and less expensive equipment at each
customer site; (iii) deploying cost-reduced NADs for less volume intense
customers; (iv) pursuing programs to reduce the costs of capital equipment,
including obtaining mass purchasing discounts for network infrastructure
and customer premise equipment; (v) utilizing network management tools to
optimize existing and planned network capacity as volume increases and
traffic patterns begin to emerge; (vi) deploying new, lower-cost last mile
local loop technologies to connect customer sites to Distribution Hubs,
including wireless technologies and remote dial-up capabilities; and (vii)
deriving other incremental revenue from value-added services such as
WAM!BASE, which can be delivered over the existing WAM!NET Network
infrastructure. The Company also believes its operating margins will
improve as a result of anticipated cost reductions associated with
increasing competition in both the local and long distance markets.
TARGET MARKET OVERVIEW
The WAM!NET Service has been designed to support a community of interest
among interdependent participants in time sensitive and data intensive
industries with highly collaborative work flows. The Company is currently
actively marketing its services to the Graphic Arts industry, and is preparing
to market the WAM!NET Service to other communities of interest with similar
data transportation and archiving needs as those found in the Graphic Arts
industry, including the entertainment and medical imaging industries. The
Company believes it can apply its business strategy to these other industries
by capitalizing on the network, operations, service, application engineering
and sales/marketing infrastructure already developed by the Company and by
developing and offering "Industry Smart" applications that are tailored to the
work flow requirements of those industries.
Graphic Arts. The Graphic Arts industry is comprised of printers, pre-press
production firms, advertising agencies, publishing firms, graphic artists and
list management firms who design, prepare and produce printed materials. Based
on information in the Mills Davis Report, the GISTICS Brief and research
performed for the Company by Morlok Research, the Company estimates the total
potential size of the managed data delivery service and the digital asset
storage markets for the Graphic Arts industry in the United States to be $4.3
billion and $2.3 billion, respectively. Morlok Research's estimate of the
number of potential sites in key segments of the Graphic Arts industry are
outlined below, based on information contained in the Mills Davis Report.
POTENTIAL SITES BY MARKET SEGMENT AND FIRM SIZE
<TABLE>
<CAPTION>
LARGE MEDIUM SMALL TOTAL
----- ------ ------- -------
<S> <C> <C> <C> <C>
Printers(1)..................................... 1,088 4,169 64,830 70,087
Pre-Press(1).................................... 108 427 4,584 5,119
Publishers(2)................................... 597 3,031 39,522 43,150
Ad Agencies/Graphic Designers(3)................ 1,615 10,742 68,478 80,835
Corporate Communications(4)..................... 2,402 5,405 112,294 120,101
List Management(4).............................. 103 231 649 983
----- ------ ------- -------
Total Sites.................................... 5,913 24,005 290,357 320,275
</TABLE>
Footnotes on the following page.
47
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- --------
(1) Large, medium and small means having at least 100, at least 25 but less
than 100 or less than 25 employees, respectively.
(2) Large, medium and small means having at least 250, at least 50 but less
than 250 or less than 50 employees, respectively.
(3) Large, medium and small means (i) advertising agencies having at least
100, at least 25 but less than 100 or less than 25 employees,
respectively; and (ii) direct mail advertising, commercial photography and
graphic art design firms having at least 25, at least 5 but less than 25
or less than 5 employees, respectively.
(4) Large, medium and small means having at least 25, at least 5 but less than
25 or less than 5 employees, respectively.
The materials created and printed by the Graphic Arts industry include
books, magazines, newspapers, catalogues, circular advertisements, billboard
advertisements, marketing materials, brochures, packaging and multi-media
materials. According to the Mills Davis Report, approximately 50% of content
in the Graphic Arts industry currently created in a digital format using
specialized software applications such as Adobe PhotoShop and Quark Express,
and by the year 2000, more than 64% of the Graphic Arts industry is expected
to be using digital page/imaging software. File assembly and printing
preparation activities are also becoming digital with the increasing use of
digital scanners and cameras. Analog images, including photographs, can now be
easily scanned and digitally incorporated into the production process.
Additionally, adoption of CTP technologies by large- and medium-sized printers
facilitates a fully digital work flow throughout the entire creation and
printing process.
The digitalization of the printing process has resulted in the need for
higher bandwidth connectivity to move data intensive printing jobs through the
print production process and storage solutions which provide asset management
capabilities and collaborative access to the stored digital assets. Today, the
majority of work files are stored on magnetic or optical disks and transported
via local or overnight couriers, such as Federal Express and United Parcel
Service. The Company anticipates that large portions of data will increasingly
be delivered via digital networks, driven primarily by the need to compress
time schedules and reduce production costs. The Company expects that once
market leaders and other influential participants in these industries become
significant users of managed data delivery services, other industry
participants will follow in an effort to remain competitive.
The Company believes it is positioned to take advantage of the following
factors, identified by the Mills Davis Report, which indicate that between
1996 and the year 2000: (i) the percentage of print jobs transferred across
networks will quadruple, representing over 40% of all print jobs and two
thirds of print job revenue; (ii) more than 50% of all publishing work flow
and more than 60% of all creative services workflow will be conducted almost
entirely over networks; (iii) businesses with the equivalent of TI wide area
connectivity will increase 5 times; (iv) manufacturers will integrate CTP
equipment creating a total digital pre-press work flow; (v) high resolution
digital cameras will be affordable for most Graphic Arts users; and (vi) most
medium to large printers and pre-press firms will offer digital content
management services to support re-purposing of digital data into other
products.
Entertainment Industry. The entertainment industry, which is closely related
to the Graphic Arts industry, provides another potential community of interest
for the expansion of the WAM!NET Service. This industry consists of many
subsectors, including feature films, broadcast, cable and satellite video,
high-definition television, home video, video games and video applications on
the Internet. An adjunct market to the entertainment industry is the distance
learning market, which includes corporate (training, marketing and
communications) and educational distance learning. Each of these subsectors is
moving away from traditional analog media, such as film, photographs and other
physical media expression, and toward digital media. Digital tools previously
available only to large media customers (such as television networks and major
film studios) are now widely available to the entire industry. The Company
believes the WAM!NET Service will be affordable to a wide spectrum of
customers, including the independent contractor/artist and small, medium or
large production and post-production studios, as well as to global media
conglomerates.
In contrast to the Graphic Arts industry, however, which involves the
creation of static or still imagery, the entertainment industry principally
produces motion imagery coupled with digital audio. As a comparison, a 30-
second television advertisement is comprised of approximately 500 times the
amount of digital data found in the
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typical full page magazine advertisement. The Company believes the WAM!NET
Network is sufficiently scalable and robust to accommodate the high-speed data
transfer rates necessary to transport motion imaging in the entertainment
industry.
The Company's strategy is to enable remote collaboration throughout all
phases of production, including pre-production (planning, CAD and
previsualization), to production (filming and "video dailies"), post
production (picture and sound editing and special effects creation) and
eventually distribution services. The Company believes that the WAM!NET
Service, by speeding up the iterative cycle of collaborative production, will
provide significant creative advantages and cost savings to existing
production processes.
Medical Imaging. The emergence of digital medicine disciplines has created
another community of interest that may have promising applications for the
WAM!NET Service. The increasing availability of advanced computer technology
combined with continued pressures to contain health care costs is resulting in
significant portions of the medical imaging work flow being completely
digitized, including output from medical scanning equipment such as Computed
Tomography ("CT") and Magnetic Resonance Imaging ("MRI") devices. These
devices capture and display patient data in digital formats, generating data
files often in excess of 35 megabytes per file.
The Company has identified multiple steps in the medical imaging work flow
process which may effectively be addressed by the WAM!NET Service. For
example, radiologists and other healthcare professionals who examine the
output generated by CT and MRI devices are often located in facilities
separate from the facilities where the digital images are created.
Furthermore, the increasing prominence of health maintenance organizations and
other provider alliances, where member patients can go to any facility within
the provider's network, may necessitate the increased ability to retrieve and
transport data, including medical imaging data, between physically separate
facilities. Currently, most files are either printed to film or copied to
optical disks and then physically transported via courier services between
facilities. In cases where digital images are printed to film, healthcare
professionals lose the ability to do real time reads of the images. Current
methods of storing medical images also present file transportation and storage
problems. Analog files need to be manually located, copied and couriered to
the healthcare professional for examination. It is estimated in the SPIE Paper
that 10%-25% of images stored in a (non-digital) film format are misplaced
after they are stored. Digital file storage is emerging as an option, but
optical disks still need to be located, copied and then transported to remote
sites.
As a result, real-time remote imaging and archiving among hospitals is
gaining momentum and may create efficiencies by allowing radiologists to
collaborate more effectively. As documented in the January 1998 Journal of
Diagnostic Imaging, Hammersmith Hospital in London, England, found that the
change from hardcopy to digital archiving reduced staffing requirements by 8
positions, saved an estimated $0.7 million per year, and increased workload by
4,500 exams per year without adding additional radiologists. The Company
believes the industry will need to eliminate multiple archives to adopt full
digital implementation and provide affordable long-term on-line storage.
The Company believes that medical service providers, particularly those of
substantial size or that span a number of separate facilities, have
significant medical imaging requirements. It is estimated in the SPIE Paper
that the current medical imaging storage costs of medical institutions in the
United States is $7.5 billion per year.
4-SIGHT BUSINESS
On March 13, 1998, the Company consummated the purchase of the entire share
capital of 4-Sight, a private limited company incorporated under the laws of
England and Wales, for $20.0 million in cash and up to 3,250,000 shares of the
Company's Common Stock. 4-Sight is a provider of data transmission software
and related products and applications targeted to the Graphic Arts industry,
primarily utilizing ISDN lines, with particular emphasis on European, Asian
and North American markets and is engaged primarily in software development
and distribution. The software user is generally responsible for all software
and hardware installation, procuring an ISDN telephony connection and
verifying the integrity of their files being sent over a
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<PAGE>
public network infrastructure. The Company believes that there are potential
synergies in coupling 4-Sight's data transportation software with WAM!NET's
managed, network infrastructure and that the 4-Sight Acquisition will enable
the Company to achieve broader market coverage in the Graphic Arts market by
combining 4-Sights international presence and penetration of the lower volume
user market with the Company's domestic presence and penetration of the higher
volume user market. At December 31, 1997, 4-Sight had a customer base of more
than 30,000 customer locations, including 3,000 sites in the United States.
4-Sight's current set of products has been designed to work with public ISDN
telephony infrastructures used widely in Europe and Japan and to a lesser
extent in the United States. 4-Sight does not provide managed network services
to deliver files. 4-Sight employs developers to design and distributes its
software products on a global basis through resellers. 4-Sight currently has 4
offices located in the United Kingdom, the United States and Germany. In
addition, 4-Sight has formal sales agreements with resellers who distribute 4-
Sight's products in 19 countries. 4-Sight's software products are installed at
over 12,000 sites in the United Kingdom, where 4-Sight estimates it has a 90%
market share in the Graphic Arts market segment. Key users of 4-Sight software
in the United States include Xerox Corporation ("Xerox"), Ogilvy & Mather
Worldwide, Inc., McCann-Erickson Worldwide and National Geographic Society.
4-Sight Product Description. 4-Sight engages solely in software development
and distribution and does not provide data transportation services with any of
its products. The software user is responsible for all software and hardware
installation, procuring an ISDN connection and verifying the integrity of
their files being sent over a public network infrastructure. iSDN Manager is
4-Sight's flagship product for ISDN file transfer. The current release, iSDN
Manager (4), comes in a MacIntosh ("Mac") version and a PC version, which
supports Windows 95 and Windows NT platforms. iSDN Manager supports cross
platform file exchanges between Mac and PC desktops and is compatible with
over 75,000 ISDN systems world-wide. iSDN Manager supports different ISDN
cards with various throughput capabilities. The majority of software sales are
bundled with an ISDN card. The software functions like an e-mail application,
where the user selects one or more sites to which files are to be sent from an
address book, attaches files and then transmits the data via the public, dial-
up ISDN network to other 4-Sight compatible sites. In addition, 4-Sight offers
a less powerful version of iSDN Manager and other products and services,
including a version of iSDN Manager that is customized for the newspaper
advertisement delivery market and desktop fax software.
Key Benefits from the 4-Sight Acquisition. The Company expects to realize
multiple benefits from the 4-Sight Acquisition including:
Providing Additional Network Access: 4-Sight's current software applications
can be modified to allow access to the WAM!NET Network. New versions of 4-
Sight software can be introduced which are WAM!NET Service compatible and can
be used to send to and receive data from other WAM!NET and 4-Sight sites. The
Company believes this will significantly improve its ability to attract and
retain customers at the lower end of the market segment where ISDN lines are
most common. The Company expects that the 4-Sight Acquisition will enable the
Company to achieve broader market coverage in the Graphic Arts market by
combining 4-Sight's international presence and penetration of the lower volume
user market with the Company's domestic presence and penetration of the higher
volume user market. In addition, many of the Company's current customers have
work flow partners who use 4-Sight's software. Modifying 4-Sight technology
will allow 4-Sight customers to transmit data to WAM!NET Service customers
with whom they require periodic data exchange and thereby increase traffic
over the WAM!NET Network.
Facilitating 4-Sight Customer Upgrades: 4-Sight software upgrades that are
WAM!NET Service compatible can be marketed to existing 4-Sight customers and
bundled with WAM!NET Service contracts. In addition, the Company could
potentially re-provision local loop ISDN lines for the current 4-Sight
customer base or upgrade higher traffic sites to NADs.
Accelerating International Expansion: 4-Sight has already invested in
developing distribution channels in the United Kingdom, Germany, Benelux,
Scandinavia and Japan and has plans to expand distribution capabilities
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in France and other Asian markets. The 4-Sight investment is represented by
the formal working relationships 4-Sight has developed with dealers, by the
people it employs to manage dealer relationships in these international
markets and by the working knowledge 4-Sight employees have developed
regarding unique business practices in these international markets. The
Company believes that it can utilize 4-Sight's existing distribution
infrastructure and investment to bundle the WAM!NET Services with new versions
of 4-Sight's transmission software. By utilizing 4-Sight's infrastructure and
investment, the Company also believes that it can reduce the time that it will
take to enter certain international markets by nine to twelve months.
Accelerate Development Activities: 4-Sight has invested significant
resources to build software development competencies in data transmission user
applications. In addition, 4-Sight has developed capabilities to localize its
software applications for use in specific international markets including the
French, German, Benelux and Japanese markets. These capabilities may augment
the Company's development staff and help increase application development
staffing expertise.
PRODUCTS AND SERVICES
The WAM!NET Service. To send or receive a data file over the WAM!NET
Network, a customer uses a proprietary software program designed and furnished
by the Company. The WAM!NET Service appears as a icon on the customer's
desktop, like a multi-layered e-mail or fax application. Clients can use the
application to manage an address book of WAM!NET users with whom they send and
receive packages of files and to set application default parameters. To send a
package, the user "highlights" and "drags" a file to the appropriate address
"hot tile" which appears across the top of the user interface. Once a file is
dropped onto an address tile, a packing slip is automatically opened and the
user is prompted to fill out basic packing slip information. Additional files
can be added to the package to be included in the transmission. Similarly,
additional sites can be identified for simultaneous package delivery. The user
then selects the send button and the package is automatically delivered to the
user's NAD for processing, coding and routing. Once a package has been
delivered to a NAD, the package will be transported regardless of whether the
sending or receiving computer is operating. If the destination computer is
unavailable, the package will be held for delivery until the destination
computer becomes available to receive the file. Unlike a dial-up network,
where both computers need to be on and available at either end or there will
be a busy signal, the WAM!NET Service's store and forward function holds the
file in transit until the file can be delivered. To receive a package,
customers are prompted on screen to view packages that have been received by
their NAD. Files can be transferred from the NAD to the client's LAN either by
dragging and dropping files from the NAD icon to the local network or by using
a file retrieval menu.
Each transaction over the WAM!NET Service is tracked and accounted for as an
individual "shipment" of data. On a monthly basis, the Company furnishes its
customers with an invoice summarizing the customer's WAM!NET Service use and
charges. If requested by a customer, the Company will also deliver to such
customer an electronic data file over the WAM!NET Service that contains
itemized information regarding the size, cost and destination of each shipment
as well as information regarding other services used by the customer. This
data file may be imported directly into the customer's own accounting system,
providing what the Company believes to be a valuable service for customers who
need to capture costs and bill for services on a job-by-job basis.
Customer Care and the Customer Information System. The Company has
implemented extensive customer support functions, including customer support
technicians available 24 hours a day, 7 days a week. These technicians are
trained to understand the Company's product and service offerings, and the
industry specific work flow of the Company's customers. Customer support
technicians routinely answer customer questions concerning product functions,
update address books, handle upgrade requests, and resolve product use issues.
In addition, customer calls are logged into call management software for
tracking and analysis purposes.
The Company's CIS application allows customers to verify account information
and check the status of their transactions on-line. The CIS appears as an icon
on the customer's computer desk-top. When activated, the CIS accesses a menu
which provides the customer with several options, including viewing packages,
viewing account information or logging a help request. The "view packages"
option allows customers to view sent and received
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package activity for user definable time periods between one hour and 90 days.
This option also provides key transmission statistics for each package sent or
received including date, time, size, content and file type. The account
information option allows customers to view relevant account information,
including billing information, site contact names and phone numbers and also
enables customers to update account information on-line. The "help" option
allows customers to log a help request by e-mailing questions or requests
directly to the Company's customer support group. See "--Network Management."
WAM!PROOF. The Company has developed an application, "WAM!PROOF," which
allows customers to directly output across the WAM!NET Network to proofing
devices located at remote locations. WAM!PROOF was commercially released in
the second quarter of 1998. Proofs, which are physical representations of
printed output, are created throughout the production process at major check
points. Because work flow participants are often located in geographically
diverse locations, proofs have historically been printed and delivered by
overnight couriers to remote participants. WAM!PROOF enables customers to
print proofs in geographically diverse locations as if they were printing to a
proofer on their LAN, thereby reducing turnaround times and creating work flow
efficiencies. The Company has collaborated with leading manufacturers of
printing/proofing devices to ensure compatibility with WAM!PROOF. "WAM!PROOF
Ready" printing/proofing devices include devices made by Canon, Inc., Hewlett
Packard Company ("HP"), Imation Corp., Eastman Kodak Company, Tektronix, Inc.
and Xerox.
WAM!BASE. The Company has also developed a wide area data repository
service, WAM!BASE, which provides WAM!NET Service users access to a remote
data archive and allows them to store, retrieve and manage data on a per-
megabyte cost basis. WAM!BASE is scheduled for commercial release in the
second half of 1998. The Company believes that the ability to manage and
access digital assets is becoming significantly more challenging due to
increasing digitalization in the Company's target industries. The
implementation of a workable and cost-effective solution requires the
integration of hardware, software and networking in a manner that is
accessible by multiple work flow partners and the reduction of redundant
processes and storage facilities. The implementation of such a system requires
substantial investments in capital equipment, systems integration and archive
management and often takes months to complete. Typical problems that can occur
are inadequate scalabilty, high operations costs and the lack of high-speed
and secure network infrastructure needed to share large digital data files.
The Company believes that WAM!BASE provides a collaborative digital asset
management service that addresses the following significant issues for its
customers, and eliminates the need for investment in capital and archive
management. Given the speed at which technology changes and the need to ensure
reliable access to stored images, many participants are unwilling to make
these investments. Because it has been designed to be scaleable to the needs
of entire industries, WAM!BASE can spread infrastructure and operating costs
across numerous users. WAM!BASE is designed to offer a turn-key archiving
system that is cost competitive in relation to an individual customer's
investment in a local, stand-alone archiving system. Customers send their data
files over the WAM!NET Service to the WAM!BASE repository where files are
stored in customer configurable libraries. Customers will be charged a monthly
per megabyte fee for storage. Since customers are using the WAM!NET Service to
retrieve data from the WAM!BASE repository, they can obtain quick and secure
access to their data.
WAM!BASE will provide collaborative access to stored data files. With
existing systems, industry participants working on the same job often store
multiple copies of the same data files because they do not have a
collaborative means of sharing file access. Participants who use WAM!BASE and
store files in their private library space, can control security access to
each individual file in their library, and can change security access
privileges at any time. This eliminates the need to store redundant copies of
files at multiple participant sites, can shrink cycle time by providing more
immediate access to important data files, and supports the job driven work
flow by enabling customers to control security access to images on a job-by-
job basis.
When commercially released, the WAM!BASE service will use two mirrored
storage facilities linked by dedicated leased high bandwidth data connections.
The initial WAM!BASE storage centers will be located in
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Minneapolis and Las Vegas within the NOCs already located in each city. Each
storage facility will be connected to the WAM!NET Network through redundant
links and customer data files will be stored in both locations. Customers will
use proprietary software provided by the Company to upload data to the storage
facilities and to browse, retrieve and forward files stored in the repository.
Customers will be able to restrict access to individual files, groupings of
files or complete libraries of files, manage the distribution of files, and
will also be able to catalogue, identify and search for stored files using
assigned attributes. The Company intends to locate additional mirrored storage
facilities in Europe and Asia/Pacific to accommodate international storage
requirements as needed.
SERVICE CONTRACTS
The Company believes that the WAM!NET Service is achieving wide acceptance
among leading participants in the Graphic Arts industry, which in turn
encourages those with whom information is shared to subscribe to the WAM!NET
Service. Since it commercially released and commenced marketing of the WAM!NET
Service in March 1996, the Company has established a subscriber base of more
than 1,100 customer locations. As of February 11, 1998, 608 customer locations
were connected to the WAM!NET Network with an additional 561 contracted sites
expected to be installed during the first half of 1998, concurrent with the
installation of customer premise telephony access. As of April 30, 1998, the
Company's mix of service contracts was as follows:
<TABLE>
<CAPTION>
SERVICE LEVEL (IN MEGABYTES PER HOUR) # OF CONTRACTS % OF CONTRACTS
------------------------------------- -------------- --------------
<S> <C> <C>
40 MPH Service.............................. 129 8%
120 MPH Service............................. 756 49
400 MPH Service............................. 532 35
1,000 MPH Service........................... 24 2
Other....................................... 95 6
----- ---
Total..................................... 1,536 100%
===== ===
</TABLE>
The Company's standard WAM!NET service contract is structured to assess
charges based on the minimum throughput capability (i.e., the minimum number
of megabytes per hour of the customer's data that the Company is obligated to
transfer via the WAM!NET Network), the monthly minimum volume and any usage in
excess of such monthly minimum volume. The pricing structure varies depending
on the monthly minimum fee and on volume, with higher minimum fees and higher
volumes generally resulting in lower per megabyte charges. Each WAM!NET
customer typically signs a service contract for a fixed term of one to three
years, at a specified location with minimum monthly fee of $250, $500, $1,000,
or $2,500 per month up to the specified volume. The standard service contract
is automatically renewable for additional one year periods at the Company's
then prevailing pricing structure, unless the customer gives notice of
termination at least 60 days prior to any automatic renewal date.
Each service contract also grants the customer a limited, non-transferable
license to use the Company's proprietary software and certain other
intellectual property solely in connection with the customer's use of the
WAM!NET Service. Under each service contract, a customer generally agrees to
pay all taxes and fees imposed by governmental authorities, to be responsible
for all loss or damage to the NAD, to maintain certain insurance coverage for
the NAD, to preserve the Company's ownership of the licensed intellectual
property, to keep the NAD at the leased location, to return the NAD and all
licensed intellectual property at the termination of the service contract, and
to pay all of the Company's costs of enforcement in the event the customer
breaches the service contract.
In addition to the standard service contract, the Company also negotiates
custom service contracts with large users of the Company's services. These
custom service contracts generally address specific customer work flow
requirements or multi-site installations, and typically contain scheduled
rebates and discounts based upon the number of third party trading-partners
who become connected to the WAM!NET Network and upon the volume
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of data received from those third parties. These custom service contracts also
typically contain negotiated provisions relating to issues of non-
infringement, indemnification and damages for breach.
The Company plans to offer WAM!BASE and WAM!PROOF services, when
commercially released, as add-on features to the WAM!NET Service. Subscribers
for WAM!BASE and WAM!PROOF services will sign an addendum to their WAM!NET
service contract separately licensing the software necessary to utilize the
WAM!BASE or WAM!PROOF services, as the case may be, and containing other
appropriate terms. The Company intends to furnish the WAM!BASE software
without charge to customers who agree to minimum monthly WAM!BASE storage
fees. WAM!PROOF customers will be charged for usage on a per megabyte basis
like any other transmission over the WAM!NET Network. The Company may require
a nominal one-time license fee covering the costs incurred by the Company to
furnish the WAM!PROOF software.
SALES AND MARKETING
Over the past year, the Company has spent significant time and resources
developing and building national marketing and sales capabilities, including
increasing its sales force from four to 36 people, who are located in New
York, Chicago, Los Angeles, Boston, Washington D.C., Minneapolis, San
Francisco, Dallas, Atlanta, Toronto and other major metropolitan areas. The
Company has created a product marketing organization responsible for the
definition, commercialization and ongoing management of its products and
services, and a direct sales organization responsible for all new sales and
account management functions. The product marketing organization is divided
into six functional groups, based on customer needs and demands, consisting of
a WAM!NET Service product group, a WAM!BASE product group, an Industry Smart
applications product group, a pricing group, a business analysis group and a
co-marketing group. The sales organization has also been split into five
groups, including an account executive group for new sales, a sales consultant
group for telesales support, a business development group for managing large
national accounts, an account management group for increasing utilization
within existing accounts and a product specialist group for new products.
Primary marketing and sales strategies focus on making inroads with major
participants in the Company's target industries. In the Graphic Arts industry,
the Company's initial sales focus was on signing large commercial printers,
the final data destination in the digital work flow. Once several printers
subscribed to the WAM!NET Service, the Company's sales organization sought to
connect the printer's customers (pre-press firms, advertising agencies and
publishers) to the WAM!NET Network using a combination of sales and marketing
strategies. Such strategies include implementing promotional programs in which
printers promoted and marketed the WAM!NET Service to their customers and work
flow partners along with the Company's direct sales force. Similar strategies
are being applied by the Company to its other target industries.
As more customers subscribe to the WAM!NET Service, the Company's strategic
sales focus is expected to shift. While new site acquisition will still be
important, significant resources will also be devoted to increasing inter-
connectivity among WAM!NET Service users and network traffic, in an effort to
embed the WAM!NET Service into an industry's work flow. As a result, the sales
organization may further employ account managers to work with customers to
help them better utilize WAM!NET Services and expand the circle of WAM!NET
users with whom they send and receive data.
The Company's product marketing will focus on commercializing new features
and new products that are also intended to help increase the utilization of
the WAM!NET Network. This will include full scale commercialization of
Industry Smart applications like WAM!PROOF and WAM!BASE and the addition of
new Industry Smart features into existing products, including directory
services with white and yellow pages functionality, and directed billing
capabilities which will enable customers to reverse bill or bill third parties
for data transportation services.
INSTALLATION SERVICES
The Company believes its ability to deliver consistently high quality
installation services will materially affect its ability to attract and retain
customers. The Company, therefore, has expended considerable resources to
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build an installation function which coordinates and performs all aspects of
service installation for the customer . When a new contract is signed, an
installation project manager is assigned to manage the installation. Site
surveys are completed to capture and confirm key customer information
including NAD placement, appropriate service level, account information and
network connectivity requirements. The project manager coordinates
installation of the NAD with on-site third-party installers and the Company's
circuit engineers, who test and certify connectivity and throughput between
the customer's site and the Distribution Hub.
Installation of the WAM!NET Service consists of installing a simple,
graphical user interface ("GUI") on the customer's computer or LAN, connecting
the customer's computer or network to a NAD, and connecting the NAD through
telephone service to the nearest Distribution Hub. The Company has entered
into an agreement with National Computer Systems ("NCS"), a national provider
of computer installation and maintenance services, to provide installation,
maintenance and repair services on customer sites.
NETWORK ARCHITECTURE
The WAM!NET Network is comprised of national, regional and local
Distribution Hubs that are owned by the Company and interconnected redundantly
with high-bandwidth leased telephone circuits. The Company currently maintains
23 Distribution Hubs, located in major United States and Canadian cities,
London, England and Paris, France. The Company also operates two mirrored NOCs
in Minneapolis and Las Vegas through which it manages and operates all data
transmission. The Company has also contracted with an independent third-party
for the provision of satellite transmission services for added redundancy with
respect to services provided to Time. The Company is currently negotiating to
employ satellite services to add redundancy for the entire WAM!NET Network.
The hub infrastructure consists of large Cisco Systems, Inc. ("Cisco")
routers which are co-located with WorldCom points of presence and which
primarily route data traffic across the WAM!NET back-bone. The 23 Distribution
Hubs are interconnected with a meshed DS3 ATM back-bone provided by WorldCom.
Additional network diversity is provided by a layer of private lines leased
from Sprint Corporation ("Sprint") which primarily serve as network back-up.
Local loop connections between Distribution Hubs and NADs at customer sites
are provided almost exclusively by WorldCom and regional bell operating
companies. The Company's policy is to procure local loop lines from the
lowest-cost, highest-quality provider, and the Company has business
relationships with approximately 15 telephony providers in North America.
Network traffic patterns are continuously monitored and the existing network
back-bone infrastructure is operating at approximately 5% to 10% of its
capacity. Operating agreements with WorldCom and MCI Communications
Corporation ("MCI") enable the Company to increase backbone bandwidth to
accommodate planned growth on an as-needed basis.
The WAM!NET Network incorporates multiple firewalls, constant monitoring and
other security features to prevent unauthorized access or tampering with
either the Company's or the customers' data systems. For security purposes,
the WAM!NET Network is designed to prevent customers from gaining unauthorized
access to the WAM!NET Network through a NAD, from logging onto any other
device attached to the WAM!NET Network and from exploring the WAM!NET Service
or activating or controlling any of its other functions. The Company's
software installed on the user's computer only delivers files to or from the
NAD.
NETWORK MANAGEMENT
The Company provides customers toll-free access to its technical services
support team 24 hours a day, 7 days a week. The Company believes that because
its customers are in time sensitive, data intensive industries, they rely on
the WAM!NET Service to provide guaranteed delivery and throughput. The Company
has sought to build reliability into its network by interconnecting all
Distribution Hubs and NOCs with at least two redundant paths so that in the
event of network line failures data can still be transmitted. In addition,
automated network monitoring software from HP has been installed and
configured to provide continuous monitoring capabilities, including an alarm
system that automatically alerts network engineers of problems. Key aspects of
the WAM!NET Network are continuously monitored, including NOC equipment,
Distribution Hub equipment,
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backbone lines, local customer connections and the NADs. The network
management team is trained to proactively work with telephony and on-site
service providers using specially developed processes to identify and resolve
network issues quickly and efficiently.
MANUFACTURING
The Company conducts only limited equipment assembly functions. The Company
presently installs proprietary software and assembles standard computer,
router and power management equipment components into steel housings for use
as NADs, Distribution Hubs and equipment in the NOCs. The equipment housing is
manufactured by a third party to the Company's specifications. The Company
contracts with third parties for installation of NADs at customer sites. See
"--Supplier Relationships--Installation and Field Maintenance." The Company
installs Distribution Hubs and equipment in the NOCs. The Company intends to
outsource the assembly of NADs.
SUPPLIER RELATIONSHIPS
Equipment. The Company has procurement arrangements with Silicon Graphics,
Inc. ("SGI"), Cisco and Osicom Technologies, Inc. for certain computer
equipment, routers and computer interface cards used in the WAM!NET Network.
These arrangements qualify the Company for discounts off participant list
pricing for such equipment. The Company is presently negotiating more formal
supply arrangements with Cisco and SGI. The Company also purchases certain
high volume data storage equipment from HP and Hitachi Data Systems
Corporation under supply agreements.
Installation and Field Maintenance. The Company has an agreement with NCS to
provide installation, maintenance and repair services on customer sites.
Telephone Carriage and Infrastructure Support. The Company currently leases
local loop and long distance telephone carriage in the United States from
WorldCom. In addition, the Company has procurement agreements with MCI and
Sprint, and purchases local loop telephony services from approximately 15
local loop providers.
None of the supplier agreements described or contemplated above contains a
long-term commitment on behalf of the supplier. See "Risk Factors--Dependence
on Third-Party Suppliers for Equipment and Services."
COMPETITION
Despite what the Company believes to be meaningful product differentiation,
the Company faces competition in the provision of digital data transportation
and archiving services, including from companies that have substantially
greater financial, technological, marketing, and research and development
resources than the Company and which have an established presence in markets
that the Company serves. The Company's competitors include major long-distance
companies, regional Bell operating companies, Internet service providers,
systems integrators, such as Digital Art Exchange, and other smaller companies
which manage routers as part of more comprehensive public, private and virtual
private wide area network service offerings. Some companies have begun to
offer data communications networks which use standard communication technology
in conjunction with emerging frame-relay and ATM technology. The architecture
of these networks is similar to that of the WAM!NET Service. These
competitors, including the Sprint DRUMS network, MCI SMDS telecommunications
service and a joint venture arrangement between AT&T Corp. and Xerox, offer
some of the services the Company offers or plans to offer in the future.
Additionally, a new competitive service called the Graphic Arts Digital
Network which directly targets the WAM!NET Service was announced in Spring
1997, but has not yet been released. This service will be provided by a joint
venture between British Telecommunications and Sytek. Pricing, product and
service information are not yet available for that service. While the Internet
is not currently an effective competitor to the WAM!NET Service, efforts are
under way, through a consortium of research universities, the Federal
Government's Very-High-Performance Backbone Network Service and several
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major corporations, to create "Internet2." Press stories on Internet2 suggest
that it will include commercial channels through which large amounts of data
can be moved securely between researchers or companies. The commercial
availability of Internet2 is not expected before 2003.
In addition, the Company faces competition from overland and air courier
services, who transport magnetic tape or optical disk copies of digital data
to their desired locations.
GOVERNMENT REGULATION, STANDARDS
North America. The Company purchases telephone equipment, routers and relays
that are used in the WAM!NET Network from telecommunications equipment
manufacturers and combines that equipment with Company-provided software and
telephone circuits provided by common carriers regulated by the FCC the CRTC
and various state regulatory agencies. The Company believes that under the
FCC's interpretation of the Communications Act of 1934, as amended, the
services which it offers to its customers are interstate information
(enhanced) services. Consequently, it is not required to obtain licenses or
other approvals from the FCC or state regulatory agencies to offer such
services. If the Company's services were deemed to be intrastate services,
certain state regulatory agencies might seek to assert jurisdiction over the
Company's offerings. If that were to occur, the Company could be required to
expend substantial time and money to acquire the appropriate licenses and to
comply with state regulations. The Company also believes that, under the
CRTC's interpretation of Canadian law, the services that the Company offers do
not require it to obtain telecommunications permits or approvals in Canada.
Worldwide. The Company believes that European Union directives require that
member states permit the provision of the Company's services on a competitive
basis. Bilateral agreements exist between the United States and Japan and the
United States and Hong Kong which encourage cross-border provision of enhanced
services like those offered by the Company. Pursuant to commitments in the WTO
General Agreement on Trade and Services, over fifty governments have agreed to
permit provision of enhanced services (i.e., value-added) by nationals of WTO
member countries. Nevertheless, certain other countries in Europe, Asia and
elsewhere in the world might seek to license and regulate the Company's
services. Any such license or regulation may limit, delay or increase the
costs of operations as associated with the international locations to which
the Company may desire to expand.
Medical Imaging. The Company intends to offer its WAM!NET Service and
WAM!BASE service for medical imaging applications including the transmission,
storage and retrieval of medical data for primary diagnostic purposes. Any
medical imaging application offered for primary diagnostic purposes is
required to comply with the Food and Drug Act, and regulations promulgated
thereunder by the FDA. Under proposed FDA rules, the Company's storage and
transmission facilities would likely be classified as Class I devices that do
not perform "irreversible data compression," which would be exempt from the
premarket notification procedures under the Food and Drug Act, and could
therefore be marketed without pre-approval from the FDA. The Company's
proprietary software applications, however, which operate the storage and
retrieval function of the WAM!NET Network's components, would likely be
classified as Class II devices. In January 1998, the Company submitted a
Premarket Notification 510(k) to the FDA to obtain marketing clearance from
the FDA. The Company has adapted the medical imaging applications of its
WAM!NET Service and WAM!BASE services to conform to DICOM industry standards,
which are the standards used by other medical imaging providers who have
received FDA marketing clearance for their medical imaging devices and
applications. The process of obtaining 510(k) marketing clearance typically
can take six to nine months or longer and may require the submission of
extensive data supporting the assertion that the device is substantially
similar to a predicate device that was marketed prior to the 1976 amendments
to the Food and Drug Act. In this regard, the Company likely would have to
demonstrate through scientifically and statistically valid tests that the
medical images produced from digital transmissions over the WAM!NET Service
were sufficiently indistinguishable from the original image to be effective
for diagnostic purposes.
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RESEARCH AND DEVELOPMENT
The Company's employees have significant experience in the research,
development, design, engineering, implementation and management of complex
software and networking systems. Six of the Company's employees hold advanced
computer engineering degrees. The Company's current research and development
activities are focused on completing development of additional functions,
including the next generation of network and transportation management
software and protocols necessary to provide applications such as broadcast
transmissions, queue management, directed billing, directory services and job
ticketing, including integrating such features into the shipping and customer
information management facilities. The Company utilizes its technical
capabilities to monitor and evaluate developments in computer hardware and
software and in relay and telephony equipment and, to the extent possible, to
incorporate appropriate advancements or enhancements into the WAM!NET Service
in a timely fashion.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
It is the Company's policy to protect its intellectual property, to seek
patent protection for those aspects of its technology that the Company
believes may be patentable and to preserve any copyrights or trade secrets (to
the extent not disclosed in any patent) that may be applicable to the WAM!NET
Service, the WAM!PROOF and WAM!BASE services and their related software.
The Company is designing or has designed most of the proprietary software
necessary for the management of the WAM!NET Service, including NAD operations
and the GUI, CIS, WAM!PROOF and WAM!BASE applications. The Company believes
that its proprietary software and trade secrets applicable to the operation of
the WAM!NET Service and the WAM!BASE data archiving system may be of equal or
greater importance to the Company than patent or copyright protection. The
Company is not aware of any claims of infringement of patents or other
intellectual property belonging to others. However, the Company has conducted
only a limited inquiry regarding the possibility of other infringement. See
"Risk Factors--Intellectual Property and Proprietary Rights."
The Company has entered into confidentiality agreements with certain of its
employees, consultants and others to protect the Company's proprietary
information and trade secrets.
LIABILITY AND INSURANCE
The WAM!NET Service uses an assemblage of telecommunications equipment,
software, operating protocols and proprietary applications for high speed
transmission of large quantities of data among multiple locations. In such
operations, it is possible that data files may be lost, altered or distorted.
Moreover, the Company's targeted industries' businesses are extremely time
sensitive, and delays in delivering data may cause a significant loss to a
customer using the network for managed data delivery service. The WAM!NET
Service, and future enhancements or adaptations, may contain undetected design
faults and software "bugs" that, despite testing by the Company, are
discovered only after the system has been installed and used by customers.
Such faults or errors could cause delays or require design modifications that
could adversely affect the Company's competitive position and results of
operations. The Company obtains contractual agreements from its customers
limiting the Company's liability for damages resulting from errors in the
transportation of data to a maximum of $100 per transmission. Nevertheless,
the Company may still be subject to significant claims for data losses in the
transportation of data over the WAM!NET Service. In addition to general
business liability insurance coverage, the Company presently maintains errors
and omissions insurance coverage issued by St. Paul Fire and Marine Insurance
Company in the amount of $1.0 million per occurrence and $5.0 million for all
occurrences relating to the transportation of data over the WAM!NET Service.
EMPLOYEES
Including its officers, the Company presently employs 405 persons. The
Company's executive and technical personnel have significant experience in the
design, programming, implementation, marketing, sales and support
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of complex data networks and software programs. The Company considers its
employee relations to be good. None of the Company's current employees are
subject to a collective bargaining agreement.
FACILITIES
The Company occupies approximately 45,000 square feet of office space
located in a modern facility in an industrial park complex in Bloomington,
Minnesota, a suburb of Minneapolis. The building is occupied under a 99 month
lease which expires in November 2005. To meet its future space requirements,
the Company is currently considering construction activities to reconfigure
its existing facility for greater space efficiency. The Company's leased
properties also include: (i) an approximately 18,000 square foot manufacturing
and warehousing facility located in Minneapolis, (ii) an approximately 1,540
square foot office facility located in Minneapolis, where one of the Company's
NOCs is located, (iii) an approximately 7,970 square foot facility located in
Las Vegas, Nevada where the Company's other NOC is located and which serves as
a backup customer service center, (iv) an approximately 1,500 square foot
office facility located in Missoula, Montana where the headquarters of
FreeMail, Inc., an entity acquired by the Company in December 1997, is
located, (v) small offices in Toronto, New York, Chicago, and Washington, D.C.
for use by the Company's business development managers and account executives
stationed in those cities, and (vi) an approximately 18,800 square foot office
facility located in Minneapolis, which previously served as the Company's
headquarters and which the Company intends to sub-lease. In addition, 4-Sight
currently leases properties in (i) Bournemouth, Dorset, England, (ii) Hamburg,
Germany, (iii) Woburn, Massachusetts and (iv) West Des Moines, Iowa.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
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MANAGEMENT
The Company's executive officers and directors are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Edward J. Driscoll III........... 37 Chairman of the Board, Chief Executive
Officer, President and Treasurer
Allen L. Witters................. 40 Chief Technology Officer
James R. Clancy.................. 37 Chief Sales and Marketing Officer
David T. Ottinger................ 49 Senior Vice President of Engineering and
Operations
John R. Kauffman................. 41 Vice President of Strategic Marketing and
Communications
Raymond Kang..................... 39 Vice President of Product Marketing and
Development
Gary Jader....................... 47 Vice President and General Manager of
Medical Services
David Townend.................... 40 Managing Director, WAM!NET U.K.
Mark Marlow...................... 33 Director of Finance
Charles T. Cannada............... 39 Director
Robert L. Hoffman................ 69 Director
Curtis G. Gray................... 48 Director
K. William Grothe, Jr............ 42 Director
</TABLE>
The Board of Directors of the Company consists of five directors, two of
whom (currently Messrs. Driscoll and Hoffman) are elected by the holders of
the Common Stock and three of whom (currently Messrs. Grothe, Cannada and
Gray) are elected by the holders of the Company's Class A Preferred Stock. See
"Description of the Company's Securities."
Edward J. Driscoll III is a founder and principal shareholder of the Company
and has served as its Chairman of the Board, Chief Executive Officer,
President and Treasurer since inception. Previously, Mr. Driscoll was the
principal shareholder, Chief Executive Officer, and a director of Cybernet
Systems, Inc. ("Cybernet"). Mr. Driscoll founded Cybernet in 1991 to provide
network integration services to the pre-press industry. Prior to founding
Cybernet, he held various marketing and management positions, most recently as
general manager of Roland Marketing, Inc., a regional wholesale produce
marketing and packaging company. He holds a Bachelor of Arts degree in
economics from St. John's University, Minnesota and a Master of Business
Administration degree from the University of St. Thomas.
Allen L. Witters is a founder and principal shareholder of the Company and
has served as its Chief Technology Officer since inception. He is principally
responsible for designing and implementing the WAM!NET Service architecture.
Mr. Witters has been engaged in technical consulting to the computer industry
since 1975, including serving as a technical consultant from 1992 to 1996 for
Cybernet, and has broad experience in the invention, design, engineering and
implementation of software, networks, and network management systems. From
1987 to 1992, Mr. Witters was the Chief Executive Officer and a principal
shareholder of Datamap, Inc., a company that was engaged in the development
and sale of GIS (geographic information systems) software. In 1994, Mr.
Witters filed a petition for bankruptcy under Chapter 7 of the United States
Bankruptcy Code.
James R. Clancy joined the Company in April 1996 and currently serves as
Chief Marketing and Sales Officer. From 1994 to 1996, Mr. Clancy was employed
by Ceridian Corporation as Director of Marketing and
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Strategic Planning. From 1988 to 1994, Mr. Clancy was employed by General
Mills, Inc., in various marketing and marketing management capacities, most
recently as Marketing Manager. Prior to General Mills, Mr. Clancy was a
founder and senior manager of two Macintosh supply manufacturing companies.
Mr. Clancy holds a Bachelor of Arts degree in economics from Moorhead State
University and a Master of Business Administration degree from the Wharton
School of Business.
David T. Ottinger joined the Company in November 1997 as Vice President of
Engineering & Operations. From April 1997 to November 1997, he served as
President and Chief Executive Officer of NetAccess, Inc., a network security
company. From April 1996 to April 1997, he served as Vice President,
Professional Services of Parallel Technologies, Inc. From October 1993 to
April 1996, he served as Vice President, Network Services of COMDISCO Network
Services. From 1989 to October 1993, he served as Branch Manager for the
Minneapolis, Minnesota office of Cap Gemini America.
John R. Kauffman joined the Company in January 1998 as Vice President of
Strategic Marketing & Communications. From 1991 to December 1997 Mr. Kauffman
was President of Kauffman Marketing Group, Inc. and in that capacity provided
the company's strategic positioning and outside marketing services from
November 1995 to November 1997. Previous to that position Mr. Kauffman was
President of Kauffman Stewart Advertising.
Raymond Kang joined the Company in March 1998 and currently serves as Vice
President of Product Marketing and Development. Prior to joining the Company,
Mr. Kang was employed by MCI Telecommunications for fourteen years in various
management and sales positions, most recently as Director of Broadband and
Multimedia Marketing.
Gary Jader joined the Company in February 1998 and currently serves as Vice
President and General Manager of Medical Services. Prior to joining the
Company, Mr. Jader was employed from 1996 to February 1998 by NeuroMotion
Inc., a medical device company, as Vice President, Marketing and Sales. From
1991 to 1996, Mr. Jader was employed by 3M Corporation as Marketing
Supervisor.
David Townend joined the Company in March 1998 upon the consummation of the
4-Sight Acquisition, and currently serves as Managing Director of WAM!NET U.K.
Mr. Townend served as Managing Director of 4-Sight from more than five years
prior to March 1998.
Mark Marlow joined the Company in May 1995 and currently serves as its
Director of Finance. From 1994 until May 1995, he was employed as an
accounting senior by the public accounting firm of Brunberg, Thorsen and
Associates, Minneapolis, Minnesota. Mr. Marlow is a certified public
accountant. From 1991 to 1994, he was employed as an assistant controller at
Miller, Johnson and Kuehn, Incorporated, a licensed securities brokerage firm.
He holds a Bachelor of Science degree in accounting from the University of
Minnesota, and also holds a general securities license.
Charles T. Cannada has served as a Director of the Company since 1996 and
currently serves as WorldCom's Senior Vice President of Corporate Development
and Real Estate and Facilities Management. Mr. Cannada joined WorldCom in 1989
as WorldCom's Chief Financial Officer. Mr Cannada received his Bachelors of
Business Administration degree in Accounting from the University of
Mississippi.
Robert L. Hoffman has served as a Director of the Company since October
1995. Mr. Hoffman is a founder and shareholder of the law firm of Larkin,
Hoffman, Daly & Lindgren, Ltd, where he has practiced for more than the past
five years, and has served as its Chairman of the Board and President. He has
been extensively involved in land use and development for the past 35 years as
both an attorney and in various elective and appointive offices, including 14
years as a member of the Bloomington City Council, seven years as a member of
the Metropolitan Council, a land use law instructor at Hamline University
School of Law, a member of the Urban Land Institute Development Policies and
Regulations Council, and a member of the Land Use Advisory Group for the
Public Technologies Institute of Washington, D.C.
Curtis G. Gray has served as a Director of the Company since 1996 and since
November 1991 has served as WorldCom's Vice President of Enhanced Data
Networks. Mr. Gray has more than 20 years of experience in the data
communication arena including his own consulting firm and engineering and
management positions with
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GTE Laboratories and Blue Cross and Blue Shield Association. Mr. Gray received
his Masters and Bachelors degrees in Engineering from the University of
Wisconsin.
K. William Grothe, Jr. has served as a Director of the Company since 1996
and has served as Vice President of Corporate Development of WorldCom since
January 1996. From July 1990 to January 1996, Mr. Grothe was Senior Vice
President and Chief Financial Officer of MobileCom, a national paging company
headquartered in Jackson Mississippi. Mr. Grothe is a Certified Public
Accountant and received a Bachelor of Science degree in Accounting from the
University of Illinois.
BOARD COMMITTEES
The Company currently has an Executive Committee consisting of Edward J.
Driscoll III and K. William Grothe, Jr., an Audit Committee consisting of
Charles T. Cannada and Curtis G. Gray and a Compensation Committee consisting
of K. William Grothe, Jr. and Robert L. Hoffman.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to each of the Company's executive officers other than
the Chief Executive Officer (collectively, the "Named Executive Officers")
whose salaries and bonus exceed $100,000 for services rendered in all
capacities to the Company for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------- ----------------------
RESTRICTED SECURITIES ALL OTHER
STOCK UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARD(S) OPTIONS (#) SATION
- --------------------------- ---- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Driscoll III... 1997 $ 150,000 $ 75,000 $-- -- $--
Chairman of the Board,
Chief Executive Officer,
President and Treasurer
Allen L. Witters......... 1997 150,000 75,000 -- -- --
Chief Technology Officer
James R. Clancy.......... 1997 135,000 67,500 -- 500,000 --
Chief Sales and
Marketing Officer
Mark Marlow.............. 1997 75,000 37,500 -- 150,000 --
Director of Finance
</TABLE>
The following table sets forth certain information for the fiscal year ended
December 31, 1997 with respect to stock options granted to the Named Executive
Officers. For the fiscal year ended December 31, 1997, no stock appreciation
rights were granted to the Named Executive Officers and no stock options were
granted to the Named Executive Officers at an option price below market value
on the date of the grant, as determined through an independent valuation.
STOCK OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL EXERCISE STOCK APPRECIATION
NUMBER OF SECURITIES OPTIONS GRANTED OR BASE FOR OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% 10%
---- -------------------- --------------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Driscoll III.. -- -- $ -- -- $ -- $ --
Allen L. Witters........ -- -- -- -- -- --
James R. Clancy......... 500,000 14.4 0.962 July 1, 2002 132,891 302,498
Mark Marlow............. 150,000 4.3 0.962 July 1, 2002 39,867 90,749
</TABLE>
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<PAGE>
The following table sets forth certain information with respect to the value
of unexercised stock options held by the Named Executive Officers as of
December 31, 1997. As of December 31, 1997, no Named Executive Officer held
any stock appreciation rights. In 1997, no Named Executive Officer exercised
any stock options.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Edward J. Driscoll III..... 195,250 1,804,750 $573,645 $5,302,356
Allen L. Witters........... 195,250 1,804,750 573,645 5,302,356
James R. Clancy............ 259,825 615,175 763,366 1,807,320
Mark Marlow................ 35,000 140,000 115,630 411,320
</TABLE>
DIRECTORS' COMPENSATION
The Company does not grant compensation to its Directors other than as set
forth below. Each Director is reimbursed for reasonable out-of-pocket expenses
incurred in connection with attendance at meetings of the Board of Directors.
Mr. Robert L. Hoffman has been granted 75,000 stock options at an exercise
price of $0.962 per share, which options expire November 30, 2005. As of
December 31, 1997, 50,000 stock options were vested and exercisable, 25,000 of
which vested and became exercisable during fiscal year 1997. The remaining
25,000 stock options vest and become exercisable during fiscal year 1998.
Other than Mr. Hoffman, no Director received compensation in any form for
services rendered as a Director from the Company during fiscal year 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Company's Compensation Committee is or has been an officer
or employee of the Company or any of its subsidiaries. During 1997, no
executive officer of the Company served on the Compensation Committee or as a
director of another entity, one of whose executive officers served on the
Company's Compensation Committee or Board of Directors.
EMPLOYMENT AGREEMENTS
Effective October 1, 1996, the Company entered into an employment agreement
with Edward J. Driscoll III which provides for: (i) an initial term of 27
months and subsequent one-year renewals, (ii) an initial annual salary of
$150,000, subject to periodic review and adjustment, (iii) an additional bonus
or other compensation as established by the Board of Directors based upon
achievement of performance goals, (iv) use of a company automobile, (v) non-
competition by Mr. Driscoll with the business of the Company during the term
of the agreement and for a period of two years after its termination and non-
solicitation of the employees or customers of the Company during such period,
(vi) confidentiality with respect to all information and trade secrets of the
Company and (vii) automatic assignment to the Company of all ideas,
inventions, discoveries and improvements of Mr. Driscoll relating to the
business of the Company. In the event that the agreement is terminated by the
Company without cause, Mr. Driscoll is entitled to receive severance, payable
in cash, in an amount equal to the sum of (a) the greater of (x) his then base
salary for two years or (y) the amounts reasonably estimated to be due under
the agreement for the two year period following termination, and (b) one half
of the bonus to which he would have been entitled for the year of termination.
In connection with the executive employment agreement, the Company and Mr.
Driscoll also entered into a stock option agreement which provides for the
grant of an option, expiring December 31, 2007, to purchase up to 2,000,000
shares of the Company's Common Stock at a price of $0.962 per share. These
options vested on January 2, 1998.
Effective October 1, 1996, the Company entered into an employment agreement
and a stock option agreement with Allen L. Witters on terms substantially the
same as those of the employment agreements with Mr. Driscoll. The stock
options issued to Mr. Witters vested on January 2, 1998.
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<PAGE>
Effective April 16, 1996, the Company entered into an employment agreement
with James R. Clancy which provides for: (i) an annual salary of $85,000, (ii)
a bonus of up to $40,000, conditioned on achievement of certain operational
objectives, (iii) confidentiality with respect to all information and trade
secrets of the Company during the term of employment and for a period of one
year after the termination of employment, and (iv) non-competition by Mr.
Clancy with the business of the Company for a period of 18 months after the
termination of employment and non-solicitation of the customers of the Company
during such period. The employment agreement is for an unspecified term on an
"at will" basis. In connection with the employment agreement, the Company and
Mr. Clancy have entered into incentive stock option agreements with respect to
the grant of options to purchase 875,000 shares of the Common Stock of the
Company at a purchase price of $0.962 per share. 750,000 options vest in
annual increments ending May 1, 2000 and the remaining 125,000 vested on
January 2, 1998.
The Company has implemented a quarterly bonus compensation program pursuant
to which directors and key managers can receive up to 30%, and other employees
up to 20%, of their annual salary in cash bonuses based upon individual
achievement and the achievement of corporate goals and objectives.
The Company's other officers and significant technical employees are
employed pursuant to annually renewing employment agreements which continue
until terminated by either the Company or the employee. Each such agreement
contains confidentiality and assignment of invention provisions benefiting the
Company. The Company currently has no retirement, pension, or insurance plans
for its officers. The Company may in the future adopt such plans and may also
adopt a compensation plan substantially increasing officers' salaries and
other compensation based upon the performance of the Company.
STOCK OPTION PLANS
The Company's Stock Option Plan (the "1994 Plan") was adopted in September
1994 by the Company's Board of Directors and was approved by the shareholders
of the Company in October 1994. The 1994 Plan has been subsequently amended,
most recently on April 24, 1998 (as so amended and restated in April 1998, the
"Amended 1994 Plan") in conjunction with the adoption of the Company's 1998
Combined Stock Option Plan (the "1998 Plan" and, collectively, the "Plans"),
to reflect the Company's name change to WAM!NET Inc., to incorporate prior
amendments to the 1994 Plan, to provide that no new options be granted under
the 1994 Plan and to limit the number of shares of Common Stock available for
issuance under the Amended 1994 Plan to 7,000,000. Each Plan is currently
administered by the Company's Board of Directors. The 1998 Plan and the
amendments to the 1994 Plan adopted by the Board of Directors on April 24,
1998 will be submitted for shareholder approval at the next meeting of
shareholders of the Company.
The Amended 1994 Plan and the 1998 Plan provide for the granting of Common
Stock options which qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), as well as the
granting of "nonqualified options." Under each Plan, the Board or, if the
Board appoints one, a "Stock Option Committee" has complete discretion to
select the optionees and to establish the terms and conditions of each option,
subject in all cases to the provisions of a Plan and applicable provisions of
the Code. Options granted under a Plan are not transferable and are subject to
various other conditions and restrictions. Participation in the Amended 1994
Plan is limited to officers and regular full-time executive, administrative,
professional, production and technical employees of the Company or a
subsidiary of the Company, who are salaried employees of the Company or a
subsidiary of the Company, and consultants or the Company or a subsidiary.
Non-employee directors of the Company may be granted nonqualified options.
Participation in the 1998 Plan is limited to employees of the Corporation or a
subsidiary of the Corporation and to non-employee directors and non-employee
consultants. The 1998 Plan provides that without amending such 1998 Plan, the
Stock Option Committee may grant options to eligible employees who are foreign
nationals on such terms and conditions different from those specified in this
Plan as may in the judgment of the committee be necessary or desirable to
foster and promote achievement of the purposes of the 1998 Plan, and, in
furtherance of such purposes the Committee may make such addenda,
modifications, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries in
which the Company operates or has employees.
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<PAGE>
7,000,000 shares of Common Stock have been reserved for issuance under the
Amended 1994 Plan and a total of 25,000,000 shares of Common Stock have been
reserved for issuance under the 1998 Plan, subject to adjustment for stock
splits or recapitalizations. Shares subject to canceled, unexercised, lapsed
or terminated options are available for subsequently granted options under a
Plan. The exercise price of all incentive stock options granted under a Plan
must be at least equal to the fair market value of the shares on the date of
grant, and the maximum term of each option is ten years. Under the terms of a
Plan, the aggregate fair market value of the Common Stock (determined at the
date of the option grant) for which any employee may first exercise incentive
stock options in any calendar year may not exceed $100,000. Upon exercise of
an option, payment of the exercise price in cash is required, or, at the
discretion of the Company, by the delivery of Common Stock of the Company
already owned by the optionee or a promissory note for all or a portion of the
exercise price of the shares so purchased or a combination of the foregoing.
There is no express limitation on the duration of a Plan; provided, however,
that incentive stock options may not be granted after the date that is ten
years from the date of Shareholder approval of a Plan. The Board may terminate
a Plan and, subject to certain limitations, may amend the Plan at any time. As
of the date hereof, there were 5,764,900 options issued and outstanding under
the Amended 1994 Plan, consisting of incentive stock options to employees to
purchase a total of 5,454,900 shares of Common Stock at exercise prices
ranging from $0.45 to $3.90 per share, and non-qualified stock options to
directors to purchase a total of 310,000 shares of Common Stock at an exercise
price of $0.962 per share. No options have been granted under the 1998 Plan.
In addition to options granted under the Plans, the Company has also granted
certain officers and consultants options to purchase a total of 5,125,000
shares of Common Stock at exercise prices ranging from $0.45 to $3.90 per
share.
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<PAGE>
OWNERSHIP OF THE COMPANY
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 30, 1998 for (i) each of the Company's executive
officers and directors, (ii) all executive officers and directors as a group,
and (iii) each person known by the Company to own beneficially 5% or more of
the Company's outstanding shares of Common Stock. All persons indicated have
sole voting and dispositive power over such shares unless otherwise indicated.
Except as indicated below, none of the persons in the table have beneficial
ownership in any class of equity securities of any parent or subsidiary of the
Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OF TOTAL SHARES
NAME OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(1)
------------------------ ---------------- ---------------
<S> <C> <C>
Edward J. Driscoll III(/2/).. 4,000,000(3) 35.5%
Allen L. Witters(/2/)........ 4,000,000(3) 35.5
James R. Clancy(/2/)......... 416,650(4) 4.3
Mark Marlow(/2/)............. 35,000(5) 0.4
John R. Kauffman(/2/)........ 225,000(6) 2.4
David T. Ottinger(/2/)....... -- --
Robert L. Hoffman............ 62,500(7) 0.7
K. William Grothe, Jr.(/8/).. -- (/9/) --
Charles L. Cannada(/8/)...... -- (/1//0/) --
Curtis G. Gray(/8/).......... -- (/1//1/) --
WorldCom, Inc.(/8/).......... 34,183,670(12) 78.7
David Townend(/1//3/)........ 1,317,300 14.2
James L. Ecker............... 922,520(/14/) 9.0
All executive officers and
directors as a group (13
persons).................... 10,056,450(/3/)(/4/)(/5/)(/6/)(/7/)(/11/) 71.8
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes general voting power
and/or investment power with respect to securities. Shares of Common
Stock subject to options or warrants currently exercisable or
exercisable within 60 days of the date of this Prospectus, are deemed
outstanding for purposes of computing the beneficial ownership
percentage of the person holding such options but are not deemed
outstanding for purposes of computing the percentage of any other
person.
(2) Address: 6100 W. 110th Street, Minneapolis, Minnesota 55438.
(3) Includes 2,000,000 shares issuable upon exercise of stock options
currently exercisable.
(4) Includes 354,150 shares issuable upon exercise of stock options
currently exercisable and 62,500 shares issuable upon exercise of stock
options exercisable within 60 days of the date of this Prospectus.
(5) Includes 35,000 shares issuable upon exercise of stock options currently
exercisable.
(6) Includes 225,000 shares issuable upon exercise of stock options
currently exercisable.
(7) Includes 62,500 shares issuable upon exercise of stock options currently
exercisable. Address: Larkin, Hoffman, Daly & Lindgren, Ltd., 1500
Northwest Financial Center, 7900 Xerxes Avenue South, Bloomington, MN
55431.
(8) Address: 515 East Amite, Suite 400, Jackson, MS 39201.
(9) Mr. Grothe is the beneficial owner of 30,666 shares of Common Stock of
WorldCom, representing fewer than 1% of the total shares outstanding,
which total includes 30,666 shares issuable upon exercise of stock
options exercisable within 60 days of the date of this Prospectus.
(10) Mr. Cannada is the beneficial owner of 391,666 shares of Common Stock of
WorldCom, representing fewer than 1% of the total shares outstanding,
which total includes 391,666 shares issuable upon exercise of stock
options exercisable within 60 days of the date of this Prospectus.
(11) Mr. Gray is the beneficial owner of 55,000 shares of Common Stock of
WorldCom, representing fewer than 1% of the total shares outstanding,
which total includes 55,000 shares issuable upon exercise of stock
options exercisable within 60 days of the date of this Prospectus.
(12) Includes 29,183,670 shares issuable upon exercise of warrants currently
exercisable and 5,000,000 shares issuable upon conversion of a
convertible subordinated note in the principal amount of $5 million.
WorldCom also owns 100,000 shares of Class A Preferred Stock. See
"Description of the Company's Securities--Preferred Stock."
(13) Address: 64-68 Norwich Avenue West, Bournemouth, Dorset, BH26AW England.
(14) Includes 131,580 shares issuable upon exercise of a convertible
subordinated debenture, 416,665 shares issuable upon exercise of
currently exercisable warrants and 50,000 shares owned by the Ecker
Family Limited Partnership, of which he is a partner. Address: 5061
Interlachen Bluff, Edina, MN 55436.
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<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
WorldCom has the right to elect a majority of the Board of Directors of the
Company and is a principal shareholder of the Company. In September 1996, the
Company issued to WorldCom a $5.0 million Convertible Subordinated Note due
September 30, 1999 (the "WorldCom Convertible Note"). Interest on the WorldCom
Convertible Note accrues at an annual rate of 10%, payable semi-annually,
commencing with the first payment on March 30, 1997. At any time prior to
September 30, 1999, WorldCom may convert the principal amount of the WorldCom
Convertible Note into shares of Common Stock at a conversion price of $1.00
per share, subject to adjustment in the event of stock splits, reorganizations
or recapitalizations. Payment of principal and interest on the WorldCom
Convertible Note is subordinated to existing and future obligations of the
Company for money borrowed from bank, trust, insurance or other financial
institutions. WorldCom has agreed to defer all cash payments in respect of the
WorldCom Convertible Note until a date that is 180 days following the Stated
Maturity of the Notes. The shares of Common Stock underlying the WorldCom
Convertible Note are subject to certain registration rights. See "Description
of the Company's Securities--Certain Options, Warrants, Convertible
Subordinated Debt and Registration Rights."
In November 1996, the Company and WorldCom entered into a Preferred Stock,
Subordinated Note and Warrant Purchase Agreement (the "WorldCom Agreement").
Pursuant to the WorldCom Agreement, the Company issued 100,000 shares of its
Class A Preferred Stock, par value $10.00 per share, to WorldCom for an
aggregate purchase price of $1.0 million. Except for voting with respect to
the election of Directors, holders of shares of Class A Preferred Stock are
entitled to one vote for each share held of record, voting together with the
holders of Common Stock as a single class, on all matters submitted to a vote
of shareholders. With respect to the election of Directors, holders of Class A
Preferred Stock, voting separately as a class, are entitled to elect a
majority of the Board of Directors. Holders of shares of Class A Preferred
Stock, in preference to holders of shares of Common Stock, are entitled to
receive a quarterly dividend in the amount of $0.175 per share, payable in
cash or in kind, commencing on January 1, 1997, if declared by the Board of
Directors. If the net earnings of the Company in a particular year are
insufficient to pay such dividend, the unpaid amount accumulates and must be
paid in subsequent years before any dividends are paid on shares of Common
Stock. At any time that quarterly dividends owing to holders of shares of
Class A Preferred Stock are in arrears, the Company may not, without the
consent of the Directors elected by the holders of shares of Class A Preferred
Stock, (i) declare or pay dividends on any stock ranking junior to the Class A
Preferred Stock, (ii) declare or pay dividends on any stock ranking a parity
with the Class A Preferred Stock, unless such dividends are paid ratably to
the holders of shares of Class A Preferred Stock, (iii) redeem, purchase or
otherwise acquire for consideration any share of stock ranking junior to the
Class A Preferred Stock or (iv) redeem or purchase or otherwise acquire for
consideration any shares of Class A Preferred Stock, or any shares of stock
ranking on a parity with the Class A Preferred Stock, except in accordance
with an offer to all holders upon such terms as the Board of Directors shall
determine in good faith will result in a fair and equitable treatment among
the respective series or classes of stock. Holders of shares of Class A
Preferred Stock are entitled to preferential distributions upon liquidation
equal to $10.00 per share of Class A Preferred Stock plus accumulated and
unpaid dividends thereon. The Company is required to redeem all shares of
Class A Preferred Stock outstanding as of December 31, 1999 at a redemption
price equal to $10 per share plus an amount equal to all accumulated and
unpaid dividends thereon. WorldCom has agreed that no cash dividends or
distributions will be payable by the Company on the Class A Preferred Stock
owned by WorldCom, and the Class A Preferred Stock owned by WorldCom will not
be redeemed by the Company for cash, until a date that is 180 days following
the Stated Maturity of the Notes. WorldCom is the sole holder of shares of
Class A Preferred Stock. See "Description of the Company's Securities--
Preferred Stock."
Pursuant to the WorldCom Agreement, the Company also issued to WorldCom a
$28.5 million Subordinated Note due December 31, 2003 (the "WorldCom
Subordinated Note"), of which $20.4 million aggregate principal amount was
outstanding as of December 31, 1997. The WorldCom Subordinated Note accrues
interest at an annual rate of 7%, payable semi-annually, commencing March 31,
1997. Payment of principal and interest on the WorldCom Subordinated Note is
subordinated to existing and future obligations of the Company for money
borrowed from bank, trust, insurance or other financial institutions. WorldCom
has
67
<PAGE>
agreed to defer all cash payments in respect of the WorldCom Subordinated Note
until a date that is 180 days following the Stated Maturity of the Notes. See
"Descriptions of Certain Indebtedness."
In February 1998, in connection with the Initial Offering, WorldCom agreed
to defer all cash payments of principal (or premium on) or interest on, or
dividend, distribution or other payment in respect of the WorldCom Convertible
Note, the shares of Class A Preferred Stock owned by WorldCom and the WorldCom
Subordinated Note until a date that is 180 days following the Stated Maturity
of the Notes. The agreement also provides that the payment of the principal of
and interest on the WorldCom Convertible Note and the WorldCom Subordinated
Note may be accelerated only in the event of the acceleration of the payment
of the principal amount of the Notes following an Event of Default with
respect to the Notes. The agreement grants WorldCom an option to convert (a)
interest otherwise due on the WorldCom Convertible Note and deferred pursuant
to WorldCom's agreement, and (b) the interest accrued on the outstanding
principal amount of the WorldCom Subordinated Note from December 31, 2003
through the date such amount is paid pursuant to WorldCom's agreement into
shares of Common Stock at the per share price on the date of such conversion.
Pursuant to the WorldCom Agreement, the Company also issued to WorldCom
warrants to purchase, on or before December 31, 2000, up to 20,787,500 shares
of the Company's Common Stock at an initial exercise price of $0.962 per
share, subject to adjustment in the event of stock splits, reorganizations or
recapitalizations (the "WorldCom Warrants"). The exercise price increased to
$0.982 per share on March 31, 1997, and thereafter will automatically increase
by the amount of $0.016 per share on the last day of each calendar quarter,
subject to certain abatement provisions. The exercise price is currently $1.03
per share. The WorldCom Warrants are subject to certain registration rights.
See "Description of the Company's Securities--Certain Options, Warrants,
Convertible Subordinated Debt and Registration Rights."
The WorldCom Agreement provides that if the Company is not publicly held by
the year 2000 its managers and Board of Directors will obtain an independent
valuation by a nationally recognized investment bank of the fair market value
per share of the Company's Common Stock, without any premium allocated for any
controlling interest (the "Tender Valuation"). Upon receipt of the Tender
Valuation, WorldCom may, but is not required to tender (the "First Tender") to
purchase all outstanding shares of Common Stock and all outstanding options,
warrants, convertible securities and other rights to purchase shares of Common
Stock (collectively, "Company Common Securities") for at least the per share
amount of the Tender Valuation. If the owners of a majority of the then
outstanding shares of the Company's Common Stock (excluding shares held by
WorldCom or its affiliates) reject the First Tender, WorldCom will have 60
days following such rejection to again tender (the "Second Tender") to
purchase the same securities. During such 60-day period, the Company will use
its good faith efforts to determine what offer price would be acceptable to
the owners of such shares and will communicate such information to WorldCom.
Subject to certain conditions, WorldCom will sell and the Company will
purchase the WorldCom Warrants, any shares acquired upon exercise of the
WorldCom Warrants and any shares acquired upon the conversion of the WorldCom
Convertible Note (collectively, the "WorldCom Securities") if (i) WorldCom
fails to make the First Tender within 90 days after receipt of the Tender
Valuation; (ii) owners of a majority of the then outstanding shares of Common
Stock (excluding shares held by WorldCom or its affiliates) reject the First
Tender and WorldCom makes no Second Tender; or (iii) owners of a majority of
the then outstanding shares of Common Stock (excluding shares held by WorldCom
or its affiliates) reject the Second Tender. The Company's purchase price for
the WorldCom Securities will be as follows:
(a) If WorldCom fails to make the First Tender, an amount equal to the
Tender Valuation (or the spread between the Tender Valuation and the
exercise price in the case of warrants).
(b) If the First Tender is rejected by the Company's shareholders and
WorldCom does not make the Second Tender, an amount equal to the
purchase price offered by WorldCom in the First Tender (or the spread
between the offer price and the exercise price in the case of
warrants).
(c) If the Second Tender is rejected by the Company's shareholders, an
amount equal to the purchase price offered by WorldCom in the Second
Tender (or the spread between the offer price and the exercise price in
the case of warrants).
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<PAGE>
The Company will have nine months in which to pay the purchase price for the
WorldCom Securities. From the time the obligation of the Company to purchase
the WorldCom Securities arises until the expiration of such nine-month period,
Edward J. Driscoll III and Allen L. Witters will jointly hold a limited proxy
with regard to all of the WorldCom Securities. If the Company fails to timely
pay the purchase price for the WorldCom Securities, WorldCom will be relieved
of all obligations to sell such securities to the Company, the Company will
have no right to cause WorldCom to sell such securities and the Company will
not be obligated to pay the purchase price for such securities. The parties
have agreed to waive their respective obligations thereunder if the Company
determines to become, and thereafter becomes, a publicly-held company.
In December 1996, WorldCom, Edward J. Driscoll III and Allen L. Witters
executed a Right of Refusal Agreement which provides: (i) for a restriction on
transfer by Mr. Driscoll and Mr. Witters of the shares of Common Stock of the
Company held by them as of the date thereof (the "Shares") and (ii) that in
the event Mr. Driscoll or Mr. Witters desires to sell his Shares, then he
shall offer to the other a right of first refusal and, in the event the other
does not elect to purchase such Shares, he shall offer to WorldCom a right of
second refusal.
In September 1997, the Company entered into the Revolving Credit Facility.
WorldCom has guaranteed the payment of all amounts owed under the Revolving
Credit Facility, and, accordingly, the Company must obtain WorldCom's consent
prior to obtaining any advances under the Revolving Credit Facility. The
Company intends to repay all amounts outstanding under the Revolving Credit
Facility with the net proceeds of the Offering, but the Revolving Credit
Facility is expected to remain in place. See "Descriptions of Certain
Indebtedness." In consideration of WorldCom's guaranty, the Company granted to
WorldCom 8,396,170 Class A warrants and 14,204,835 Class B warrants to
purchase shares of the Company's Common Stock at an initial exercise price of
$3.90 per share, subject to adjustment in the event of stock splits,
reorganizations or recapitalizations. The Class A warrants may be exercised at
any time on or before December 31, 2000. The Class B warrants begin to vest
after the 24th month of the Revolving Credit Facility depending upon the
outstanding balance under the Revolving Credit Facility at certain times and
whether certain qualified repayments are made thereunder. If the Company
repays all obligations under the Revolving Credit Facility prior to the 24th
month with certain qualified repayments, no Class B warrants will vest. The
Class A warrants and Class B warrants are subject to certain registration
rights. See "Description of the Company's Securities--Certain Options,
Warrants, Convertible Subordinated Debt and Registration Rights."
WorldCom has also guaranteed the performance of the Company's obligations
under a Service Provision Agreement, dated July 18, 1997, between the Company
and Time.
The Company has entered into service arrangements with WorldCom, including
an Application for Data Services pursuant to which WorldCom provides the
Company with interexchange telecommunications service, frame relay service and
ATM service, and co-location agreements pursuant to which the Company leases
space for its Distribution Hubs. The Company believes that these arrangements
are at terms that are similar to those that could be obtained from an
independent third party on an arm's-length basis.
Edward J. Driscoll, Jr., purchased 250,000 shares of Common Stock at the
Company's inception in 1994. As consideration for such shares, Mr. Driscoll
paid the Company $500 and agreed to provide certain consulting services to the
Company. In January 1998, Mr. Driscoll was granted an option to purchase up to
200,000 shares of the Company's Common Stock at a price of $3.90 per share as
partial consideration for his agreement to provide certain services to the
Company. Mr. Driscoll is a shareholder of Larkin, Hoffmann, Daly & Lindgren,
Ltd., which provides certain legal services to the Company. Mr. Driscoll is
the father of Edward J. Driscoll III, the Company's Chairman of the Board,
President and Chief Executive Officer.
The Company's marketing services were performed by Kauffman Marketing Group,
Inc. from November 1995 to December 1997. The former President of Kauffman
Marketing Group, Inc., John Kauffman, joined the Company as Vice President of
Strategic Marketing and Communications in December 1997. During the years
ended December 31, 1995, 1996 and 1997, the Company incurred marketing
expenses of approximately $0.0, $0.3 million and $1.6 million, respectively,
to such firm for marketing services. In addition, Mr. Kauffman was granted, in
July 1997, an option to purchase up to 225,000 shares of Common Stock at a
price of $0.962 per share and Mr. Kauffman was granted, in December 1997, an
option to purchase up to 350,000 shares of Common Stock at a price of $3.90
per share.
69
<PAGE>
DESCRIPTION OF THE COMPANY'S SECURITIES
GENERAL
The Company's authorized capital stock consists of 100,000,000 shares, of
which 90,000,000 shares are designated as Common Stock, 100,000 shares are
designated as Class A Preferred Stock, par value $10.00 per share ("Class A
Preferred Stock"), and 9,900,000 shares are designated as Undesignated Stock.
COMMON STOCK
The Company currently has outstanding 9,271,363 shares of Common Stock. An
additional 68,606,626 shares are reserved for issuance upon exercise of
outstanding options and warrants, conversion of convertible debt securities
and for payment of the portion of the consideration of the 4-Sight Acquisition
that is subject to the satisfaction of certain conditions. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of shareholders. There is no cumulative voting for
the election of directors, which means that the holders of more than 50% of
the outstanding Common Stock voting for the election of directors can elect
all of the directors of the Company to be elected by the holders of Common
Stock. As discussed below, the holders of Class A Preferred Stock, voting
separately as a class, are entitled to elect a majority of the Board of
Directors. Subject to the preferences of the Class A Preferred Stock and any
other class or series of outstanding preferred stock, holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor and are entitled to share
ratably in all assets of the Company available for distribution to holders of
the Common Stock upon liquidation, dissolution or winding up of the affairs of
the Company. Holders of Common Stock have no preemptive, subscription or
conversion rights and there are no redemption or sinking fund provisions
applicable thereto. All outstanding shares of Common Stock are fully paid and
nonassessable.
PREFERRED STOCK
In November 1996, the Company issued 100,000 shares of Class A Preferred
Stock to WorldCom for an aggregate purchase price of $1.0 million. Except for
voting with respect to the election of Directors, holders of shares of Class A
Preferred Stock are entitled to one vote for each share held of record, voting
together with the holders of Common Stock as a single class, on all matters
submitted to a vote of shareholders. With respect to the election of
Directors, holders of Class A Preferred Stock, voting separately as a class,
are entitled to elect a majority of the Board of Directors. Holders of shares
of Class A Preferred Stock, in preference to holders of shares of Common
Stock, are entitled to receive a quarterly dividend in the amount of $0.175
per share, payable in cash or in kind, commencing January 1, 1997, if declared
by the Board of Directors. If the net earnings of the Company in a particular
year are insufficient to pay such dividend, the unpaid amount accumulates and
must be paid in subsequent years before any dividends are paid on shares of
Common Stock. At any time that the quarterly dividends owing to holders of
shares of Class A Preferred stock are in arrears, the Company may not, without
the consent of the Directors elected by the holders of Class A Preferred
Stock, (i) declare or pay dividends on any stock ranking junior to the Class A
Preferred Stock, (ii) declare or pay dividends on any stock ranking on a
parity with the Class A Preferred Stock, unless such dividends are paid
ratably to the holders of shares of Class A Preferred Stock, (iii) redeem,
purchase or otherwise acquire for consideration any share of stock ranking
junior to the shares of Class A Preferred Stock or (iv) redeem or purchase or
otherwise acquire for consideration any shares of Class A Preferred Stock, or
any shares of stock ranking on a parity with the Class A Preferred Stock,
except in accordance with an offer to all holders upon such terms as the Board
of Directors shall determine in good faith will result in a fair and equitable
treatment among the respective series or classes of stock. Holders of shares
of Class A Preferred Stock are entitled to preferential distributions upon
liquidation equal to $10.00 per share of Class A Preferred Stock plus
accumulated and unpaid dividends thereon. Holders of Class A Preferred Stock
have no preemptive, subscription or conversion rights. The Company is required
to redeem all shares of Class A Preferred Stock outstanding as of December 31,
1999 at a redemption price equal to $10 per share plus an amount equal to all
accumulated and unpaid dividends thereon. WorldCom has agreed that no cash
dividends or distributions will be payable by the Company on the Class A
Preferred Stock owned by WorldCom, and the Class A Preferred Stock owned by
WorldCom will not be redeemed by the Company for cash, until a date that is
180 days following the Stated Maturity of the Notes. WorldCom is the sole
holder of shares of Class A Preferred Stock.
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UNDESIGNATED STOCK
The Company's Articles of Incorporation authorize the Company's Board of
Directors, without further shareholder action, to issue up to 9,900,000 shares
of Undesignated Stock in one or more series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences of the Undesignated Stock. This authority
permits the Board of Directors to create out of the Undesignated Stock one or
more classes or series of preferred stock which may have rights, including
voting and conversion rights, that are different from or greater than the
rights of Common shareholders. Such preferred stock could adversely affect the
voting power or dividend rights of the holders of Common Stock and may have
the effect of delaying, deferring or preventing a change in control of the
Company.
CERTAIN OPTIONS, WARRANTS, CONVERTIBLE SUBORDINATED DEBT AND REGISTRATION
RIGHTS
As of April 28, 1998, the Company had granted options to purchase a total of
10,889,900 shares of Common Stock at exercise prices ranging from $0.45 to
$8.00 per share, of which 6,216,504 are currently vested and exercisable and
the remainder vest and become exercisable at various times until 2008.
In the first half of 1995, the Company issued a total of $250,000 aggregate
principal amount of 8% Convertible Subordinated Debentures due December 31,
1999, of which $100,000 aggregate principal amount is currently outstanding.
The Convertible Subordinated Debentures entitle the holder to convert at any
time prior to December 1, 1999, the date represented thereby into shares of
the Company's Common Stock at a conversion price ("Conversion Price") of $0.38
per share, subject to adjustment in the event of stock splits, reorganizations
or recapitalizations, and on a weighted-average basis in the event the Company
issues any Common Stock or security convertible into, or exercisable to
purchase, Common Stock at a price less than the then prevailing Conversion
Price. The Company may redeem the Convertible Subordinated Debentures at any
time commencing January 1, 1997 at 110% of the face amount, plus interest.
Except in certain limited circumstances, the holders of the Convertible
Subordinated Debentures have the right to include the shares of Common Stock
underlying the Convertible Subordinated Debentures in any registration
statement the Company may file in the future with respect to the Company's
Common Stock. The Convertible Subordinated Debentures also provide that the
Company may require the holders to convert the Convertible Subordinated
Debentures into Common Stock at any time the Company files a registration
statement. In June 1995, the holder of $100,000 of Convertible Subordinated
Debentures exercised the right to convert the Debenture into 263,160 shares of
the Company's Common Stock at the Conversion Price of $0.38 per share. In each
of July, 1996 and December 1997, the holder of $25,000 of Convertible
Subordinated Debentures exercised the right to convert the Debenture into
65,790 shares of the Company's Common Stock at the Conversion Price of $0.38
per share.
Holders of 1,650,000 shares of the Company's Common Stock issued in a
private placement in June through August 1995 are entitled to the same
"demand" or "piggy back" registration rights that the Company may grant to any
other shareholder.
From December 1995 through July 1996, the Company issued, in three series,
an aggregate of $5.6 million principal amount of subordinated promissory notes
(the "Bridge Financing"). In connection therewith, the Company issued to the
lenders of the Bridge Financing, for nominal consideration, warrants to
purchase a total of 5,600,000 shares of Common Stock and issued to the
placement agent in connection with such financing warrants to purchase 560,000
shares of Common Stock (collectively, the "Bridge Warrants"). The Bridge
Warrants expire as follows: 1,760,000 on December 31, 2000, 1,100,000 on March
31, 2003 and 3,300,000 on June 30, 2003. The exercise price of the 1,760,000
warrants expiring on December 31, 2000 is $1.00 per share, and the initial
exercise price of the remaining 4,400,000 warrants is $1.50 per share, subject
to adjustment in the event of stock splits, reorganizations or
recapitalizations. Beginning on the date three years after the date of a
holder's Bridge Warrants, such holder of Bridge Warrants, or of Common Stock
acquired upon exercise of Bridge Warrants, may have the right to include such
Bridge Warrants or Common Stock in a registration statement the Company may
file after such date, subject to the right of the Company to exclude such
Bridge
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Warrants or Common Stock that are eligible for sale under an applicable
exemption from registration or if the managing underwriter reasonably deems
that the inclusion of such securities in such registration statement would
unreasonably interfere with the contemplated offering.
In September 1996, the Company issued to WorldCom the WorldCom Convertible
Note. Interest on the WorldCom Convertible Note accrues at an annual rate of
10%, payable semi-annually, commencing with the first payment on March 30,
1997. At any time prior to September 30, 1999, WorldCom may convert the
principal amount of the WorldCom Convertible Note, in whole or in part, into
shares of Common Stock at a conversion price of $1.00 per share, subject to
adjustment in the event of stock splits, reorganizations or recapitalizations.
The Company may redeem the WorldCom Convertible Note, in whole or in part, at
any time on or after January 1, 1998 at its face amount plus accrued and
unpaid interest. Except in certain limited circumstances, WorldCom has the
right to include the shares of Common Stock underlying the WorldCom
Convertible Note in any registration statement filed by the Company under the
Securities Act. Notwithstanding the foregoing, if the managing underwriter of
such an offering believes in good faith that inclusion of all such shares
would reduce the number of shares to be offered or interfere with the
successful marketing of the shares to be offered, the number of such shares to
be included in such Registration Statement may be reduced; provided that any
such reduction shall be pro rata among all persons participating in the
offering. In addition, on one occasion only, at any time prior to September
17, 2001, WorldCom may request that the Company use its best efforts to
register or qualify the WorldCom Convertible Note or the shares issued upon
the conversion of the WorldCom Convertible Note under the Securities Act and
such state laws as are reasonably requested. Until the WorldCom Convertible
Note is paid in full or converted, the Company may not declare any dividends
on its Common Stock, except for certain stock splits in the form of a dividend
payable in shares of Common Stock.
In March 1996, the Company entered into an arrangement with Leasing
Technologies International, Inc. ("LTI") pursuant to which LTI agreed to
provide the Company with up to $1,000,000 for the purchase of certain
equipment. See "Description of Certain Indebtedness." In partial consideration
for entering into this arrangement, the Company granted to LTI warrants to
purchase on or before April 30, 2003, up to 45,000 shares of the Company's
Common Stock at an exercise price of $1.50 per share, subject to adjustment in
the event of stock splits, reorganizations or recapitalizations. Beginning
April 26, 1999, LTI may have the right to include such warrants, or Common
Stock acquired upon exercise of such warrants, in a registration statement the
Company may file after such date.
In connection with the execution of the WorldCom Agreement, in December
1996, the Company granted to WorldCom the WorldCom Warrants to purchase on or
before December 31, 2000, up to 20,787,500 shares of the Company's Common
Stock at an initial exercise price of $0.962 per share, subject to adjustment
in the event of stock splits, reorganizations or recapitalizations. See
"Certain Transactions and Relationships." The exercise price increased to
$0.982 per share on March 31, 1997, and thereafter will automatically increase
by the amount of $0.016 per share on the last day of each calendar quarterly,
subject to certain abatement provisions. Beginning December 16, 1999, WorldCom
has the right to include such WorldCom Warrants, or Common Stock acquired upon
exercise of such WorldCom Warrants, in a registration statement the Company
may file after such date, subject to the right of the Company to exclude such
WorldCom Warrants or Common Stock that are eligible for sale under an
applicable exemption from registration or if the managing underwriter
reasonably deems that the inclusion of such securities in such registration
statement would unreasonably interfere with the contemplated offering.
In September 1997, the Company entered into the Revolving Credit Facility.
In consideration for WorldCom's guaranty of the Company's obligations under
the Revolving Credit Facility, the Company granted to WorldCom 8,396,170 Class
A warrants and 14,204,835 Class B warrants to purchase shares of the Company's
Common Stock at an exercise price of $3.90 per share, subject to adjustment in
the event of stock splits, reorganizations or recapitalizations and subject to
further adjustment after further consideration to determine the "fair market
value" as of September 15, 1997 of such warrants. The Class A warrants may be
exercised at any time on or before December 31, 2000. The Class B warrants
begin to vest after the 24th month of the Revolving
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Credit Facility depending upon the outstanding balance under the Revolving
Credit Facility at certain times and whether certain qualified repayments are
made. If the Company repays all obligations under the Revolving Credit
Facility prior to the 24th month with certain qualified repayments no Class B
warrants will vest. Beginning September 26, 2000, WorldCom has the right to
include such warrants, or shares of Common Stock acquired upon exercise of
such warrants, in a registration statement filed by the Company after such
date, subject to the right of the Company to exclude such warrants or Common
Stock that are eligible for sale under an applicable exemption from
registration or if the managing underwriter reasonably deems that the
inclusion of such securities in such registration statement would unreasonably
interfere with the contemplated offering.
WorldCom has the option to convert (a) interest otherwise due on the
WorldCom Convertible Note and deferred pursuant to its agreement with the
Company, and (b) the interest accrued on the outstanding principal amount of
the WorldCom Subordinated Note from December 31, 2003 through the date such
amount is paid into shares of Common Stock at the per share price on the date
of such conversion.
The Company has obtained waivers from all persons that have, or arguably may
have, the right to include such securities in the Exchange Offer Registration
Statement or any Shelf Registration Statement to be filed for the benefit of
Noteholders.
PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND THE MINNESOTA
BUSINESS CORPORATION ACT
The Company is a Minnesota corporation and is governed by the Minnesota
Business Corporation Act. The existence of authorized but unissued
Undesignated Stock, and certain provisions of Minnesota law, could have an
anti-takeover effect. These provisions are intended to provide management
flexibility to discourage an unsolicited takeover of the Company if the Board
determines that such a takeover is not in the best interests of the Company
and its shareholders. However, these provisions could have the effect of
discouraging some attempts to acquire the Company.
Section 302A.671 of the Minnesota Business Corporation Act applies, with
certain exceptions, to any acquisition of voting stock of the Company (from a
person other than the Company, and other than in connection with certain
mergers and exchanges to which the Company is a party) resulting in the
beneficial ownership of 20 percent or more of the voting stock then
outstanding. Section 302A.671 requires approval of any such acquisitions by a
majority vote of the shareholders of the Company prior to its consummation. In
general, shares acquired in the absence of such approval are denied voting
rights and are redeemable at their then fair market value by the Company
within 30 days after the acquiring person has failed to give a timely
information statement to the Company or the date the shareholders voted not to
grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Business Corporation Act generally
prohibits any business combination by the Company, or any subsidiary of the
Company, with any shareholder which purchases 10% or more of the Company's
voting shares (an "interested shareholder") within four years following such
interested shareholder's share acquisition date, unless the business
combination is approved by a committee of all of the disinterested members of
the Board of Directors of the Company before the interested shareholder's
share acquisition date.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
In March 1996, the Company entered into an equipment leasing arrangement
with LTI pursuant to which LTI agreed to lease up to $1.0 million of equipment
to the Company. In April 1996, the Company leased from LTI $245,396.60 of
computer hardware equipment for a term of 30 months, commencing May 1, 1996,
at a monthly rental of $9,480, subject to certain adjustments.
In September 1996, the Company issued to WorldCom the WorldCom Convertible
Note due September 30, 1999 in the principal amount of $5.0 million. Interest
on the WorldCom Convertible Note accrues at an annual rate of 10%, payable
semi-annually, commencing with the first payment on March 30, 1997. WorldCom
has agreed to defer all cash payments in respect of the WorldCom Convertible
Note until a date that is 180 days following the Stated Maturity of the Notes.
At any time prior to September 30, 1999, WorldCom may convert the principal
amount of the WorldCom Convertible Note into shares of Common Stock at a
conversion price of $1.00 per share, subject to adjustment in the event of
stock splits, reorganizations or recapitalizations. Payment of principal and
interest on the WorldCom Convertible Note is subordinated to existing and
future obligations of the Company for money borrowed from bank, trust,
insurance or other financial institutions. The Company may redeem the WorldCom
Convertible Note at any time commencing January 1, 1998 at its face amount
plus accrued and unpaid interest. The shares of Common Stock underlying the
Convertible Note are subject to certain registration rights. See "Description
of the Company's Securities--Certain Options, Warrants, Convertible
Subordinated Debt and Registration Rights."
In December 1996, the Company issued to WorldCom the WorldCom Subordinated
Note due December 31, 2003 in the principal amount of $28.5 million, of which
$20.4 aggregate principal amount was outstanding as of December 31, 1997. The
WorldCom Subordinated Note accrues interest at an annual rate of 7%, payable
semi-annually, commencing March 31, 1997. WorldCom has agreed to defer all
cash payments in respect of the WorldCom Subordinated Note until a date that
is 180 days following the Stated Maturity of the Notes. WorldCom will, upon
the request of the Company, make additional disbursements under the WorldCom
Subordinated Note in an amount up to $332,500 not more frequently than once
each quarter, commencing March 31, 1997. Payment of principal and interest on
the WorldCom Subordinated Note is subordinated to existing and future
obligations of the Company for money borrowed from bank, trust, insurance or
other financial institutions.
In September 1997, the Company entered into the Revolving Credit Facility
with The First National Bank of Chicago ("FNBC"), an affiliate of First
Chicago Capital Markets, Inc., one of the Initial Purchasers. At the Company's
election, the interest rate per annum applicable to the Revolving Credit
Facility is a fluctuating rate of interest measured by reference to either:
(i) the adjusted London inter-bank offered rate ("LIBOR") plus 55 basis points
(the "Eurodollar Rate") or (ii) the greater of the Federal Funds Effective
Rate or the corporate base rate announced by FNBC plus 50 basis points (the
"Floating Rate") . On March 31, 1998, the Eurodollar Rate was equal to 6.2375%
per annum and the Floating Rate was equal to 8.5% per annum. The aggregate
principal amount outstanding under the Revolving Credit Facility as of March
31, 1998 was $0. The Revolving Credit Facility matures and becomes payable in
full on September 26, 2000. Subject to the written authorization of WorldCom,
as guarantor of the obligations of the Company under the Revolving Credit
Facility, the Company may from time to time make additional draws under the
Revolving Credit Facility up to an aggregate of $25.0 million outstanding at
any one time.
The Company has outstanding the following items of indebtedness relating to
the purchase of certain equipment and the licensing of certain proprietary
software by the Company:
(i) An installment note in favor of FINOVA Technology Finance, Inc.
("FINOVA") bearing monthly payments of $43,324 and an additional final payment
of $241,955, due April 2001.
(ii) An installment note in favor of FINOVA bearing monthly payments of
$90,995 and an additional final payment of $509,052, due May 2001.
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(iii) An installment note in favor of Transamerica Business Credit
Corporation ("Transamerica") bearing monthly payments of $46,043 and an
additional final payment of $206,552, due May 2001.
(iv) An installment note in favor of Transamerica bearing monthly payments
of $41,692 and an additional final payment of $187,349, due May 2001.
(v) An installment note in favor of Transamerica bearing monthly payments of
$40,638 and an additional final payment of $183,668, due June 2001.
(vi) An installment note in favor of Transamerica bearing monthly payments
of $10,509 and an additional final payment of $47,503, due July 2001.
(vii) An installment note in favor of Leasetec Corporation ("Leasetec")
bearing monthly payments of $46,667, due December 1998.
(viii) An installment note in favor of Leasetec bearing monthly payments of
$82,690, due April 1999.
Each of the installment notes held by FINOVA, Transamerica and Leasetec is
secured by certain items of equipment or proprietary software.
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DESCRIPTION OF THE NOTES
The Original Notes are, and the Exchange Notes will be, issued under an
Indenture (the "Indenture") to be dated as of March 5, 1998, between WAM!NET
Inc. (the "Issuer") and U.S. Bank Trust National Association (f/k/a First
Trust National Association), as Trustee, a copy of which has been filed as an
exhibit to the Exchange Offer Registration Statement. Upon the issuance of the
Exchange Notes, if any, or the effectiveness of a Shelf Registration Statement
with respect to the Notes, the Indenture will be subject to and governed by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the Trust Indenture Act and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the Trust Indenture Act, as in effect on the
date of the Indenture. The definitions of certain capitalized terms used in
the following summary are set forth below under "--Certain Definitions."
GENERAL
The Original Notes are, and the Exchange Notes will be, issued only in fully
registered form without coupons, in denominations of $1,000 principal amount
and integral multiples thereof. Principal of, premium, if any, and interest on
the Notes are payable, and the Notes are exchangeable and transferable, at the
office or agency of the Issuer in the City of New York maintained for such
purposes (which initially will be the corporate trust office of the Trustee).
See "--Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer, exchange or redemption of the Notes, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The Original Notes are, and the Exchange Notes will be, general unsecured
obligations of the Issuer, limited to $208,530,000 aggregate principal amount
at maturity, and will mature on March 1, 2005. The Notes will not bear cash
interest prior to March 1, 2002. See "Certain Federal Income Tax
Considerations." Commencing on September 1, 2002, interest on the Notes will
be payable, in cash, at a rate of 13 1/4% per annum, semi-annually in arrears
on each March 1 and September 1 to registered holders of Notes on the February
15 or August 15, as the case may be, immediately preceding such interest
payment date. Interest on the 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 March 1, 2002. Based on the
foregoing, the yield to maturity of each Note will be 14.59% (computed on a
semi-annual bond equivalent basis). Interest will be computed on the basis of
a 360-day year of twelve 30-day months. If the Issuer defaults on any payment
of principal (whether at maturity, upon redemption or otherwise), cash
interest will continue to accrue and, to the extent permitted by law, cash
interest will accrue on overdue installments of interest at the rate of
interest borne by the Notes.
As discussed under "Exchange Offer; Note Registration Rights," pursuant to
the Registration Rights Agreement, the Issuer has agreed, for the benefit of
the holders of Notes, to effect at its expense a registered exchange offer
under the Securities Act to exchange the Notes for Exchange Notes. The failure
to comply with such agreement in certain respects may result in the Issuer
paying cash interest on the Notes as liquidated damages.
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REDEMPTION
Optional Redemption. The Notes are redeemable, at the option of the Issuer,
in whole or in part, on or after March 1, 2002, upon not less than 30 nor more
than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, plus accrued and
unpaid interest thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 1 of each of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. 106.6250%
2003.............................. 103.3125%
2004.............................. 100.0000%
</TABLE>
In addition, at any time on or prior to March 1, 2001, the Issuer may, other
than in any circumstances resulting in a Change of Control, redeem, at its
option, up to a maximum of 25% of the originally-issued aggregate principal
amount at maturity of Notes at a redemption price (determined at the
redemption date) equal to 113.25% of the Accreted Value of the Notes so
redeemed, with the net cash proceeds of an Initial Public Equity Offering
resulting in gross cash proceeds to the Issuer of at least $35.0 million in
the aggregate; provided that not less than 75% of the originally-issued
aggregate principal amount at maturity of Notes is outstanding immediately
following such redemption. Any such redemption must be effected upon not less
than 30 nor more than 60 days' notice given within 30 days after the
consummation of the Initial Public Equity Offering.
Mandatory Redemption. The Issuer will not be required to repurchase the
Notes or make any mandatory redemption or sinking fund payments in respect of
the Notes. However, (i) following the occurrence of a Change of Control the
Issuer will be required to make an offer to purchase all outstanding Notes at
a price equal to 101% of the Accreted Value thereof as of the date of purchase
and (ii) following the occurrence of an Asset Sale the Issuer may be obligated
to make an offer to purchase all or a portion of the outstanding Notes at a
price equal to 100% of the Accreted Value thereof as of the date of purchase,
in each case plus accrued and unpaid interest, if any, to the date of
purchase. See "--Certain Covenants--Change of Control" and "--Disposition of
Proceeds of Asset Sales," respectively.
Selection; Effect of Redemption Notice. In the case of a partial redemption,
selection of the Notes for redemption will be made pro rata, by lot or such
other method as the Trustee in its sole discretion deems appropriate and just;
provided that any redemption pursuant to the provisions relating to
redemptions from the proceeds of one or more Public Equity Offerings or sales
to one or more Strategic Equity Investors shall be made on a pro rata basis or
on as nearly a pro rata basis as practicable (subject to DTC procedures). No
Notes of a principal amount at maturity of $1,000 or less shall be redeemed in
part. Notice of redemption shall be mailed by first-class mail at least 30 but
not more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount at maturity equal to the unredeemed portion thereof will be
issued in the name of the holder thereof upon surrender for cancellation of
the original Note. Upon giving of a redemption notice, interest on Notes
called for redemption will cease to accrue from and after the date fixed for
redemption (unless the Issuer defaults in providing the funds for such
redemption) and such Notes will cease to be outstanding.
RANKING
The Indebtedness of the Issuer evidenced by the Notes ranks senior in right
of payment to all Subordinated Indebtedness of the Issuer and pari passu in
right of payment with all existing and future unsecured and unsubordinated
Indebtedness of the Issuer. The Notes are effectively subordinated in right of
payment to all secured Indebtedness of the Issuer. Assuming the Notes had been
issued on December 31, 1997, and after giving effect to the application of the
estimated net proceeds thereof, the Issuer would have had outstanding at that
date approximately $9.6 million of secured Indebtedness, which would have been
effectively senior to the Notes, no Indebtedness which would have ranked pari
passu with the Notes and $25.4 million of Indebtedness which would have been
subordinated in right of payment to the Notes.
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Although the Indenture contains limitations on the amount of additional
Indebtedness which the Issuer or its Restricted Subsidiaries may incur, under
certain circumstances the amount of such Indebtedness could be substantial,
and the Indenture does not limit the amount of secured Permitted Equipment
Financing that may be incurred by the Issuer. See "--Certain Covenants--
Limitation on Additional Indebtedness" below. If the Issuer becomes insolvent
or is liquidated, or if payment under the any secured Permitted Equipment
Financing or other secured credit facility is accelerated, the lenders under
the Permitted Equipment Financing or such other facility would be entitled to
exercise the remedies available to a secured lender under applicable law
pursuant to the terms of the applicable financing agreements. Accordingly, any
claims of such lenders with respect to assets secured in their favor will be
prior to any claims of the holders of the Notes with respect to such assets.
The Notes are guaranteed on an unsecured basis by all Material Restricted
Subsidiaries of the Issuer, which guarantees may be released under certain
circumstances. As of the Issue Date and as of the date hereof, the Issuer did
not have any Material Restricted Subsidiaries. No other Subsidiary of the
Issuer will be required to guarantee the Indebtedness represented by the
Notes, except under the circumstances described under "--Certain Covenants--
Issuance of Guarantees by Certain Restricted Subsidiaries; Release of
Guarantees'' below. As of the date hereof, the Subsidiaries of the Issuer have
no Indebtedness.
CERTAIN COVENANTS
Set forth below are certain covenants that are contained in the Indenture.
Limitation on Additional Indebtedness. The Indenture provides that the
Issuer will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume, issue, guarantee or in any manner become
directly or indirectly liable for or with respect to, contingently or
otherwise, the payment of (collectively, to "incur") any Indebtedness
(including any Acquired Indebtedness), except for Permitted Indebtedness
(including Acquired Indebtedness to the extent it would constitute Permitted
Indebtedness); provided (i) the Issuer will be permitted to incur Indebtedness
(including Acquired Indebtedness) and (ii) a Restricted Subsidiary will be
permitted to incur Acquired Indebtedness, if, in either case, after giving pro
forma effect to such incurrence (including the application of the net proceeds
therefrom), the Indebtedness to EBITDA Ratio would be less than or equal to 5
to 1.
Indebtedness of any person or any of its Subsidiaries existing at the time
such Person becomes a Restricted Subsidiary (or is merged into or consolidated
with the Issuer or any Restricted Subsidiary), whether or not such
Indebtedness was incurred in connection with, or in contemplation of, such
person becoming a Restricted Subsidiary (or being merged into or consolidated
with the Issuer or any Restricted Subsidiary) shall be deemed incurred at the
time any such person becomes a Restricted Subsidiary or merges into or
consolidates with the Issuer or any Restricted Subsidiary.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness may be incurred by meeting the criteria of one or more
items of Permitted Indebtedness, the Issuer may, in its sole discretion,
classify and divide such item of Indebtedness among more than one of such
items of Permitted Indebtedness.
Limitation on Restricted Payments. The Indenture provides that the Issuer
will not, and will not permit any of the Restricted Subsidiaries to, make,
directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
upon giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, the
Issuer would be able to incur $1.00 of Indebtedness under the proviso of
the covenant "--Limitation on Additional Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of, without
duplication, (a) 50% of the Consolidated Net Income accrued on a cumulative
basis during the
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period beginning on the first day of the first fiscal quarter immediately
following the Issue Date and ending on the last day of the fiscal quarter
of the Issuer immediately preceding the date of such proposed Restricted
Payment (or, if such cumulative Consolidated Net Income of the Issuer for
such period is a deficit, minus 100% of such deficit) for which financial
statements have been provided pursuant to "--Reports'' below, in any event
determined by excluding income resulting from transfers of assets by the
Issuer or a Restricted Subsidiary to an Unrestricted Subsidiary, plus (b)
the aggregate net cash proceeds received by the Issuer either (x) as
capital contributions to the Issuer after the Issue Date or (y) from the
issuance and sale of its Capital Stock (other than Disqualified Stock) or
options, warrants or other rights to acquire its Capital Stock (other than
Disqualified Stock) (exclusive of any convertible Indebtedness or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes), in each case on or after the Issue Date to a person who is not a
Subsidiary of the Issuer, plus (c) the aggregate net proceeds received by
the Issuer from the issuance (other than to a Subsidiary of the Issuer) on
or after the Issue Date of its Capital Stock (other than Disqualified
Stock) upon the conversion of, or in exchange for, Indebtedness of the
Issuer or upon the exercise of options, warrants or other rights of Issuer,
plus (d) in the case of the disposition or repayment (in whole or in part)
of any Investment constituting a Restricted Payment made after the Issue
Date, an amount equal to the lesser of the return of capital with respect
to the applicable portion of such Investment and the cost of the applicable
portion of such Investment, in either case, less the cost of the
disposition of such Investment, plus (e) in the case of any Revocation with
respect to a Subsidiary of the Issuer that was made subject to a
Designation after the Issue Date, an amount equal to the lesser of the
Designation Amount with respect to such Subsidiary or the Fair Market Value
of the Investment of the Issuer and the Restricted Subsidiaries in such
Subsidiary at the time of Revocation, minus (f) 50% of the principal amount
of any Indebtedness incurred pursuant to clause (g) of the definition of
"Permitted Indebtedness," minus (g) the greater of (x) $0 and (y) the
Designation Amount (measured as of the date of Designation) with respect to
any Subsidiary that has been designated as an Unrestricted Subsidiary in
accordance with "--Limitation on Designations of Unrestricted
Subsidiaries'' below. For purposes of the preceding clauses (b) (y) and
(c), as applicable, (A) the value of the aggregate net proceeds received by
the Issuer upon the issuance of Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the net cash
proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental amount received, if any, by the Issuer upon
the conversion, exchange or exercise thereof, (B) there shall be excluded
in all cases any issuance and sale of Capital Stock financed, directly or
indirectly, using funds (I) borrowed from the Issuer or any Subsidiary
until and to the extent such borrowing is repaid or (II) contributed,
extended, guaranteed or advanced by the Issuer or any Subsidiary
(including, without limitation, in respect of any employee stock ownership
or benefit plan) and (C) there shall be excluded in all cases any issuance
and sale of Capital Stock in an Initial Public Equity Offering to the
extent the net cash proceeds are used, prior to March 1, 2001, to redeem
Notes as described under "--Redemption--Optional Redemption." The Issuer
may not redeem Notes as described under "--Redemption--Optional
Redemption'' from net cash proceeds received by the Issuer from the
issuance on or after the Issue Date of its Capital Stock if such net cash
proceeds have ever been included in a determination of the amount of
Restricted Payments that may be made by the Issuer pursuant to this
covenant.
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
The provisions of this covenant shall not prohibit the following (each of
which shall be given independent effect): (i) the payment of any dividend or
other distribution within 60 days after the date of declaration thereof if at
such date of declaration such payment would be permitted by the provisions of
the Indenture; (ii) the purchase, redemption, retirement or other acquisition
of any shares of Capital Stock of the Issuer in exchange for, or out of the
net cash proceeds of the substantially concurrent issue and sale (other than
to a Subsidiary of the Issuer) of, shares of Capital Stock of the Issuer
(other than Disqualified Stock); provided that any such net cash proceeds are
excluded from clause (iii) (b) of the second preceding paragraph; (iii) so
long as no Default
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shall have occurred and be continuing, the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness made by exchange
for, or out of the net cash proceeds of, a substantially concurrent issue and
sale (other than to a Subsidiary of the Issuer) of (x) Capital Stock (other
than Disqualified Stock) of the Issuer or (y) other Subordinated Indebtedness
to the extent that its stated maturity for the payment of principal thereof is
not prior to the 180th day after the final stated maturity of the Notes;
provided that any such net cash proceeds are excluded from clause (iii) (b) of
the second preceding paragraph; (iv) so long as no Default shall have occurred
and be continuing, purchases or redemptions of Capital Stock (including cash
settlements of stock options) held by employees, officers or directors upon or
following termination of their employment with the Issuer or one of its
Subsidiaries; provided that payments shall not exceed $750,000 in any fiscal
year in the aggregate or $3.0 million in the aggregate during the term of the
Notes; (v) so long as no Default shall have occurred and be continuing,
Investments in Unrestricted Subsidiaries to the extent reasonably promptly
made with the proceeds of (x) a capital contribution to the Issuer or (y) an
issue or sale of Capital Stock (other than Disqualified Capital Stock) of the
Issuer (other than to a Subsidiary); provided that any such net cash proceeds
are excluded from clause (iii) (b) of the second preceding paragraph; and (vi)
so long as no Default shall have occurred and be continuing, Investments in
(x) joint ventures formed to engage in the Digital Network Business and (y)
other persons principally engaged in the Digital Network Business; provided
that no more than $12.5 million of Investments made pursuant to this clause
(vi) shall be outstanding at any time.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (iv) and (vi) above shall
be included, without duplication, as Restricted Payments.
Limitation on Liens Securing Certain Indebtedness. The Indenture provides
that the Issuer will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Liens of any kind against or upon
any of the property or assets of the Issuer or any Restricted Subsidiary,
whether now owned or hereafter acquired, or any proceeds therefrom, which
secure either (x) Subordinated Indebtedness unless the Notes are secured by a
Lien on such property, assets or proceeds that is senior in priority to the
Liens securing such Subordinated Indebtedness or (y) Indebtedness of (A) the
Issuer or any Subsidiary Guarantor that is not Subordinated Indebtedness or
(B) any Restricted Subsidiary (other than a Subsidiary Guarantor), unless the
Notes are equally and ratably secured with the Liens securing such other
Indebtedness, except, in the case of this clause (y), Permitted Liens.
Issuance of Guarantees by Certain Restricted Subsidiaries; Release of
Guarantees. The Indenture provides that each Material Restricted Subsidiary
will become a guarantor of the Notes (each a "Subsidiary Guarantor" and
collectively the "Subsidiary Guarantors"); provided, that a Material
Restricted Subsidiary that is a Foreign Subsidiary shall not become a
Subsidiary Guarantor if by doing so it would violate applicable law of its
jurisdiction of organization or incorporation. Each Subsidiary Guarantor will
fully and unconditionally guarantee (collectively, the "Subsidiary
Guarantees"), jointly and severally, on a senior unsecured basis to each
holder of a Note the due and punctual payment of the principal of, premium, if
any, and interest on, and all other amounts owing in respect of such Note and
under the Indenture. Each Subsidiary Guarantor will execute a supplemental
indenture evidencing its Subsidiary Guarantee in the form attached to the
Indenture.
The Issuer will not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to Guarantee any Indebtedness of
any person unless, in each case, such Restricted Subsidiary simultaneously
executes and delivers to the Trustee a supplemental indenture pursuant to
which such Restricted Subsidiary shall guarantee the full and punctual payment
of all obligations of the Issuer under the Indenture and the Notes on the same
terms and conditions as the Subsidiary Guarantees by the Subsidiary
Guarantors.
Pursuant to each Subsidiary Guarantee, if the Issuer defaults in payment of
any amount owing in respect of the Notes or the Indenture, the Subsidiary
Guarantor will be obligated to duly and punctually pay the same. Pursuant to
the terms of the Indenture, each of the Subsidiary Guarantors will agree that
its obligations under its Subsidiary Guarantee will be unconditional,
irrespective of the validity, regularity or enforceability of the Notes or the
Indenture, the absence of any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge
of defense of a guarantor.
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Upon (i) any sale or disposition (by merger or otherwise) of any Subsidiary
Guarantor by the Issuer, or a Restricted Subsidiary of the Issuer, to any
person that is not an Affiliate of the Issuer or any of its Subsidiaries (and
which is otherwise in compliance with the terms of the Indenture) as a result
of which such Subsidiary Guarantor ceases to be a Restricted Subsidiary of the
Issuer or (ii) the Designation of any Restricted Subsidiary that is a
Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with the
covenant "--Limitation on Designations of Unrestricted Subsidiaries," such
Subsidiary Guarantor will be deemed to be automatically and unconditionally
released from all obligations under its Subsidiary Guarantee.
Change of Control. Upon the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Issuer shall make an
offer to purchase (the "Change of Control Offer"), on a business day (the
"Change of Control Payment Date") not later than 60 days following the Change
of Control Date, all Notes then outstanding at a purchase price equal to 101%
of the Accreted Value thereof as of any Change of Control Payment Date, plus
accrued and unpaid interest thereon, if any, to such Change of Control Payment
Date. Notice of a Change of Control Offer shall be given to holders of Notes,
not less than 25 days nor more than 45 days before the Change of Control
Payment Date. The Change of Control Offer is required to remain open for at
least 20 business days and until the close of business on the Change of
Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require
that the Issuer repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction which may be highly leveraged.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer. The Issuer's obligation to make a Change of Control Offer following a
Change of Control shall be satisfied if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements applicable to a Change of Control Offer made by the Issuer and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer. See "Risk Factors--Risks Associated with a Change of Control."
If the Issuer is required to make a Change of Control Offer, the Issuer will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable securities laws and regulations.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Issuer will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise enter into or cause to become effective any consensual encumbrance
or consensual restriction of any kind on the ability of any Restricted
Subsidiary to pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock or any other interest or participation in,
or measured by, its profits to the extent owned by the Issuer or any
Restricted Subsidiary, except for (i) any encumbrance or restriction in
existence on the Issue Date, (ii) customary non-assignment provisions, (iii)
any encumbrances or restriction pertaining to an asset subject to a Lien to
the extent set forth in the security documentation governing such Lien, (iv)
any encumbrance or restriction applicable to a Restricted Subsidiary at the
time that it becomes a Restricted Subsidiary that is not created in
contemplation thereof, (v) any encumbrance or restriction existing under any
agreement that refinances or replaces an agreement containing a restriction
permitted by clause (iv) above; provided that the terms and conditions of any
such encumbrance or restriction are not materially less favorable to the
holders of Notes than those under or pursuant to the agreement being replaced
or the agreement evidencing the Indebtedness refinanced, (vi) any encumbrance
or restriction imposed upon a Restricted Subsidiary 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
or any Asset Sale to the extent limited to the Capital Stock or assets in
question, (vii) any customary encumbrance or restriction applicable to a
Restricted Subsidiary that is contained in an agreement or instrument
governing or relating to Indebtedness contained in any Debt Securities;
provided that the terms and conditions of any such encumbrance or restriction
are no more restrictive than those contained
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in the Indenture; and provided further, that the provisions of such agreement
or instrument permit the payment of interest and principal and mandatory
repurchases pursuant to the terms of the Indenture and the Notes and other
Indebtedness (other than Subordinated Indebtedness) that is solely an
obligation of the Issuer; and (viii) any customary encumbrance or restriction
contained in (x) a Permitted Credit Facility or (y) a pledge agreement
applicable to Capital Stock of a Restricted Subsidiary that is Foreign
Subsidiary pledged to secure Indebtedness incurred pursuant to Permitted
Equipment Financing; provided that the provisions of any such agreement do not
restrict the payment of cash dividends or distributions to the Issuer or any
Restricted Subsidiary prior to the occurrence of a default or an event of
default under such Permitted Credit Facility or Permitted Equipment Financing.
Disposition of Proceeds of Asset Sales. The Indenture provides that the
Issuer will not, and will not permit any Restricted Subsidiary to, make any
Asset Sale unless (a) the Issuer or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal
to the Fair Market Value of the shares or assets sold or otherwise disposed of
and (b) at least 80% of such consideration consists of cash or Cash
Equivalents; provided that the following shall be treated as cash for purposes
of this covenant: (x) the amount of any Indebtedness (other than Subordinated
Indebtedness) of the Issuer or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which Issuer and the
Restricted Subsidiaries are fully released and (y) the amount of any notes or
other obligations that within 30 days of receipt are converted into cash (to
the extent of the cash (after payment of any costs of disposition) so
received). The Issuer or the applicable Restricted Subsidiary, as the case may
be, may (i) apply the Net Cash Proceeds from such Asset Sale within 365 days
of the receipt thereof to repay secured Indebtedness incurred pursuant to a
Permitted Credit Facility, (ii) apply such Net Cash Proceeds within 365 days
of the receipt thereof to repay Indebtedness of any Restricted Subsidiary that
is not a Subsidiary Guarantor and permanently reduce the amount of the
commitments thereunder by the amount of the Indebtedness so repaid, and/or
(iii) apply such Net Cash Proceeds within 365 days of the receipt thereof to
the an investment in properties and assets that will be used in a Digital
Network Business of the Company or any Restricted Subsidiary (or in Capital
Stock of any person that will become a Restricted Subsidiary as a result of
such investment if all or substantially all of the properties and assets of
such person are used in a Digital Network Business).
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied within 365 days of such Asset Sale as described in clause (i), (ii) or
(iii) of the preceding paragraph (such Net Cash Proceeds, the "Unutilized Net
Cash Proceeds"), the Issuer shall, within 20 days after such 365th day, make
an offer to purchase (an "Asset Sale Offer") all outstanding Notes up to a
maximum Accreted Value (expressed as a multiple of $1,000) equal to the Note
Pro Rata Share of Unutilized Net Cash Proceeds, at a purchase price in cash
equal to 100% of the Accreted Value thereof as of any purchase date, plus
accrued and unpaid interest, if any, to such purchase date; provided, however,
that an Asset Sale Offer may be deferred by the Issuer until there are
Unutilized Net Cash Proceeds equal to at least $5.0 million, at which time the
entire amount of such Unutilized Net Cash Proceeds (and not just the amount in
excess of $5.0 million) shall be applied as required pursuant to this
paragraph.
In the event that any other Indebtedness of the Issuer which ranks pari
passu with the Notes (the "Other Indebtedness") requires that an offer to
repurchase such Indebtedness be made upon the consummation of an Asset Sale,
the Issuer may apply the Unutilized Net Cash Proceeds otherwise required to be
applied to an Asset Sale Offer to offer to purchase such Other Indebtedness
and to an Asset Sale Offer so long as the amount of such Unutilized Net Cash
Proceeds applied to repurchase the Notes is not less than the Note Pro Rata
Share of Unutilized Net Cash Proceeds. Any offer to purchase such Other
Indebtedness shall be made at the same time as the Asset Sale Offer, and the
purchase date in respect of any such offer to purchase and the Asset Sale
Offer shall occur on the same day.
For purposes of this covenant, "Note Pro Rata Share of Unutilized Net Cash
Proceeds" means the amount of the Unutilized Net Cash Proceeds equal to the
product of (x) the Unutilized Net Cash Proceeds and (y) a fraction, the
numerator of which is the Accreted Value of all Notes validly tendered and not
withdrawn pursuant to an Asset Sale Offer related to such Unutilized Net Cash
Proceeds (the "Note Amount") and the denominator
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of which is the sum of the Note Amount and the lesser of the aggregate
principal face amount or accreted value as of the relevant purchase date of
all Other Indebtedness validly tendered and not withdrawn pursuant to a
concurrent offer to purchase such Other Indebtedness made at the time of such
Asset Sale Offer.
Each Asset Sale Offer shall remain open for a period of 20 business days or
such longer period as may be required by law. To the extent that the Accreted
Value of Notes validly tendered and not withdrawn pursuant to an Asset Sale
Offer is less than the Note Pro Rata Share of Unutilized Net Cash Proceeds,
the Issuer or any Restricted Subsidiary may use such deficiency for general
corporate purposes. If the Accreted Value of Notes validly tendered and not
withdrawn by holders thereof exceeds the amount of Notes which can be
purchased with the Unutilized Net Cash Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of an Asset Sale Offer, the
amount of Unutilized Net Cash Proceeds shall be reset to zero.
If the Issuer is required to make an Asset Sale Offer, the Issuer will
comply with all applicable tender offer rules, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable securities laws and regulations.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Indenture provides that the Issuer will not sell, and will
not permit any Restricted Subsidiary, directly or indirectly, to issue or
sell, any shares of Capital Stock (or any options, warrants or other rights to
purchase such Capital Stock) of a Restricted Subsidiary, except (i) to the
Issuer or a Wholly Owned Restricted Subsidiary, (ii) to directors as director
qualifying shares, but only to the extent required under applicable law, (iii)
the Issuer or a Restricted Subsidiary may pledge Capital Stock of a Restricted
Subsidiary that is a Foreign Subsidiary to the extent and in the manner
permitted under clause (g) of the definition of "Permitted Liens;" (iv) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary or (v) if the
covenant "--Disposition of Proceeds of Asset Sales" is complied with.
Limitation on Transactions with Affiliates. The Indenture provides that the
Issuer will not, and will not permit, cause or suffer any Restricted
Subsidiary to, directly or indirectly, conduct any business, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
loan, advance or Guarantee or engage in any other transaction (or series of
related transactions which are similar or part of a common plan) with or for
the benefit of any of their respective Affiliates or any beneficial owner of
10% or more of the Common Stock of the Issuer or any officer or director of
the Issuer or any Subsidiary (each, an "Affiliate Transaction"), unless the
terms of the Affiliate Transaction are set forth in writing and are no less
favorable to the Issuer or such Restricted Subsidiary, as the case may be,
than would be available in a comparable transaction with an unaffiliated third
party. Each Affiliate Transaction (or series of related Affiliate
Transactions) involving aggregate payments and/or other consideration having
Fair Market Value (i) in excess of $1 million shall be approved by a majority
of the Board, such approval to be evidenced by a Board Resolution stating that
the Board has determined that such transaction or transactions comply with the
foregoing provisions, (ii) in excess of $5.0 million shall further require the
approval of a majority of the Disinterested Directors and (iii) in excess of
$10.0 million shall require that the Issuer obtain a written opinion from an
Independent Financial Advisor stating that the terms of such Affiliate
Transaction (or series of related Affiliate Transactions) to the Issuer or the
Restricted Subsidiary, as the case may be, are fair from a financial point of
view; provided, however, that the dollar thresholds set forth in clauses (i),
(ii) and (iii) above shall be increased to $2.5 million, $10.0 million and
$25.0 million, respectively, in the case of any Affiliate Transaction with
WorldCom or any of its Affiliates. For purposes of this covenant, any
Affiliate Transaction approved by a majority of the Disinterested Directors or
as to which a written opinion has been obtained from an Independent Financial
Advisor, on the basis set forth in the preceding sentence, shall be deemed to
be on terms that are no less favorable to the Issuer or such Restricted
Subsidiary, as the case may be, than would be available in a comparable
transaction with an unaffiliated third party and, therefore, shall be
permitted under this covenant.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among, or solely for the benefit
of, the Issuer and/or any of the Restricted Subsidiaries, provided that in
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any such case, no officer, director or beneficial owner of 10% or more of any
class of Capital Stock of the Issuer shall beneficially own any Capital Stock
of any such Restricted Subsidiary, (ii) transactions pursuant to agreements
and arrangements existing on the Issue Date and specified on a schedule to the
Indenture, (iii) any Restricted Payment made in compliance with the covenant
"--Limitation on Restricted Payments," (iv) customary directors' fees,
indemnification and similar arrangements, consulting fees, legal fees,
employee salaries, bonuses and employment agreements, compensation or employee
benefit arrangements and incentive arrangements with any officer, director or
employee of the Issuer or any Restricted Subsidiary entered into in the
ordinary course of business and payments under indemnification arrangements
permitted by applicable law, (v) loans and advances to officers, directors and
employees of the Issuer or any Restricted Subsidiary for travel,
entertainment, moving and other relocation expenses, in each case made in the
ordinary course of business and consistent with past business practices; (vi)
any agreement or arrangement entered into in the ordinary course of business
by the Issuer or any Restricted Subsidiary with WorldCom or any of its
Affiliates with respect to communications or communications related products
and services; and (vii) any Permitted Investment.
Reports. The Indenture provides that, whether or not the Issuer is subject
to Section 13(a) or 15(d) of the Exchange Act or any successor provision of
law, the Issuer shall furnish without cost to each holder of Notes and file
with the Trustee (i) within 135 days after the end of each fiscal year of the
Issuer (commencing with its 1998 fiscal-year end), all annual financial
information that would be required to be contained in a filing with the SEC on
Form 10-K (whether or not the Issuer is then required to file such Form with
the SEC), including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and a report thereon by the Issuer's
certified public accountants, (ii) within 60 days after the end of each of the
first three fiscal quarters of each fiscal year of the Issuer, all quarterly
financial information that would be required to be contained in a filing with
the SEC on Form 10-Q (whether or not the Issuer is then required to file such
Form with the SEC), including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and (iii) on a timely basis,
any information concerning the Issuer or any Restricted Subsidiary required to
be contained in a current report on Form 8-K (whether or not the Issuer is
then required to file such Form with the SEC). Until such time as the Issuer
is otherwise required to file periodic reports with the SEC under the Exchange
Act (or any successor provision of law), the Issuer will file with the SEC (if
permitted by SEC practice and applicable law and regulations), for public
availability, a copy of the annual and quarterly financial information and
other information prepared by it for distribution to holders of Notes. In
addition, for so long as any Notes remain outstanding the Issuer will furnish
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial holder of Notes, if not obtainable from
the SEC, information of the type that wold be filed with the SEC pursuant to
the foregoing provisions, upon the request of any such holder.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture
provides that the Issuer will not designate any Subsidiary of the Issuer
(other than a newly created Subsidiary in which the Issuer has made an
Investment of $1,000 or less) as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) except in the case of Permitted Investments and any Investment made
pursuant to clause (v) of the third paragraph of the covenant "--Limitation
on Restricted Payments," at the time of and after giving effect to such
Designation, the Issuer would be able to incur $1.00 of Indebtedness (other
than Permitted Indebtedness) under the covenant described under "--
Limitation on Additional Indebtedness'' above; and
(c) the Issuer would be permitted under the Indenture to make an
Investment at the time of such Designation (assuming the effectiveness of
such Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the interest of the Issuer and its Restricted Subsidiaries
in such Restricted Subsidiary on such date.
In the event of any such Designation, the Issuer shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments'' for all purposes of the
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Indenture in an amount equal to the Designation Amount. The Indenture will
further provide that neither the Issuer nor any Restricted Subsidiary shall at
any time (x) provide credit support for, subject any of its properties or
assets (other than the Capital Stock of any Unrestricted Subsidiary) to the
satisfaction of, or Guarantee, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
other Indebtedness which provides that the holder thereof may (upon notice,
lapse of time or both) declare a default thereon (or cause the payment thereof
to be accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness that is
Indebtedness of an Unrestricted Subsidiary (including any corresponding right
to take enforcement action against such Unrestricted Subsidiary), except in
the case of clause (x) or (y) to the extent otherwise permitted under the
Indenture, including, without limitation, under the covenant "--Limitation on
Restricted Payments" above.
The Indenture further provides that the Issuer will not revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation")
unless:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions
delivered to the Trustee certifying compliance with the foregoing provisions.
The Issuer designated 4-Sight and each of its Subsidiaries as a Restricted
Subsidiary at such time as 4-Sight and its Subsidiaries became Subsidiaries of
the Issuer.
Limitation on Status as Investment Company. The Indenture provides that the
Issuer will not, and will not permit any of its Subsidiaries or Affiliates to,
conduct its business in a fashion that would cause the Issuer to be required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act")), or
otherwise become subject to regulation under the Investment Company Act. For
purposes of establishing the Issuer's compliance with this provision, any
exemption which is or would become available under Section 3(c)(1) or Section
3(c)(7) of the Investment Company Act will be disregarded.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture provides that the Issuer will not (i) consolidate or combine
with or merge with or into or, directly or indirectly, sell, assign, convey,
lease, transfer or otherwise dispose of all or substantially all of its
properties and assets to any person or persons in a single transaction or
through a series of transactions, or (ii) permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions if
it would result in the disposition of all or substantially all of the
properties or assets of the Issuer and the Restricted Subsidiaries on a
consolidated basis, unless, in the case of either (i) or (ii), (a) the Issuer
shall be the continuing person or, if the Issuer is not the continuing person,
the resulting, surviving or transferee person (the "surviving entity") shall
be a company organized and existing under the laws of the United States or any
State or territory thereof; (b) the surviving entity (if other than the
Issuer) shall expressly assume all of the obligations of the Issuer under the
Notes and the Indenture, and shall execute a supplemental indenture to effect
such assumption which supplemental indenture shall be delivered to the Trustee
and shall be in form and substance reasonably satisfactory to the Trustee; (c)
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Issuer or the surviving entity
(assuming such surviving entity's assumption of the Issuer's obligations under
the Notes and the Indenture), as
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the case may be, would be able to incur $1.00 of Indebtedness (other than
Permitted Indebtedness) under the covenant described under "--Certain
Covenants--Limitation on Additional Indebtedness'' above; (d) immediately
after giving effect to such transaction or series of transactions on a pro
forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Default shall have occurred and be
continuing; and (e) the Issuer or the surviving entity, as the case may be,
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel stating that such transaction or series of transactions, and, if a
supplemental indenture is required in connection with such transaction or
series of transactions, such supplemental indenture complies with this
covenant and that all conditions precedent in the Indenture relating to the
transaction or series of transactions have been satisfied.
Upon any consolidation or merger or any sale, assignment, conveyance, lease,
transfer or other disposition of all or substantially all of the assets of the
Issuer in accordance with the foregoing in which the Issuer or the Restricted
Subsidiary, as the case may be, is not the surviving corporation, the
successor corporation formed by such a consolidation or into which the Issuer
or such Restricted Subsidiary is merged or to which such transfer is made,
will succeed to, and be substituted for, and may exercise every right and
power of, the Issuer or such Restricted Subsidiary, as the case may be, under
the Indenture with the same effect as if such successor corporation had been
named as the Issuer or such Restricted Subsidiary therein; and thereafter,
except in the case of (i) any lease or (ii) any sale, assignment, conveyance,
transfer, lease or other disposition to a Restricted Subsidiary of the Issuer,
the Issuer shall be discharged from all obligations and covenants under the
Indenture and the Notes.
The Indenture provides that for all purposes of the Indenture and the Notes
(including the provisions of this covenant and the covenants described under
"--Certain Covenants--Limitation on Additional Indebtedness,"""--Limitation on
Restricted Payments" and "--Limitation on Liens Securing Certain
Indebtedness"), Subsidiaries of any surviving entity will, upon such
transaction or series of related transactions, become Restricted Subsidiaries
or Unrestricted Subsidiaries as provided pursuant to the covenant "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries" and all
Indebtedness, and all Liens on property or assets, of the Issuer and the
Restricted Subsidiaries in existence immediately prior to such transaction or
series of related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree
of uncertainty in ascertaining whether a particular transaction would involve
a disposition of "all or substantially all" of the assets of the Issuer, and
therefore it may be unclear whether the foregoing provisions are applicable.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of interest on the Notes when it becomes due
and payable and continuance of such default for a period of 30 days or
more; or
(ii) default in the payment of the principal of, or premium, if any, on
the Notes when due at maturity, upon redemption or otherwise; or
(iii) default in the payment of the Accreted Value of, and any accrued
and unpaid interest on, any Notes required to be purchased pursuant to a
Change of Control Offer or Asset Sale Offer when due and payable; or
(iv) default in the performance, or breach, of any covenant described
under "--Certain Covenants--Change of Control," "--Disposition of Proceeds
of Asset Sales" or "--Consolidation, Merger, Sale of Assets, Etc."; or
(v) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i), (ii), (iii) or (iv)
above), and continuance of such default or breach for a period of 30
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days or more after written notice to the Issuer by the Trustee or to the
Issuer and the Trustee by the holders of at least 25% in aggregate
principal amount at maturity of the outstanding Notes; or
(vi) (a) failure to pay, following any applicable grace period, any
installment of principal due (whether at maturity or otherwise) under one
or more classes or issues of Indebtedness in an aggregate principal amount
of $5 million or more under which the Issuer or any Material Restricted
Subsidiary is obligated or (b) failure by the Issuer or any Material
Restricted Subsidiary to perform any other term, covenant, condition or
provision of one or more classes or issues of Indebtedness in an aggregate
principal amount of $5 million or more under which the Issuer or such
Material Restricted Subsidiary is obligated and, in the case of this clause
(b), such failure results in an acceleration of the maturity thereof; or
(vii) any holder of Indebtedness in an aggregate principal amount of $5.0
million or more of the Issuer or any Material Restricted Subsidiary shall
commence judicial proceedings or take any other action to foreclose upon,
or dispose of assets of the Issuer or any Material Restricted Subsidiary
having an aggregate Fair Market Value, individually or in the aggregate, of
$5.0 million or more or shall have exercised any right under applicable law
or applicable security documents to take ownership of any such assets in
lieu of foreclosure; provided that, in any such case, the Issuer or any
Material Restricted Subsidiary shall not have obtained, prior to any such
foreclosure or disposition of assets, a stay of all such actions that
remains in effect; or
(viii) one or more judgments, orders or decrees for the payment of money
of $5.0 million or more, either individually or in the aggregate, shall be
entered against the Issuer or any Material Restricted Subsidiary or any of
their respective properties and shall not be paid or discharged and there
shall have been a period of 60 consecutive days or more during which a stay
of enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(ix) certain events of bankruptcy, insolvency, reorganization,
administration or similar proceedings with respect to the Issuer or any
Subsidiary Guarantor shall have occurred; or
(x) the Indenture or the Registration Rights Agreement ceases to be in
full force and effect or is declared null and void or the Issuer denies
that it has any further obligation or liability thereunder or gives notice
to that effect (other than by reason of termination or release in
accordance with the terms thereof); or
(xi) any Subsidiary Guarantee or any provision thereof shall at any time
cease to be the legal, valid and binding obligation of the Subsidiary
Guarantor party thereto, such that the Holders of Notes could not
reasonably be expected to realize the material benefits intended to be
provided by such Subsidiary Guarantor under its Subsidiary Guarantee or any
Subsidiary Guarantor shall assert that its Subsidiary Guarantee is not a
legal, valid and binding obligation or shall purport to revoke its
obligations thereunder.
If an Event of Default (other than an Event of Default specified in clause
(ix) above with respect to the Issuer or any Subsidiary Guarantor) occurs and
is continuing, then the Trustee or the holders of at least 25% in principal
amount at maturity of the outstanding Notes may, by written notice, and the
Trustee upon the request of the holders of not less than 25% in principal
amount at maturity of the outstanding Notes shall, declare the Default Amount
of all outstanding Notes to be immediately due and payable and upon any such
declaration such amount shall become immediately due and payable. If an Event
of Default specified in clause (ix) above with respect to the Issuer or any
Subsidiary Guarantor occurs and is continuing, then the Default Amount of all
outstanding Notes 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.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount at maturity of outstanding Notes may, by notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default, other than nonpayment of the Default Amount of the Notes that has
become due solely as a result of such acceleration, have been cured or waived
and if the rescission of acceleration would not conflict with any judgment or
decree. The holders of a majority in principal amount at maturity of the
outstanding Notes also have the right to waive past defaults under the
Indenture, except a default in the payment of principal of, or any interest
on, any outstanding Note, or in respect of certain covenants or provisions
that cannot be modified or amended without the consent of all holders of
Notes.
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No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount at maturity of the outstanding Notes have made
written request, and offered reasonable security or indemnity, to the Trustee
to institute such proceeding as Trustee, the Trustee has failed to institute
such proceeding within 60 days after receipt of such notice and the Trustee
has not within such 60-day period received directions inconsistent with such
written request by holders of a majority in principal amount at maturity of
the outstanding Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
principal of, or any accrued and unpaid interest on, such Note on or after the
respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, if an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such
holders shall have offered to such Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the
holders of a majority in principal amount at maturity of the outstanding Notes
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee.
The Indenture provides that the Trustee will, within 45 days after the
occurrence of any Default, give to the holders of the Notes notice of such
Default known to it, unless such Default shall have been cured or waived;
provided that the Trustee shall be protected in withholding such notice if it
determines in good faith that the withholding of such notice is in the
interest of such holders.
The Issuer is required to furnish to the Trustee annually a statement as to
its compliance with all conditions and covenants under the Indenture.
DEFEASANCE
The Issuer may at any time terminate all of the obligations of the Issuer
and any Subsidiary Guarantor with respect to the Notes ("defeasance"), except
for certain obligations, including those regarding any trust established for a
defeasance and obligations to register the transfer or exchange of the Notes,
to replace mutilated, destroyed, lost or stolen Notes as required by the
Indenture and to maintain agencies in respect of Notes. The Issuer may at any
time terminate the obligations of the Issuer and any Subsidiary Guarantor
under certain covenants set forth in the Indenture, some of which are
described under "--Certain Covenants" above, and any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Notes ("covenant defeasance"). To exercise either defeasance or
covenant defeasance, the Issuer must irrevocably deposit in trust, for the
benefit of the holders of the Notes, with the Trustee money (in United States
dollars) or U.S. government obligations (denominated in United States
dollars), or a combination thereof, in such amounts as will be sufficient to
pay the Accreted Value of and premium, if any, and accrued but unpaid interest
on the Notes to redemption or maturity and comply with certain other
conditions, including the delivery of a legal opinion as to certain tax
matters. The requirements for defeasance shall not be deemed satisfied if a
Default specified in clause (ix) of "--Events of Default" above occurs on or
prior to the 91st calendar day after the date of the deposit of money or
securities in the defeasance trust.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of
Notes) as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Issuer and
thereafter repaid to the Issuer or discharged from such trust) have been
delivered to the Trustee
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for cancellation; or (b) (i) all such Notes not theretofore delivered to the
Trustee for cancellation have become due and payable and the Issuer has
irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount of money sufficient to pay and
discharge the entire indebtedness on the Notes not theretofore delivered to
the Trustee for cancellation, for principal amount, premium, if any, and
accrued and unpaid interest to the date of such deposit; (ii) the Issuer has
paid all sums payable by it under the Indenture; and (iii) the Issuer has
delivered irrevocable instructions to the Trustee to apply the deposited money
toward the payment of the Notes at maturity or on the redemption date, as the
case may be. In addition, the Issuer must deliver an Officers' Certificate and
an Opinion of Counsel stating that all conditions precedent to satisfaction
and discharge have been complied with.
AMENDMENT AND WAIVERS
From time to time, the Issuer and any Subsidiary Guarantors, when authorized
by resolutions of their respective Boards of Directors, and the Trustee,
without the consent of the holders of the Notes, may amend, waive or
supplement the Indenture or the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act
or making any change that does not adversely affect the rights of any holder.
Other amendments and modifications of the Indenture and the Notes may be made
by the Issuer, the Subsidiary Guarantors and the Trustee by supplemental
indenture with the consent of the holders of not less than a majority of the
aggregate principal amount at maturity of the outstanding Notes; provided that
no such modification or amendment may, without the consent of the holder of
each outstanding Note affected thereby, (i) reduce the principal amount at
maturity of, change the fixed maturity of, or alter the redemption provisions
of, the Notes or amend or modify the calculation of the Accreted Value or the
Default Amount so as to reduce the amount of the Accreted Value or the Default
Amount, (ii) change the currency in which any Notes or amounts owing thereon
is payable, (iii) reduce the percentage of the aggregate principal amount at
maturity of the outstanding Notes which must consent to an amendment,
supplement or waiver or consent to take any action under the Indenture or the
Notes, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes or any Subsidiary Guarantee, (v) waive
a default in payment with respect to the Notes or any Subsidiary Guarantee,
except a rescission of acceleration of the relevant Notes by the holders
thereof as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration, (vi) reduce the rate or change the time for
payment of interest on the Notes, (vii) alter the Issuer's obligation to
purchase the Notes following the occurrence of a Change of Control or an Asset
Sale in accordance with the Indenture or waive any default in the performance
thereof, (viii) affect the ranking of the Notes in a manner adverse to the
holder of the Notes or (ix) release any Subsidiary Guarantor from any of its
obligations under its Subsidiary Guarantee or the Indenture except in
compliance with the terms of the Indenture.
Holders of a majority in aggregate principal amount at maturity of the
outstanding Notes, on behalf of all holders of Notes, may waive compliance by
the Issuer with certain restrictive provisions of the Indenture. Subject to
certain rights of the Trustee as provided in the Indenture, the holders of a
majority in aggregate principal amount at maturity of the Notes, on behalf of
all holders, may waive any past Default under the Indenture (including any
such waiver obtained in connection with a tender offer or exchange offer for
such Notes), except a default in the payment of principal or interest or a
Default arising from failure to purchase any Notes tendered pursuant to an
offer to purchase required to be made by any provision of the Indenture, or a
Default in respect of a provision that under the Indenture cannot be modified
or amended without the consent of the holder of each Note that is affected.
REGARDING THE TRUSTEE
U.S. Bank Trust National Association (f/k/a First Trust National
Association) serves as Trustee under the Indenture.
GOVERNING LAW
The Indenture provides that the Indenture and the Notes, respectively, will
be governed by and construed in accordance with the laws of the State of New
York, without giving effect to principles of conflicts of law.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Accreted Value" means, as of any date (the "Specified Date"), with respect
to each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date is one of the following dates (each a "Semi-
Annual Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------ ---------
<S> <C>
Issue Date...................................................... $ 599.44
September 1, 1998............................................... 638.24
March 1, 1999................................................... 680.53
September 1, 1999............................................... 725.61
March 1, 2000................................................... 773.68
September 1, 2000............................................... 824.94
March 1, 2001................................................... 879.59
September 1, 2001............................................... 937.87
March 1, 2002................................................... 1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (A) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (B) an amount equal to the
product of (x) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding Semi-
Annual Accrual Date and (y) a fraction, the numerator of which is the
number of days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; and
(iii) if the Specified Date is on or after March 1, 2002, $1,000.
"Acquired Indebtedness" means Indebtedness of a person (i) assumed in
connection with an Asset Acquisition from such person or (ii) existing at the
time such person is merged or consolidated with or into the Issuer or any
Restricted Subsidiary or becomes a Restricted Subsidiary, in each case not
incurred in connection with, or in anticipation of, such Asset Acquisition or
merger or consolidation or such person becoming a Restricted Subsidiary;
provided that Indebtedness of such person which is redeemed, defeased, retired
or otherwise repaid at the time of or immediately upon consummation of such
Asset Acquisition or the transactions by which such person is merged or
consolidated with or into the Issuer or any Restricted Subsidiary or becomes a
Restricted Subsidiary shall not constitute Acquired Indebtedness.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect
common control with, such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others) by the Issuer or any Restricted
Subsidiary in any other person, or any acquisition or purchase of Capital
Stock of any other person by the Issuer or any Restricted Subsidiary, in
either case pursuant to which such person shall (a) become a Restricted
Subsidiary or (b) shall be merged or consolidated with or into the Issuer or
any Restricted Subsidiary or (ii) any acquisition by the Issuer or any
Restricted Subsidiary of the assets of any person which constitute
substantially
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all of an operating unit or line of business of such person or which is
otherwise outside of the ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes)
or other disposition (that is not for security purposes) to any person other
than the Issuer or a Wholly Owned Restricted Subsidiary, in one transaction or
a series of related transactions, of (i) any Capital Stock of any Restricted
Subsidiary, (ii) any assets of the Issuer or any Restricted Subsidiary which
constitute substantially all of an operating unit or line of business of the
Issuer and the Restricted Subsidiaries or (iii) any other property or asset of
the Issuer or any Restricted Subsidiary outside of the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (i) any disposition of properties and assets of the Issuer that is
governed under "--Consolidation, Merger, Sale of Assets, Etc." above, (ii)
sales of property or equipment that have become worn out, obsolete or damaged
or otherwise unsuitable for use in connection with the business of the Issuer
or any Restricted Subsidiary, as the case may be, and (iii) for purposes of
the covenant "--Certain Covenants--Disposition of Proceeds of Asset Sales,"
sales, conveyances, transfers, leases or other dispositions of property or
assets, whether in one transaction or a series of related transactions
occurring within one year, either (x) involving assets with a Fair Market
Value not in excess of $1.0 million in any 12 month period, or (y) which
constitutes the incurrence of a Capitalized Lease Obligation.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in the terms of the lease included in such Sale/Leaseback
Transaction) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the
amount of each such principal payment by (ii) the sum of all such principal
payments; provided that, in the case of any Capitalized Lease Obligation, all
calculations hereunder shall give effect to any applicable options to renew in
favor of the Issuer or any Restricted Subsidiary.
"Board" means the Board of Directors of the Issuer.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Issuer to have been duly adopted by the Board
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and/or non-voting) of, such person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights (other than any evidence of Indebtedness), warrants or options
exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed, immovable or movable) that is
required to be classified and accounted for as a capitalized lease obligation
under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
365 days or less issued or directly and fully guaranteed or insured by the
United States or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof or such
Indebtedness constitutes a general obligation of such country); (ii) deposits,
certificates of deposit or acceptances with a maturity of 365 days or less of
any financial institution that is a member of the Federal Reserve System, in
each case having
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combined capital and surplus and undivided profits (or any similar capital
concept) of not less than $500.0 million and whose senior unsecured debt is
rated at least "A-l" by S&P or "P-l" by Moody's; (iii) commercial paper with a
maturity of 365 days or less issued by a corporation (other than an Affiliate
of the Issuer) organized under the laws of the United States or any State
thereof and rated at least "A-l" by S&P or "P-1" by Moody's; (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States Government maturing within 365 days from the date
of acquisition; (v) money market funds in the United States which invest
substantially all of their assets in securities of the type described in any
of the preceding clauses (i) through (iv); and (vi) any evidence of
Indebtedness with a maturity of 365 days or less issued by WorldCom and rated
at least "BBB-" or "A2" by S&P and at least "Baa3" or "P2" by Moody's.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) or 14(d) of
the Exchange Act), excluding Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 or 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has or acquires the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of all Voting Stock of
the Issuer (unless the Permitted Holders "beneficially own" (as so defined),
directly or indirectly, in the aggregate a greater percentage of the voting
power of the Voting Stock of the Issuer) or has, directly or indirectly, the
right to elect or designate a majority of the Board or (b) the Issuer
consolidates with, or merges with or into, another person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any person, or any person consolidates with, or mergers with
or into, the Issuer, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Issuer is converted into or exchanged for
cash, securities or other property, other than any such transaction where (i)
the outstanding Voting Stock of the Issuer is converted into or exchanged for
(1) Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation or its parent corporation and/or (2) cash, securities
and other property in any amount which could be paid by the Issuer as a
Restricted Payment under the Indenture, (ii) the "beneficial owners" (as so
defined) of the Voting Stock of the Issuer immediately before such transaction
own, directly or indirectly, immediately after such transaction, at least a
majority of the voting power of all Voting Stock of the surviving or
transferee corporation or its parent corporation immediately after such
transaction, as applicable, or (iii) no "person" or "group" (as such terms are
used in Sections 13(d) or 14(d) of the Exchange Act), excluding the Permitted
Holders, is the "beneficial owner" (as so defined), directly or indirectly, of
more than 35% of the Voting Stock or such surviving or transferee corporation
or is parent corporation, as applicable (unless the Permitted Holders
"beneficially own" (as so defined), directly or indirectly, in the aggregate a
greater percentage of the voting power of the Voting Stock of such surviving
or transferee corporation or its parent corporation (as the case may be)), or
has, directly or indirectly, the right to elect or designate a majority of the
board of directors of the surviving or transferee corporation or its parent
corporation, as applicable, or (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board
(together with any new directors whose election by the Board or whose
nomination for election by the stockholders of the Issuer 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. The good faith determination by the
Board, based upon advice of outside counsel, of the beneficial ownership of
securities of the Issuer with the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act shall be conclusive, absent contrary controlling precedent or
contrary written interpretation published by the SEC. No inference shall be
created that officers or employees of the Issuer are acting as a "person" or
"group" (as such terms are used in Sections 13(d) or 14(d) of the Exchange
Act) with the power to designate a majority of the members of the Board solely
because such officers or employees constitute a majority of the members of the
Board.
"Common Stock" means, with respect to any person, any and all shares,
interest or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such person's common stock and includes,
without limitation, all series and classes of such common stock.
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"Consolidated Income Tax Expense" means, with respect to any period, the
provision for federal, state, local, foreign and other income taxes of the
Issuer and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of the Issuer and the
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP, including, without limitation, (a) any amortization
of debt discount, (b) the net cost under Interest Rate Obligations and
Currency Hedge Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and similar transactions and (e) all
capitalized interest and accrued interest, (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Issuer and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP, (iii) the portion
of any rental obligation in respect of any Sale/Leaseback Transaction
allocable to interest expense (determined as if such were treated as a Capital
Lease Obligation) and (iv) the amount of dividends and distributions in
respect of Disqualified Stock paid by the Issuer and the Restricted
Subsidiaries during such period.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Issuer and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, adjusted, to the
extent included in calculating such consolidated net income (or loss), by
excluding, without duplication, (i) all extraordinary, unusual or nonrecurring
gains or losses and all gains or losses from sales or other dispositions of
assets (including Asset Sales) out of the ordinary course of business (net of
taxes, fees and expenses relating to the transaction giving rise thereto) for
such period, (ii) that portion of such net income (or loss) derived from or in
respect of Investments in persons other than Restricted Subsidiaries, except
to the extent of any cash dividends actually received by the Issuer or any
Restricted Subsidiary (subject, in the case of any Restricted Subsidiary, to
the provisions of clause (vi) of this definition); (iii) any gain or loss, net
of taxes, realized upon the termination of any employee pension benefit plan
during such period, (iv) that portion of such net income (or loss) allocable
to minority interests in any Restricted Subsidiary for such period, (v) net
income (or loss) of any other person combined with the Issuer or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination and (vi) the net income of any
Restricted Subsidiary for such period to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"Consolidated Net Worth" means, with respect to any person, the consolidated
stockholders' or partners' equity of such person reflected on the most recent
balance sheet of such person, determined in accordance with GAAP, less any
amounts attributable to redeemable capital stock (as determined under
applicable accounting standards promulgated by the SEC) of such person.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period (a) increased (without duplication),
to the extent deducted in arriving at such Consolidated Net Income, by the sum
of (i) Consolidated Income Tax Expense for such period; (ii) Consolidated
Interest Expense for such period; and (iii) depreciation, amortization and any
other non-cash items for such period of the Issuer and the Restricted
Subsidiaries (other than any non-cash item which requires the accrual of, or a
reserve for, cash charges for any future period), including, without
limitation, amortization of capitalized debt issuance costs for such period,
all determined on a consolidated basis in accordance with GAAP, and (b)
decreased by any non-cash items (including non-recurring gains and non-
recurring items of income) to the extent they increased Consolidated Net
Income for such period (including any partial or complete reversal of reserves
taken in a prior period).
"consolidation" means, with respect to the Issuer, the consolidation of the
accounts of the Restricted Subsidiaries with those of the Issuer, all in
accordance with GAAP; provided that "consolidation" will not
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include consolidation of the accounts of any Unrestricted Subsidiary with the
accounts of the Issuer or any Restricted Subsidiary. The term "consolidated"
has a correlative meaning to the foregoing.
"Currency Hedge Obligation" means the obligations of a person, incurred in
the ordinary course of business, pursuant to a foreign currency exchange
agreement, option or futures contract or other similar agreement or
arrangement designed to protect against or manage such person's or its
subsidiaries' exposure to fluctuations in foreign currency exchange rates.
"Debt Securities" means any debt securities issued by the Issuer in a public
offering or in a private placement to institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act).
"Deeply Subordinated Indebtedness" means Indebtedness of the Issuer 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 Notes to at least the following extent: (i)
no payments of principal of (or premium on) or interest on or otherwise in
respect of such Indebtedness may be made prior to the date that is 180 days
following the Stated Maturity of the principal of the Notes; except that such
indebtedness may be redeemed or retired by the Issuer with, or converted at
the option of the holder into, Capital Stock (other than Disqualified Stock)
of the Issuer or options, warrants or other rights to purchase any such
Capital Stock (other than Disqualified Stock); and (ii) the payment of the
principal of and interest on such Indebtedness may be accelerated only in the
event of the acceleration of the payment of the principal amount of the Notes
following an Event of Default; provided, that any payment in respect of such
Indebtedness following the acceleration thereof shall be subordinated to the
prior payment in full of all amounts due in respect of the Notes and under the
Indenture; and provided, further, in the event of the recission of any such
acceleration of the Notes, the acceleration of such Indebtedness shall be
deemed rescinded upon notice to such effect to the holder(s) of such
Indebtedness from the Trustee.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Default Amount" means (i) as of any date prior to March 1, 2002, the
Accreted Value of the Notes (and any applicable premium thereon) as of such
date and (ii) as of any date on and after March 1, 2002, the principal amount
at maturity of the Notes (and any applicable premium thereon) and any accrued
and unpaid interest thereon.
"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Digital Network Business" means the business of developing, implementing,
operating, managing or maintaining networks or systems for the transportation
or management of data and any related, ancillary or complementary business;
provided, that the determination of what constitutes a Digital Network
Business shall be made in good faith by the Board, which determination shall
be conclusive.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the Board of Directors of the Issuer other
than a director who (i) has any material direct or indirect financial interest
in or with respect to such transaction or series of related transactions or
(ii) is an employee or officer of the Issuer or an Affiliate that is itself a
party to such transaction or series of transactions or an Affiliate of a party
to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any person, 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, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or becomes exchangeable for Indebtedness at the
option of the holder thereof, or becomes redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Fair Market Value" means, with respect to any asset or property, the price
(after taking into account any liabilities relating to such asset or property)
that could be negotiated in an arms-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the Board acting in
good faith and shall be evidenced by a Board Resolution.
"Foreign Subsidiary" means any Subsidiary of the Issuer that is organized or
incorporated under the laws of any jurisdiction other than the laws of the
United States or any State or territory thereof.
"4-Sight" means 4-Sight Limited, a private limited company incorporated
under the laws of England and Wales.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States and which are applicable as of the
date of determination and which are consistently applied for all applicable
periods.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, any
obligation (A) to pay amounts drawn down by letters of credit, (B) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
obligation (whether arising by virtue of partnership arrangement, agreements
to keep-well, to purchase assets, goods, securities or services, to take-or-
pay, or to maintain financial statement conditions or otherwise) or (C)
entered into for purposes of assuring in any other manner the obligee of such
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Indebtedness" means, with respect to any person, without duplication
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), and whether or not contingent, (i)
every liability of such person (A) for borrowed money, (B) evidenced by notes,
bonds, debenture or other similar instruments (whether or not negotiable), (c)
for reimbursement of amounts expended under letters of credit, bankers'
acceptances or similar facilities issued for the account of such person, (D)
issued or assumed as the deferred purchase price of property or services, (E)
relating to a Capitalized Lease Obligation and all Attributable Debt in
respect of Sale/Leaseback Transactions of such person and (F) in respect of an
Interest Rate Obligation or Currency Hedge Obligation of such person; (ii)
every liability of others of the kind described in the preceding clause (i)
which such person has guaranteed or which is otherwise its legal liability; or
(iii) every obligation secured by a Lien (other than (x) Permitted Liens of
the types described in clauses (b), (d) or (e) of the definition of Permitted
Liens; provided that the obligations secured would not constitute Indebtedness
under clauses (i) or (ii) or (iii) of this definition, and (y) Liens on
Capital Stock or Indebtedness of any Unrestricted Subsidiary) to which the
property or assets of such person are subject, whether or not the obligations
secured thereby shall have been assumed by or shall otherwise be such person's
legal liability (the amount of such obligation being deemed to be the lesser
of the Fair Market Value of such property or asset or the amount of the
obligation so secured); (iv) all Disqualified Stock of such person, valued at
the greater of its voluntary or involuntary maximum fixed repurchase or
redemption price (plus accrued and unpaid dividends to the date of
determination); and (v) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability
of the kind described in any of the preceding clauses (i), (ii), (iii) or
(iv). In no event shall "Indebtedness" include trade payables and accrued
liabilities that are current liabilities incurred in the ordinary course of
business, excluding the current maturity of any obligation which would
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otherwise constitute Indebtedness. For purposes of the covenants described
under "--Certain Covenants-- Limitation on Additional Indebtedness" and "--
Limitation on Restricted Payments" and the definition of "Events of Default,"
in determining the principal amount of any Indebtedness to be incurred by the
Issuer or a Restricted Subsidiary or which is outstanding at any date, (i) the
principal amount of any Indebtedness which provides that an amount less than
the principal amount at maturity thereof shall be due upon any declaration of
acceleration thereof shall be the accreted value thereof at the date of
determination; (ii) the principal amount of any Indebtedness shall be reduced
by any amount of cash or Cash Equivalent collateral securing on a perfected
basis, and dedicated for disbursement exclusively to the payment of principal
of and interest on, such Indebtedness and (iii) 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 that are included in any clause above, the maximum liability upon
the occurrence of the contingency giving rise to the obligation.
"Indebtedness to EBITDA Ratio" means, as at any date of determination (the
"Transaction Date"), the ratio of (i) Total Consolidated Indebtedness
(including all Permitted Indebtedness) as at the Transaction Date to (ii)
Consolidated Operating Cash Flow for the four full fiscal quarters immediately
preceding the Transaction Date for which financial information has been
distributed to the holders of the Notes in accordance with "Certain
Covenants--Reports" above (such four full fiscal quarter period being referred
to herein as the "Measurement Period"). For purposes of calculating
Consolidated Operating Cash Flow for the relevant Measurement Period prior to
a Transaction Date, (A) any person that is a Restricted Subsidiary on the
Transaction Date (or would become a Restricted Subsidiary on such Transaction
Date in connection with the transaction that requires the calculation of such
Consolidated Operating Cash Flow) shall be deemed to have been a Restricted
Subsidiary at all times during the Measurement Period, (B) any person that is
not a Restricted Subsidiary on such Transaction Date (or would cease to be a
Restricted Subsidiary on such Transaction Date in connection with the
transaction that requires the calculation of Consolidated Operating Cash Flow)
will be deemed not to have been a Restricted Subsidiary at any time during the
Measurement Period, (c) if the Issuer or any Restricted Subsidiary shall have
in any manner (x) acquired through an Asset Acquisition or (y) disposed of
(including by way of an Asset Sale or the termination or discontinuance of
activities constituting such operating business) any operating business during
such Measurement Period or after the end of such period and on or prior to the
Transaction Date, such calculation will be made on a pro forma basis in
accordance with GAAP as if, in the case of an Asset Acquisition, such
transaction had been consummated on the first day of the Measurement Period
and, in the case of a Asset Sale or other disposition, termination or
discontinuance of activities constituting such an operating business, such
transaction had been consummated prior to the first day of the Measurement
Period; provided, however that such pro forma adjustment shall not give effect
to the operating cash flow of any person that would become a Restricted
Subsidiary on the Transaction Date in connection with the transaction that
requires the calculation of Consolidated Operating Cash Flow to the extent
that such person's net income would be excluded from the calculation of
Consolidated Net Income pursuant to clause (vi) of the definition of
Consolidated Net Income.
"Independent Financial Advisor" means a United States investment banking
firm of national or regional standing in the United States (i) which does not,
and whose directors, officers and employees or Affiliates do not have, a
direct or indirect financial interest in the Issuer and (ii) which, in the
judgment of the Board, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Public Equity Offering" means an underwritten primary public
offering of Capital Stock (other than Disqualified Stock) of the Issuer for
cash pursuant to an effective registration statement filed under the
Securities Act.
"Interest Rate Obligations" means the obligations of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount and shall include, without limitation, interest rate swaps, caps,
floors, collars, forward interest rate agreements and similar agreements.
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"Investment" means, with respect to any person, any direct or indirect
advance, loan, account receivable (other than an account receivable arising in
the ordinary course of business), or other extension of credit (including,
without limitation, by means of any guarantee) or any capital contribution to
(by means of transfers of cash or other property or assets to others, payments
for property or services for the account or use of others, or otherwise), or
any purchase or acquisition of capital stock, bonds, notes, debentures or
other securities or evidences of Indebtedness of any other person. 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 or assets other than cash, such property
shall be valued at its Fair Market Value at the time of transfer.
"Issue Date" means the original date of issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction). A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Market Capitalization" of any person means, as of any day of determination,
the product of (i) the average Closing Price of a share of such person's
Common Stock over the 20 consecutive trading days immediately preceding such
date and (ii) the number of shares of such Common Stock issued and outstanding
on such date. "Closing Price" on any trading day with respect to the per share
price of any shares of Common Stock means the last reported sale price regular
way or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in either case on the
New York Stock Exchange or, if such shares of Common Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on the Nasdaq National
Market but such person is a "foreign issuer" (as defined Rule 3b-4(b) under
the Exchange Act) and the principal securities exchange on which such shares
are listed or admitted to trading is a "designated offshore securities market"
(as defined in Rule 902(a) under the Securities Act), the average of the
reported closing bid and asked prices regular way on such principal exchange
or, if such shares are not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market and such person
and any securities markets in which such person's Common Stock trades does not
meet any of the foregoing such requirements, the average of the closing bid
and asked prices in the over-the-counter marked as furnished by any New York
Stock Exchange member firm that is selected from time to time by the Issuer
for the purpose and is reasonably acceptable to the Trustee.
"Material Restricted Subsidiary" means any Restricted Subsidiary, together
with its Subsidiaries that are themselves Restricted Subsidiaries, of the
Issuer which, at any date of determination, (i) is a "Significant Subsidiary"
under the definition of that term set forth in Regulation S-X promulgated
under the Securities Act, as in effect on the Issue Date (but substituting "5
percent" for each occurrence of "10 percent" in such definition), (ii)
contributed 5% or more of the Consolidated Operating Cash Flow of the Issuer
on a pro forma basis in the immediately preceding fiscal quarter for which
financial information is available, (iii) when aggregated with all other
Restricted Subsidiaries that are not otherwise Material Restricted
Subsidiaries and as to which any event described in clauses (vi), (vii) or
(viii) of the definition of "Events of Default" above has occurred, would
constitute a Material Restricted Subsidiary under clause (i) or (ii) of this
definition.
"Maturity Date" means, with respect to any Note, the date specified in such
Note as the fixed date on which the principal of such Note is due and payable.
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"Moody's" means Moody's Investors Service, Inc. (and any successor).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof received by the Issuer or any Restricted Subsidiary in the form of
cash (including assumed Indebtedness (other than Subordinated Indebtedness)
and other items deemed to be cash under the proviso to the first sentence of
the covenant described under "--Certain Covenants--Disposition of Proceeds of
Asset Sales") or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Issuer or any Restricted Subsidiary) net of (i) brokerage commissions
and other fees, costs and expenses (including fees and expenses of legal
counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes paid or payable as a result of such Asset Sale, (iii) amounts
required to be paid to any person (other than the Issuer or any Restricted
Subsidiary) owning a beneficial interest in or having a Lien on the assets
subject to the Asset Sale, (iv) with respect to Asset Sales by Restricted
Subsidiaries, the portion of such cash and Cash Equivalents attributable to
any persons holding a minority interest in such Restricted Subsidiary and (v)
appropriate amounts to be provided by the Issuer or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Issuer or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected
in an Officers' Certificate delivered to the Trustee.
"Permitted Credit Facility" means any senior secured or unsecured commercial
term loan and/or revolving credit facility (including any letter of credit
subfacility) entered into principally with commercial banks and/or other
financial institutions.
"Permitted Equipment Financing" means any credit facility (including a
Permitted Credit Facility) or other financing arrangement entered into with
any vendor, supplier or other third party (or any financial institution for
the purpose of financing purchases from any vendor, supplier or third party)
to the extent the Indebtedness thereunder is incurred for the purpose of
financing the cost (including the cost of design, development, construction,
improvement, enhancement, upgrade, replacement, integration, manufacture or
acquisition) of real or personal property (tangible or intangible) used, or to
be used, in the Digital Network Business of the Issuer or any of its
Restricted Subsidiaries.
"Permitted Holders" means (i) WorldCom and each of its Affiliates and (ii)
Edward J. Driscoll III (the Chairman of the Board and Chief Executive Officer
of the Issuer as of the date of the Indenture) and his family members, any
trust for the benefit of any of the foregoing persons and their respective
estates and heirs. As used herein, "family member" means the spouse, siblings
and lineal descendants of Mr. Driscoll.
"Permitted Indebtedness" means the following Indebtedness (each of which
shall be given independent effect):
(a) Indebtedness under the Notes, the Subsidiary Guarantees and the
Indenture;
(b) Indebtedness (including Disqualified Stock) of the Issuer and/or any
Restricted Subsidiary outstanding on the Issue Date and identified on a
schedule to the Indenture; provided, that Indebtedness that may be borrowed
under credit facilities in place on the Issue Date shall be deemed
outstanding for purposes of this clause (b);
(c)(i) Indebtedness of any Restricted Subsidiary owed to and held by the
Issuer or a Restricted Subsidiary and (ii) Indebtedness of the Issuer,
which is not secured by any Lien and is subordinated to the Issuer's
obligations with respect to the Notes, owed to and held by any Restricted
Subsidiary; provided that an incurrence of Indebtedness shall be deemed to
have occurred upon (x) any sale or other disposition of any Indebtedness of
the Issuer or a Restricted Subsidiary referred to in this clause (c) to a
person other than the Issuer or a Restricted Subsidiary, (y) any sale or
other disposition of Capital Stock of a Restricted Subsidiary which holds
Indebtedness of the Issuer or another Restricted Subsidiary such that such
Restricted Subsidiary ceases to be a Restricted Subsidiary or (z) the
Designation of a Restricted Subsidiary which holds Indebtedness of the
Issuer or another Restricted Subsidiary as an Unrestricted Subsidiary;
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(d) Interest Rate Obligations of the Issuer and/or any Restricted
Subsidiary relating to Indebtedness of the Issuer and/or such Restricted
Subsidiary, as the case may be (which Indebtedness (x) bears interest at
fluctuating interest rates and (y) is otherwise permitted to be incurred
under the "Limitation on Additional Indebtedness" covenant), but only to
the extent that the notional amount of such Interest Rate Obligations does
not exceed the principal amount of the Indebtedness (and/or Indebtedness
subject to commitments) to which such Interest Rate Obligations relate;
(e) Indebtedness of the Issuer and/or any Restricted Subsidiary in
respect of performance bonds of the Issuer or any Restricted Subsidiary or
surety bonds provided by the Issuer or any Restricted Subsidiary, in each
case incurred in the ordinary course of business;
(f) Indebtedness of the Issuer and/or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension (a
"refinancing") of outstanding Indebtedness of the Issuer and/or of any
Restricted Subsidiary incurred or outstanding pursuant to clause (a), (b),
(g), (h) or (i) of this definition or the proviso of the covenant described
under "--Certain Covenants--Limitation on Additional Indebtedness";
provided that (1) no Restricted Subsidiary may incur Indebtedness to
refinance Indebtedness of the Issuer, (2) any such refinancing shall not
(x) result in a lower Average Life to Stated Maturity of such Indebtedness
as compared with the Indebtedness being refinanced or (y) exceed the sum of
the principal amount (or, if such Indebtedness provides for a lesser amount
to be due and payable upon a declaration of acceleration thereof, an amount
no greater than such lesser amount) of the Indebtedness being refinanced,
plus the amount of accrued and unpaid interest thereon, plus the amount of
any reasonably determined prepayment premium necessary to accomplish such
refinancing and such reasonable fees and expenses incurred in connection
therewith; (3) Indebtedness that ranks pari passu with the Notes may be
refinanced only with Indebtedness that is made pari passu with or
subordinate in right of payment to the Notes, and Subordinated Indebtedness
may only be refinanced with Subordinated Indebtedness; and (5) the
refinancing Indebtedness shall be incurred by the obligor on the
Indebtedness being refinanced or by the Issuer;
(g) Indebtedness of the Issuer such that, after giving effect to the
incurrence thereof, the total aggregate principal amount of Indebtedness
incurred under this clause (g) and any refinancings thereof otherwise
incurred in compliance with the Indenture would not exceed 175% of Total
Incremental Equity;
(h) Indebtedness of the Issuer incurred under one or more Permitted
Credit Facilities and/or Indebtedness of the Issuer represented by Debt
Securities of the Issuer, and any refinancings of the foregoing otherwise
incurred in compliance with the Indenture, in an aggregate principal amount
not to exceed $50 million at any time outstanding; and Guarantees by any
Restricted Subsidiary that is a Subsidiary Guarantor of Indebtedness of the
Issuer incurred under any Permitted Credit Facility; provided, however, the
incurrence of such Indebtedness by the Issuer under such Permitted Credit
Facility is permitted by the covenant described under "--Certain
Covenants--Limitation on Additional Indebtedness";
(i) Indebtedness of the Issuer incurred under any Permitted Equipment
Financing and Guarantees of any Restricted Subsidiary that is a Foreign
Subsidiary of Indebtedness incurred under any Permitted Equipment Financing
in an amount not in excess of the amount of Indebtedness incurred in
respect of the property acquired by such Restricted Subsidiary under such
Permitted Equipment Financing; provided, such Restricted Subsidiary is a
Subsidiary Guarantor or complies with the covenant "--Certain Covenants--
Issuance of Guarantees by Certain Restricted Subsidiaries; Release of
Guarantees"; and provided, further that the issuance of any Guarantees
pursuant to this clause (i) shall be in addition to any Guarantees issued
pursuant to clause (h) above;
(j) Indebtedness in respect of any Currency Hedge Obligations of the
Issuer and/or any Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under the covenant described under "--Certain
Covenants--Limitation on Additional Indebtedness"), but only to the extent
that the notional amount of such Currency Hedge Obligations do not exceed
the principal amount of the Indebtedness (and/or Indebtedness subject to
commitments) to which such Currency Hedge Obligations relate;
(k) in addition to any Indebtedness of the Issuer referred to in clause
(b) above, Deeply Subordinated Indebtedness of the Issuer owed to and held
by WorldCom or any other Strategic Equity Investor in an
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aggregate principal amount not to exceed $50.0 million at any time
outstanding; provided, at the time of incurrence of such Indebtedness by
the Issuer, the payee is the "beneficial owner" (as defined in Rules 13d-3
or 13d-5 under the Exchange Act, (except that WorldCom shall be deemed to
have "beneficial ownership" of all Voting Stock of the Issuer that it,
directly or indirectly, has or acquires the right to acquire, whether such
right is exercisable immediately or only after the passage of time) of at
least 10% of the total voting power of all Voting Stock of the Issuer;
(l) Indebtedness of 4-Sight and each of its Subsidiaries existing at the
time 4-Sight and such Subsidiaries become Restricted Subsidiaries; and
(m) in addition to the items referred to in clauses (a) through (k)
above, Indebtedness of the Issuer having an aggregate principal amount not
to exceed $15.0 million at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (c)
Interest Rate Obligations and Currency Hedge Obligations incurred in
compliance with the covenant described under "--Certain Covenants--Limitation
on Additional Indebtedness"; (d) loans and advances to employees made in the
ordinary course of business not to exceed $750,000 in the aggregate at any one
time outstanding; (e) bonds, notes, debentures or other securities received as
a result of Asset Sales permitted under "--Certain Covenants--Disposition of
Proceeds of Asset Sales" above not to exceed 15% of the total consideration
for such Asset Sales; (f) any Investment to the extent that the consideration
therefor consists of Capital Stock (other than Disqualified Stock) of the
Issuer; and (d) the extension by the Issuer of (i) trade credit to
Subsidiaries of the Issuer represented by accounts receivable, extended on
usual and customary terms in the ordinary course of business or (ii)
guarantees of commitments for the purchase of goods or services incurred in
the ordinary course of business so long as such guarantees, to the extent
constituting Indebtedness, are permitted to be incurred under the covenant
described under "--Certain Covenants--Limitation on Additional Indebtedness."
"Permitted Liens" means (a) Liens on property of a person existing at the
time such person is merged into or consolidated with the Issuer or any
Restricted Subsidiary or becomes a Restricted Subsidiary; provided that such
Liens were in existence prior to the contemplation of such merger,
consolidation or acquisition and do not secure any property or assets of the
Issuer or any Restricted Subsidiary other than the property or assets subject
to the Liens prior to such merger or consolidation or acquisition; (b) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens and
other similar Liens arising in the ordinary course of business that secure
payment of obligations not more than 60 days past due or that are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted;
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (e) easements, rights
of way, restrictions and other similar easements, licenses, restrictions on
the use of properties, or minor imperfections of title that, in the aggregate,
are not material in amount and do not in any case materially detract from the
properties subject thereto or interfere with the ordinary conduct of the
business of the Issuer or the Restricted Subsidiaries; (f) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (g)
Liens securing Indebtedness consisting of Permitted Equipment Financing,
provided, however, that (I) such Liens attach within 180 days of the
incurrence of such Indebtedness and (II) if such Liens include a pledge of
Capital Stock of any Restricted Subsidiary that is a Foreign Subsidiary, (x)
such Liens were created in connection with financing the cost of property
acquired or used by such Restricted Subsidiary, directly or indirectly, with
Indebtedness incurred pursuant to a Permitted Equipment Financing and (y) such
Liens do not secure Indebtedness in excess of the amount of Indebtedness
incurred with respect to the purchase of such property by such Restricted
Subsidiary; (h) Liens securing Indebtedness incurred under a Permitted Credit
Facility; provided, however, that (I) the incurrence of such Indebtedness is
permitted by the covenant described under "--Certain Covenants--Limitation on
Additional Indebtedness" above and (II) such Liens attach within 180 days of
the incurrence of such Indebtedness; (i) Liens to secure any refinancing of
any Indebtedness secured
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by Liens referred to in the clauses above, but only to the extent that such
Liens do not extend to any other property or assets (other than improvements
thereto); (j) Liens to secure the Notes; (k) Liens on real property incurred
in connection with the financing of the purchase of such real property (or
incurred within 60 days of purchase) by the Issuer or any Restricted
Subsidiary; and (l) Liens on and pledges of Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock whether now outstanding, or issued
after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such person.
"refinancing" has the meaning set forth in clause (f) of the definition of
"Permitted Indebtedness."
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on any Capital Stock of the
Issuer or any Restricted Subsidiary or any other payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Issuer
or any Restricted Subsidiary (other than any dividends, distributions or
payments made to the Issuer or any Restricted Subsidiary and dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Issuer or in options, warrants or other rights to purchase Capital
Stock (other than Disqualified Stock) of the Issuer); (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock
of the Issuer or any Restricted Subsidiary (other than any such Capital Stock
owned by the Issuer or a Restricted Subsidiary); (iii) the purchase,
redemption, defeasance or other acquisition or retirement for value, or the
making of any principal payment on, prior to any scheduled repayment,
scheduled sinking fund payment or scheduled maturity, of any Subordinated
Indebtedness (other than any Subordinated Indebtedness held by a Wholly Owned
Restricted Subsidiary); or (iv) the making by the Issuer or any Restricted
Subsidiary of any Investment (other than a Permitted Investment) in any person
(other than in the Issuer, any Restricted Subsidiary or a person that becomes
a Restricted Subsidiary, or is merged with or into or consolidated with the
Issuer or a Restricted Subsidiary (provided the issuer or a Restricted
Subsidiary is the survivor)) as a result of or in connection with such
Investment.
"Restricted Subsidiary" means any Subsidiary of the Issuer that has not been
designated by the Board, by a Board Resolution delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to and in compliance with the covenant
described under "--Certain Covenants--Limitation on Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by a Board
Resolution delivered to the Trustee, subject to the provisions of such
covenant.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies (and any successor).
"Sale/Leaseback Transaction" of any person means an arrangement with any
lender or investor or to which such lender or investor is a party providing
for the leasing by such person of any property or assets of such person which
has been or is being sold or transferred by such person after its acquisition
thereof or the completion of construction or commencement of operations
thereof to such lender or investor or to any other person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset.
"Strategic Equity Investor" means any person that, as of the date of
determination, has a Market Capitalization or Consolidated Net Worth of at
least $2.0 billion and that is principally engaged in the communications,
entertainment or electronics business or any other business related to the
Digital Network Business.
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"Subordinated Indebtedness" means any Indebtedness of the Issuer or any
Guarantor which is expressly subordinated in right of payment to any other
Indebtedness of the Issuer or such Guarantor.
"Subsidiary" means, with respect to any person, (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors shall at the time be owned, directly
or indirectly, by such person, or (ii) any other person of which at least a
majority of voting interest is at the time, directly or indirectly, owned by
such person.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Issuer and the
Restricted Subsidiaries outstanding as of the date of determination.
"Total Incremental Equity" means, at any time of determination, the sum of,
without duplication, (i) the aggregate cash proceeds received by the Issuer
from capital contributions in respect of existing Capital Stock (other than
Disqualified Stock) or the issuance and sale of Capital Stock (other than
Disqualified Stock 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 Issuer, plus (ii) the aggregate
cash proceeds received by the Issuer or any Restricted Subsidiary from the
sale, disposition or repayment (in whole or in part) of any Investment that is
made after the Issue Date and that constitutes a Restricted Payment that has
been deducted from Total Incremental Equity pursuant to clause (iv) below in
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 (iii) the value (determined at the time of issuance)
of any Capital Stock (other than Disqualifed Stock) of the Issuer issued as
consideration for the acquisition of Capital Stock or assets of any other
person (other than a Subsidiary or any Affiliate of the Issuer or any
Subsidiary) engaged in the Digital Network Business; provided, the issuance of
the first 2,500,000 shares of Common Stock (as adjusted for subdivisions,
combinations or reclassifications subsequent to the Issue Date) by the Issuer
to the stockholders of 4-Sight in connection with the Issuer's acquisition of
4-Sight shall be excluded from this clause (iii), minus (iv) the aggregate
amount of all Restricted Payments declared or made (including by way of a
Designation) on and after the Issue Date.
"Unrestricted Subsidiary" means any Subsidiary of the Issuer designated as
such pursuant to and in compliance with the covenant described under "--
Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries."
Any such designation may be revoked by a Board Resolution delivered to the
Trustee, subject to the provisions of such covenant.
"U.S. Government Securities" means securities that are direct obligations of
the United States of America for the payment of which its full faith and
credit is pledged.
"Voting Stock" means, with respect to any person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors or other members of the governing body of such person.
"voting power" means with respect to the Capital Stock of any person, the
relative voting power in any general election of directors or other members of
the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Issuer or another
Wholly Owned Restricted Subsidiary. For the purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Restricted Subsidiary.
"WorldCom" means WorldCom Inc., a Georgia corporation.
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NOTE REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which the Company agreed to file with the Commission
the Exchange Offer Registration Statement on an appropriate form under the
Securities Act with respect to an offer to exchange the Original Notes for the
Exchange Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of Original Notes who are
able to make certain representations the opportunity to exchange their
Original Notes for Exchange Notes. If (i) the Company is not permitted to file
the Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy, (ii) the Exchange Offer is not for any other reason consummated within
180 days after the Issue Date, (iii) any holder of Original Notes notifies the
Company within a specified time period that (a) due to a change in law or
policy it is not entitled to participate in the Exchange Offer, (b) due to a
change in law or policy it may not resell the Exchange Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and (x) the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder and (y) such
prospectus is not promptly amended or modified in order to be suitable for use
in connection with such resales for such holder and all similarly situated
holders or (c) it is a broker-dealer and owns Original Notes acquired directly
from the Company or an affiliate of the Company or (iv) the holders of a
majority of the Original Notes may not resell the Exchange Notes acquired by
them in the Exchange Offer to the public without restriction under the
Securities Act and without restriction under applicable blue sky or state
securities laws, the Company will file with the Commission the Shelf
Registration Statement to cover resales of the Transfer Restricted Notes (as
defined below) by the holders thereof. The Company agreed it will use its best
efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Notes" means each Original Note until (i) the
date on which such Original Note has been exchanged by a person other than a
broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Original Note for an
Exchange Note, the date on which such Exchange 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 Original Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iv) the date on which such Original Note is
distributed to the public pursuant to Rule 144(k) under the Securities Act (or
any similar provision then in force, but not Rule 144A under the Securities
Act), (v) such Original Note shall have been otherwise transferred by the
holder thereof and a new Note not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition
of such Note shall not require registration or qualification under the
Securities Act or any similar state law then in force or (vi) such Note ceases
to be outstanding.
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided that in the case of broker-
dealers participating in the Exchange Offer, a prospectus meeting the
requirements of the Securities Act must be delivered upon resale by such
broker-dealers in connection with resales of the Exchange Notes. The Company
has agreed, for period of 180 days after consummation of the Exchange Offer,
to make available a prospectus meeting the requirements of the Securities Act
to any such broker-dealer for use in connection with any resale of any
Exchange Notes acquired in the Exchange Offer. A broker-dealer which delivers
such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act
and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of Original Notes that wishes to exchange such Original Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii)
it has no arrangement with any person to participate in the distribution of
the Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405
of the Securities Act, of the Company, or if it is an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
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The Registration Rights Agreement provides that: (i) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the
Company will file the Exchange Offer Registration Statement with the
Commission on or prior to the 90th day after the Issue Date, (ii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will use its best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission on or prior to the 150th day
after the Issue Date (the "Target Effectiveness Date"), (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to
issue, on or prior to the date which is 30 days after the date on which the
Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in Exchange for all Original Notes tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Issuer will use its best efforts to file prior to
the later of (a) the 90th day after the Issue Date or (b) the 30th day after
such filing obligation arises and will use its best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior
to the 60th day after such obligation arises; provided that if the Issuer has
not consummated the Exchange Offer within the date which is 180 days after the
Issue Date, then the Company will file the Shelf Registration Statement with
the Commission on or prior to the 30th day after such date. The Company shall
use its best efforts to keep such Shelf Registration Statement continuously
effective, supplemented and amended until the earlier of (i) the second
anniversary of the effective date of the Shelf Registration Statement and (ii)
such time as all of the Transfer Restricted Notes covered by the Shelf
Registration Statement have been sold thereunder or otherwise cease to be
Transfer Restricted Notes.
If (i) the Company fails to file any of the registration statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (ii) any of such registration statements is not declared effective by
the Commission on or prior to the Target Effectiveness Date (subject to
certain limited exceptions), (iii) the Company fails to consummate the
Exchange Offer within 30 days of the Target Effectiveness Date with respect to
the Exchange Offer Registration Statement, or (iv) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective
but thereafter, subject to certain limited exceptions, ceases to be effective
or usable in connection with the Exchange Offer or resales of Transfer
Restricted Notes, as the case may be, during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (iv) above, a "Registration Default"), then the Company shall pay as
liquidated damages interest on the Transfer Restricted Notes as to which any
Registration Default exists. If a Registration Default exists with respect to
Transfer Restricted Notes, the Company will, with respect to the first 90-day
period (or portion thereof) while such Registration Default is continuing
immediately following the occurrence of such Registration Default, make cash
payments at a rate of .50% per annum multiplied by the Accreted Value of the
Transfer Restricted Notes as of the date such payment is required to be made.
The rate of such cash payment shall increase by an additional .50% per annum
at the beginning of each subsequent 90-day period (or portion thereof) while
such Registration Default is continuing until such Registration Default is
cured, up to a maximum rate of 1.5% per annum. Following the cure of all
Registration Defaults, the making of cash payments with respect to the Notes
will cease and the interest rate on the Notes will revert to zero.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will be registered in book-
entry form and will be represented by a single Global Exchange Note in
definitive, fully registered form without interest coupons and will be
deposited with the Trustee as custodian for DTC and registered in the name of
Cede & Co. or such other nominee as DTC may designate. Beneficial interests in
the Global Exchange Security will be shown on, and transfers thereon will be
effected only through, records maintained by DTC and its direct and indirect
participants, and any such interest may not be exchanged for Notes in
certificated form except in the circumstances described below.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Upon the issuance of the Global Exchange Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
applicable Exchange Note represented by such Global Exchange Note to the
accounts of persons who have accounts with DTC. Ownership of beneficial
interests in the Global Securities will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Exchange Note
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests
of participants) and the records of participants (with respect to interests of
persons other than participants). The laws of some jurisdictions may require
that certain purchasers of securities take physical delivery of such
securities in definative form. Such limits and laws may impair the ability to
transfer or pledge beneficial interest in each such Global Exchange Note.
So long as DTC or its nominee is the registered owner or holder of a Global
Exchange Note, DTC or such nominee, as the case may be, will be considered the
sole record owner or holder of the Exchange Note represented by such Global
Exchange Note for all purposes under the Indenture and the Notes. No
beneficial owner of an interest in the Global Exchange Note will be able to
transfer that interest except in accordance with DTC's applicable procedures
in addition to those provided for under the Indenture.
Payments in respect of the Global Exchange Note will be made to DTC or its
nominee, as the case may be, as the registered owner thereof. None of the
Issuer, the Trustee or any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Exchange Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment in
respect of the Global Exchange Note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial ownership
interests in such Global Exchange Note, as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in such Global Exchange Note held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
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Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of
Certificated Notes for any reason, including selling Units, Notes or Warrants
to persons in states which require delivery of such Notes or pledging such
Notes, such holder must transfer its interest in the Global Exchange Note, in
accordance with the normal procedures of DTC and the procedures set forth in
the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Notes only at the direction of one or more participants
to whose account the DTC interests in the Global Exchange Notes are credited
and only in respect of such portion of the aggregate amount of Exchange Notes
as to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will
exchange the applicable Global Exchange Notes for Certificated Securities,
which it will distribute to its participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Exchange Notes among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither of the Issuer or the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Subject to certain conditions, any person having a beneficial interest in a
Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Exchange Notes. Upon
any such issuance, the Trustee is required to register such Certificated
Exchange Notes in the name of, and cause the same to be delivered to, such
person or persons (or the nominee of any thereof). In addition, if DTC is at
any time unwilling or unable to continue as a depositary for the Global Notes
and a successor depositary is not appointed by the Issuer within 90 days, the
Issuer will issue Certificated Exchange Notes in exchange for the Global
Exchange Notes.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the exchange of Original Notes for
Exchange Notes pursuant to the Exchange Offer and the ownership and
disposition of Exchange Notes by holders who acquire the Exchange Notes
pursuant to the Exchange Offer, but does not purport to be a complete analysis
of all potential tax effects. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), U.S. Treasury Regulations,
Internal Revenue Service ("IRS") rulings and pronouncements and judicial
decisions all in effect as of the date hereof, all of which are subject to
change at any time, and any such change may be applied retroactively in a
manner that could adversely affect a holder of the Notes. The discussion does
not address all of the U.S. federal income tax consequences that may be
relevant to a holder in light of such holder's particular circumstances or to
holders subject to special rules, such as certain financial institutions,
insurance companies, dealers in securities, tax-exempt organizations and
persons holding the Notes as part of a "straddle," "hedge" or "conversion
transaction." In addition, this discussion is limited to persons purchasing
the Original Notes at the issue price. Moreover, the effect of any applicable
state, local or foreign tax laws is not discussed. The discussion deals only
with Notes held as "capital assets" within the meaning of Section 1221 of the
Code.
As used herein, "U.S. holder" means a beneficial owner of the Exchange Notes
who or that (i) is a citizen or resident of the United States, (ii) is a
corporation, partnership or other entity created or organized in or under the
laws of the United States or political subdivision thereof, (iii) is an estate
the income of which is subject to U.S. federal income taxation regardless of
its source, (iv) is a trust if (A) a U.S. court is able to exercise primary
supervision over the administration of the trust and (B) one or more U.S.
persons have authority to control all substantial decisions of the trust, or
(v) is otherwise subject to U.S. federal income tax on a net income basis in
respect of the Notes. As used herein, a "non-U.S. holder" means a holder who
or that is not a U.S. holder.
The Company has not sought and will not seek any rulings from the IRS with
respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the exchange of Original Notes for Exchange Notes and the
ownership or disposition of the Exchange Notes by holders who acquire the
Exchange Notes pursuant to the Exchange Offer or that any such position would
not be sustained.
PROSPECTIVE HOLDERS OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH REGARD TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO
THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
THE EXCHANGE OFFER
The Exchange of Original Notes for Exchange Notes pursuant to the Exchange
Offer will not be treated as an exchange or other taxable event for United
States federal income tax purposes because, under the Regulations, the
Exchange Notes do not differ materially in kind or extent from the Original
Notes. Rather, the Exchange Notes received by a holder will be treated as a
continuation of the Original Notes in the hands of such holder. As a result,
there will be no United States federal income tax consequences to holders who
exchange Original Notes for New Notes pursuant to the Exchange Offer and any
such holder will have the same tax basis and holding period in the Exchange
Notes as it had in the Original Notes immediately before the exchange.
U.S. HOLDERS
The Units
The purchase of a Unit consisting of a Note and Warrants will be treated as
the purchase of an "investment unit" for federal income tax purposes. The
"issue price" of the Units will be the first price at which a substantial
amount of the Units is sold to the public (excluding sales to bond houses,
brokers, or similar persons or
107
<PAGE>
organizations acting in the capacity of underwriters or wholesalers). The
aggregate issue price of the Unit must be allocated among the Note and the
Warrants based on their relative fair market values on the date of issuance of
the Unit to determine the issue price of each of the securities. The Company
believes that the aggregate issue price of each Unit should be allocated
$114,944,000 to the Notes and $10,057,000 to the Warrants, which amounts are
based on the instruments' anticipated relative fair market value at the time
of issuance. Although the Company's allocation is not binding on the IRS, a
U.S. holder of a Unit must use the Company's allocation unless the U.S. holder
discloses on its federal income tax return for the year in which the Unit was
acquired that it plans to use an allocation that is inconsistent with the
Company's allocation. A U.S. holder's initial tax basis in each security will
be the issue price allocated thereto.
The Notes
Original Issue Discount. Because the Notes were issued at a discount from
their "stated redemption price at maturity," the Notes have original issue
discount ("OID") for federal income tax purposes. A U.S. holder will be
required to include OID in income periodically over the term of a Note before
receipt of the cash or other payment attributable to such income, regardless
of the U.S. holder's method of tax accounting. For federal income tax
purposes, OID on a Note will be the excess of the "stated redemption price at
maturity" of the Note over its "issue price."
The "stated redemption price at maturity" of a Note is the sum of all
payments required to be made on such Note, whether denominated as principal or
interest, other than payments of "qualified stated interest." "Qualified
stated interest" is stated interest that is unconditionally payable at least
annually at a single fixed rate that appropriately takes into account the
length of the interval between payments. Prior to March 1, 2002 there will be
no payment of interest on the Notes. Therefore, none of the interest payments
on the Notes will constitute qualified stated interest and all such payments
will be included in the Notes, stated redemption price at maturity. Therefore,
each Note will bear OID in an amount equal to the excess of (i) the sum of its
principal amount and all stated interest payments over (ii) the issue price.
The amount of OID required to be included in a U.S. holder's gross income
for any taxable year is the sum of the "daily portions" of OID with respect to
the Note for each day during the taxable year or portion of a taxable year
during which such U.S. holder holds the Note. The daily portion is determined
by allocating to each day of any "accrual period" within a taxable year a pro
rata portion of an amount equal to the "adjusted issue price" of the Note at
the beginning of the accrual period multiplied by the "yield to maturity" of
the Note. Accrual periods with respect to a Note may be of any length selected
by the holder and may vary in length over the term of the Note as long as (i)
no accrual period is longer than one year and (ii) each scheduled payment of
interest or principal on the Note occurs on either the first or final day of
an accrual period. The "adjusted issue price" of a Note at the beginning of
any accrual period is the original issue price of the Note increased by the
amount of OID previously includible in the gross income of the U.S. holder,
and decreased by any payments (including interest that is not qualified stated
interest) previously made on the Note. The "yield to maturity" is the interest
rate, expressed as a constant annual interest rate, that when used in
computing the present value of all payments of principal and interest to be
paid in connection with a Note produces an amount equal to the issue price of
the Note.
Because the yield to maturity with respect to the Notes will exceed the sum
of the "applicable federal rate" plus five percentage points, the Notes will
be treated as applicable high yield discount obligations ("AHYDOs") under the
Code. Accordingly, no deduction will be allowed to the Company for the
"disqualified portion" of the OID, and the remainder of the OID will be
deductible only when paid. The "disqualified portion" of the OID will
generally be the OID relating to that portion of the Notes' yield to maturity
that exceeds the "applicable federal rate" plus six percentage points.
Additionally, the "disqualified portion" of the OID may be treated as a
dividend for purposes of the "dividend received deduction" to the extent that
the OID would have been a dividend if distributed with respect to the
Company's stock. Holders are advised to consult their tax advisors regarding
the applicability and operation of the AHYDO rules to their investment in the
Notes.
108
<PAGE>
Sale or Retirement of a Note. A U.S. holder of a Note will recognize gain or
loss upon the sale, retirement, redemption or other taxable disposition of
such Note in an amount equal to the difference between (a) the amount of cash
and the fair market value of other property received in exchange therefor
(other than amounts attributable to accrued but unpaid stated interest) and
(b) the U.S. holder's adjusted tax basis in such Note. Any gain or loss
recognized will generally be capital gain or loss. A non-corporate U.S. holder
is generally subject to a maximum capital gains rate of 28% for Notes held for
more than one year and a maximum capital gains rate of 20% for Notes held for
more than eighteen months.
A U.S. holder's tax basis in a Note will generally be equal to the issue
price of such Note, increased by the amount of OID, if any, included in gross
income prior to the date of disposition, and decreased by the amount of any
payment on such Note other than stated interest prior to disposition.
U.S. holders should be aware that the resale of the Notes may be affected by
the "market discount" rules of the Code, under which a purchaser of a Note
acquiring the Note at a market discount generally would be required to include
as ordinary income a portion of the gain realized upon the disposition or
retirement of such Note, to the extent of the market discount that has accrued
but has not been included in income while such Note was held by such
purchaser.
NON-U.S. HOLDERS
U.S. Withholding Tax
Interest or redemption proceeds paid to non-U.S. holders of the Notes will
not be subject to U.S. withholding tax, provided that (i) the non-U.S. Holder
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company, (ii) the non-U.S. Holder
is not (a) a controlled foreign corporation as to the United States that is
related to the Company through stock ownership or (b) a bank that received the
Note on an extension of credit made pursuant to a loan agreement entered into
in the ordinary course of its trade or business, and (iii) the beneficial
owner of the Note provides a statement signed under penalties of perjury that
includes its name and address and certifies that it is not a U.S. person in
compliance with applicable requirements or an exemption is otherwise
established. If these requirements cannot be met, a non-U.S. holder will be
subject to U.S. withholding tax at a rate of 30% (or lower treaty rate, if
applicable) on interest payments. Although U.S. tax will also be imposed
against OID on the Notes prior to payment, such tax will only be withheld from
stated interest payments on the Notes. However, such additional withholding
may result in U.S. withholding tax on stated interest payments exceeding 30%.
Recently promulgated Treasury Regulations (the "New Regulations") regarding
U.S. withholding tax and information reporting and backup withholding
(discussed below) will apply to payments made after December 31, 1999. The New
Regulations provide alternative methods for satisfying the certification
requirements discussed in clause (iii) above and clarify and modify reliance
standards. The New Regulations also address certain issues relating to
intermediary certification procedures designed to simplify compliance by
withholding agents. Non-U.S. holders should consult their own tax advisors
regarding the effect of the New Regulations.
In general, any gain realized by any non-U.S. Holder upon the sale, exchange
or redemption of a Note will not be subject to United States withholding tax.
However, such gain will be subject to U.S. withholding tax if (i) a non-U.S.
holder is an individual and is present in the United States for a total of 183
days or more during the taxable year in which the gain is realized, or (ii)
such gain is effectively connected with a U.S. trade or business.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain non-corporate U.S. persons may be subject to backup withholding at a
rate of 31% on payments of principal and interest (including payments of OID)
on the Notes and the proceeds from a disposition of the Notes. Backup
withholding will only be imposed where the holder (i) fails to furnish its
taxpayer identification number ("TIN"), which, for an individual, would
ordinarily be his or her social security number, (ii) furnishes an
109
<PAGE>
incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest or dividends, or (iv) under certain circumstances,
fails to certify, under penalties of perjury, that it has furnished a correct
TIN and has not been notified by the IRS that it is subject to backup
withholding. Holders of the Notes should consult their own tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption, if applicable. However, principal
and interest (including OID) paid with respect to a Note and received by a
non-U.S. holder will not be subject to information reporting or backup
withholding if the payor has received appropriate certification statements and
provided that the payor does not have actual knowledge that the holder is a
U.S. person.
110
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by Holders thereof (other than any
Holder which is (i) an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes
directly from the Company or (iii) broker-dealers who acquired Original Notes
as a result of market-making or other trading activities) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the ordinary course of such
Holders' business, and such Holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes; provided that broker-
dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Exchange Notes. To date, the Staff has taken the
position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to transactions involving an exchange of
securities such as the exchange pursuant to the Exchange Offer (other than a
resale of an unsold allotment from the sale of the Original Notes to an
Initial Purchaser) with the prospectus contained in the Registration
Statement. Pursuant to the Registration Rights Agreement, the Company has
agreed to permit Participating Broker-Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use this Prospectus in
connection with the resale of such Exchange Notes. The Company has agreed that
they will make this Prospectus, and any amendment or supplement to this
Prospectus, available to any broker-dealer that reasonably requests such
documents in the Letter of Transmittal.
Each Holder of the Original Notes who wishes to exchange its Original Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer--Terms and
Conditions of the Letter of Transmittal." In addition, each Holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Original Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that
it will deliver a prospectus in connection with any resale by it of such
Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such Exchange Notes.
Any broker-dealer that resells Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify Holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the Registration Rights Agreement.
111
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Willkie Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of WAM!NET Inc. as of December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997, included in this Prospectus and Registration Statement of the Company,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of 4-Sight Limited as of August 31,
1996, September 30, 1996 and September 30, 1997 and for the year ended August
31, 1996, the month ended September 30, 1996 and the year ended September 30,
1997, included in the Prospectus and Registration Statement of WAM!NET Inc.,
have been audited by Ernst & Young, chartered accountants, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
With respect to 4-Sight's unaudited consolidated financial statements at
December 31, 1997 and for twelve months then ended included in this
Prospectus, Ernst & Young, chartered accountants, have reported that they have
compiled such financial statements in accordance with statements on standards
for accounting and review services. However, their separate report, included
herein, states that they did not audit or review such financial statements and
they do not express an opinion or any other form of assurance on them.
Accordingly, the degree of reliance on their report on such information should
be restricted considering the limited nature of the procedures applied. Ernst
& Young, chartered accountants, are not subject to the liability provisions of
Section 11 of the Securities Act for their report on the unaudited financial
statements because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by them within the meaning of
Sections 7 and 11 of the Securities Act.
112
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WAM!NET INC.
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited).................................................... F-3
Consolidated Statements of Operations for the three years in the period
ended December 31, 1997 and for the three months in the periods ended
March 31, 1997 and 1998 (unaudited)..................................... F-5
Consolidated Statements of Shareholders' Deficit as of December 31, 1997
and as of March 31, 1998 (unaudited).................................... F-6
Consolidated Statements of Cash Flows for the three years in the period
ended December 31, 1997 and for the three months in the periods ended
March 31, 1997 and 1998 (unaudited)..................................... F-7
Notes to Consolidated Financial Statements............................... F-9
4-SIGHT LIMITED
Report of Independent Auditors........................................... F-21
Consolidated Balance Sheets as of August 31, 1996, September 30, 1996 and
September 30, 1997...................................................... F-22
Consolidated Statements of Operations for the year ended August 31, 1996,
the month ended September 30, 1996 and the year ended September 30,
1997.................................................................... F-23
Consolidated Statement of Shareholders' Equity for the year ended August
31, 1996, the month ended September 30, 1996 and the year ended
September 30, 1997...................................................... F-24
Consolidated Statements of Cash Flows for the year ended August 31, 1996,
the month ended September 30, 1996 and the year ended September 30,
1997.................................................................... F-25
Notes to Consolidated Financial Statements............................... F-26
Accountant's Compilation Report.......................................... F-33
Consolidated Balance Sheet as of December 31, 1997 (unaudited)........... F-34
Consolidated Statement of Operations for the twelve months ended December
31, 1997 (unaudited).................................................... F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
WAM!NET Inc.
We have audited the accompanying consolidated balance sheets of WAM!NET Inc.
(formerly known as NetCo Communications Corporation) as of December 31, 1996
and 1997, and the related consolidated statements of operations, shareholders'
deficit and cash flows for each of the years in the three year period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Since the date of completion of our audits of the accompanying consolidated
financial statements and the initial issuance of our report thereon dated
February 9, 1998, which report contained an explanatory paragraph regarding
the Company's ability to continue as a going concern, the Company, as
discussed in Note 2, has completed an issuance of Senior Discount Notes
resulting in net proceeds of $120,622,093. Therefore, the conditions that
raised substantial doubt about whether the Company will continue as a going
concern no longer exist.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of WAM!NET Inc. at December 31, 1996 and 1997, and the consolidated results of
its operations and its cash flows for each of the years in the three year
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
February 9, 1998, except for Note 2,
as to which date is March 12, 1998
F-2
<PAGE>
WAM!NET INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $14,444 $ 274 $ 66,760
Investments...................................... 1,000 -- --
Accounts receivable, net of allowance of $0, $10,
and $10, respectively........................... 71 459 3,493
Inventory........................................ -- -- 940
Prepaid expenses and other current assets........ 139 554 765
------- ------- --------
Total current assets........................... 15,654 1,287 71,958
Property and equipment:
Network equipment................................ 3,072 15,618 22,296
Other support equipment.......................... 1,210 5,242 8,183
Furniture and fixtures........................... 384 1,078 3,052
Leasehold improvements........................... 228 259 266
------- ------- --------
4,894 22,197 33,797
Accumulated depreciation......................... 478 2,877 4,403
------- ------- --------
4,416 19,320 29,394
Goodwill, net of accumulated amortization of $0,
$6, and $762 respectively....................... -- 479 32,446
Deferred Charges................................. -- -- 3,972
------- ------- --------
Total assets................................... $20,070 $21,086 $137,770
======= ======= ========
</TABLE>
F-3
<PAGE>
WAM!NET INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................... $ 628 $ 2,460 $ 3,805
Accrued salaries and wages................ 100 360 369
Accrued expenses.......................... 552 2,159 3,287
Bridge financing.......................... 1,075 -- --
Current portion of equipment financing and
obligations under capitalized leases..... 179 3,129 3,541
Accrued taxes payable..................... -- -- 1,147
------- -------- --------
Total current liabilities............... 2,534 8,108 12,149
Long-term debt:
Subordinated notes payable................ 19,219 21,784 22,368
Line of credit............................ -- 14,431
Equipment financing....................... -- 6,434 6,883
13.25% Senior Discounted Notes............ -- -- 110,686
Redeemable Preferred Stock, Class A, $10.00
par value:
Authorized, issued and outstanding
shares--100,000.......................... 1,000 1,000 1,000
Shareholders' deficit:
Undesignated shares, $.01 par value--
9,900,000
Common Stock, $.01 par value:
Authorized shares--90,000,000
Issued and outstanding shares--
6,478,950, 6,699,740, and 9,265,530 at
December 31, 1996 and 1997 and March
31, 1998............................... 65 67 93
Additional paid-in capital.............. 6,125 11,771 53,712
Accumulated deficit..................... (8,873) (42,509) (69,192)
Cumulative foreign currency translation
adjustjment............................ -- -- 71
------- -------- --------
Total shareholders' deficit............. (2,683) (30,671) (15,316)
------- -------- --------
Total liabilities and shareholders'
deficit................................ $20,070 $ 21,086 $137,770
======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
WAM!NET INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
WAM!NET revenues...... $ 20 $ 110 $ 1,628 $ 117 $ 1,320
Less rebates.......... -- -- (150) -- (271)
--------- --------- --------- --------- ---------
Net WAM!NET user fees... 20 110 1,478 117 1,049
Software and hardware
sales.................. -- -- -- -- 822
Other service fees...... 160 169 77 5 9
--------- --------- --------- --------- ---------
Total revenues...... 180 279 1,555 122 1,880
Operating expenses:
Network communication
fees................. 46 816 7,364 863 3,152
Cost of software and
hardware............. -- -- -- 261
Network operations.... 539 1,109 7,478 849 3,259
Sales and marketing... 94 2,054 9,207 1,229 2,352
General and
administrative....... 727 2,610 4,320 977 14,467
Depreciation and
amortization......... 31 447 2,668 287 1,921
--------- --------- --------- --------- ---------
1,437 7,036 31,037 4,205 25,412
--------- --------- --------- --------- ---------
Loss from operations.... (1,257) (6,757) (29,482) (4,083) (23,532)
Other income (expense):
Interest income....... -- 64 202 150 293
Interest (expense).... (20) (903) (4,356) 778 3,444
--------- --------- --------- --------- ---------
Net loss................ $ (1,277) $ (7,596) $( 33,636) $ (4,711) $ (26,683)
Less preferred divi-
dends................ (-- ) (-- ) (70) (18) (18)
--------- --------- --------- --------- ---------
Net loss applicable to
common stock........... $ (1,277) $ (7,596) $ (33,706) $ (4,729) $ (26,701)
========= ========= ========= ========= =========
Net loss applicable per
common share........... $ (.24) $ (1.18) $ (5.19) $ (0.83) $ (3.65)
========= ========= ========= ========= =========
Weighted average number
of common shares
outstanding............ 5,263,535 6,445,785 6,496,345 5,700,005 7,305,734
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
WAM!NET INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL COMMON CURRENCY
------------- PAID-IN ACCUMULATED STOCK TRANSLATION
DESCRIPTION ISSUED AMOUNT CAPITAL DEFICIT SUBSCRIPTION ADJUSTMENT TOTAL
----------- ------ ------ ---------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 4,500 $ 44 $ (35) $ -- $ (9) $ --
Payments received on
stock subscriptions
in May 1995.......... -- -- -- -- 9 9
Issuance of Common
Stock upon debt
conversion in May,
conversion price of
$.38 per share....... 265 3 97 -- -- 100
Subscription for sale
of Common Stock in
June at $.45 per
share................ 1,650 17 726 -- (743) --
Payments received on
stock subscriptions.. -- -- -- -- 723 723
Value of warrants
issued in connection
with Notes Payable in
November............. -- -- 7 -- -- 7
Value of warrants
issued in connection
with Bridge Financing
in December.......... -- -- 45 -- -- 45
Value of warrants
issued to a
consultant for
services performed in
December............. -- -- 23 -- -- 23
Net loss.............. -- -- -- (1,277) -- (1,277)
------ ----- ------- -------- ----- --------
Balance at December 31,
1995................... 6,415 64 863 (1,277) (20) (370)
Payments received on
stock subscription... -- -- -- -- 20 20
Value of warrants
issued in connection
with Bridge Financing
in July.............. -- -- 121 -- -- 121
Value of warrants
issued in connection
with Subordinated
Notes in March, June
and December......... -- -- 5,040 -- -- 5,040
Value of warrants
issued for services
rendered............. -- -- 15 -- -- 15
Value of warrants
issued in connection
with Equipment
Lease................ -- -- 14 -- -- 14
Issuance of Common
Stock upon debt
conversion in July,
conversion price of
$1.90 per share...... 65 1 24 -- -- 25
Payments received on
sale of stock
warrants............. -- -- 48 -- -- 48
Net loss.............. -- -- -- (7,596) -- (7,596)
------ ----- ------- -------- ----- --------
Balance at December 31,
1996................... 6,480 65 6,125 (8,873) -- (2,683)
Accumulated and unpaid
dividends in
connection with
Preferred Stock...... -- -- (70) -- -- (70)
Amortization of stock
options.............. -- -- 426 -- -- 426
Value of warrants
issued in connection
with Line of Credit
in September......... -- -- 4,766 -- -- 4,766
Issuance of Common
Stock upon merger
with FreeMail........ 125 1 487 -- -- 488
Issuance of Common
Stock upon debt
conversion in
December, conversion
of $1.90 per share... 65 1 24 -- -- 25
Exercise of stock
options.............. 30 -- 13 -- -- 13
Net loss.............. -- -- -- (33,636) -- (33,636)
------ ----- ------- -------- ----- --------
Balance at December 31,
1997................... 6,700 67 11,771 (42,509) -- (30,671)
Accumulated and unpaid
dividends in
connection with
Preferred Stock...... -- -- (18) -- -- (18)
Amortization of stock
options.............. -- -- 11,913 -- -- 11,913
Value of warrants
issued in connection
with Senior
Discounted Notes..... -- -- 10,047 -- -- 10,047
Issuance of Common
Stock upon merger
with 4-Sight......... 2,500 25 19,975 -- -- 20,000
Issuance of Common
Stock upon debt
conversion .......... 65 1 24 -- -- 25
Net loss.............. -- -- -- (26,683) -- (26,683)
Foreign currency
translation
adjustment........... -- -- -- -- 71 71
------ ----- ------- -------- ----- --- --------
Balance at March 31,
1998 (unaudited)....... $9,265 $ 93 $53,712 $(69,192) $ -- $71 $(15,316)
====== ===== ======= ======== ===== === ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
WAM!NET INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................... $(1,277) $(7,596) $(33,636) $ (4,711) $ (26,683)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Noncash interest expense
related to warrants....... 7 306 1,624 307 2,274
Capitalized financing
costs..................... -- -- -- (1,824)
Value of stock options
issued to employees and
consultants............... 23 15 426 -- 11,914
Foreign currency
translation adjustment.... -- -- -- 33
Depreciation and
amortization.............. 31 447 2,668 287 2,024
Loss on disposal of
property and equipment.... -- -- 797 --
Changes in operating assets
and liabilities:
Accounts receivable...... (57) (14) (386) (32) 633
Inventory................ -- -- -- 399
Prepaid expenses and
other current assets.... (20) (111) (415) (17) (211)
Accounts payable......... 290 338 1,832 905 439
Income taxes............. -- -- -- 251
Accrued expenses......... 256 397 3,173 (84) 1,008
------- ------- -------- -------- ---------
Net cash used in operating
activities.................. (747) (6,218) (23,917) (3,345) (9,743)
INVESTING ACTIVITIES
Purchases of property and
equipment................... (657) (4,244) (16,599) (3,904) (10,143)
Purchase of investments...... -- (1,000) -- -- (20,253)
Purchase of 4-Sight.......... --
Proceeds from sale of
investments................. -- -- 1,000 1,000 --
------- ------- -------- -------- ---------
Net cash used in investing
activities.................. (657) (5,244) (15,599) (2,904) (30,396)
FINANCING ACTIVITIES
Proceeds from sale of common
stock....................... 732 20 -- -- --
Proceeds from sale of common
stock warrants.............. -- 48 -- -- --
Proceeds from sale of
preferred stock............. -- 1,000 -- -- --
Proceeds from subordinated
notes payable............... 500 24,000 -- -- --
Proceeds from 13.25% Senior
Discounted Notes............ -- -- -- -- 120,626
Proceeds from line of
credit...................... -- -- 18,800 -- 5,203
Payment of subordinated notes
payable..................... -- (250) -- -- --
Payments on line of credit... -- -- -- -- (24,003)
Proceeds from bridge
financing................... 1,500 4,100 10,000 -- --
Proceeds from equipment
financing................... -- 245 8,158 -- 1,809
Payments on bridge
financing................... -- (4,525) (11,075) (1,075) (948)
Payments on equipment
financing................... -- (60) (537) (21) --
------- ------- -------- -------- ---------
Net cash provided by (used
in) financing activities.... 2,732 24,578 25,346 (1,096) 102,687
------- ------- -------- -------- ---------
(Decrease) increase in cash
and cash equivalents........ 1,328 13,116 (14,170) (7,345) 62,548
Cash and cash equivalents at
beginning of period......... -- 1,328 14,444 14,444 4,212
------- ------- -------- -------- ---------
Cash and cash equivalents at
end of period............... $ 1,328 $14,444 $ 274 $ 7,099 $ 66,760
======= ======= ======== ======== =========
</TABLE>
See accompanying notes.
F-7
<PAGE>
WAM!NET INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------------
1995 1996 1997 1997 1998
------- -------- -------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Value of interest cost assigned
to warrants................... $ -- $ 5,176 $ 4,766 $ -- $ --
Equipment financed through
equipment financing........... -- -- 1,764 -- --
Conversion of accrued interest
to subordinated debt.......... -- -- 1,363 366 585
Issuance of common stock
relating to acquisition....... -- -- 488 -- 20,000
Warrant valuation reclassed to
deferred charges from line of
credit........................ -- -- -- -- 4,104
Accumulated and unpaid
dividends..................... -- -- 70 18 18
Cashless exercise of stock
options....................... -- -- 13 --
Conversion of convertible
subordinated debenture for
common stock.................. 100 25 25 25
Equipment financed through
capital leases................ -- 239 -- --
SUPPLEMENTAL SCHEDULE OF CASH
FLOW INFORMATION
Cash paid for interest......... -- 358 1,208 283 677
</TABLE>
See accompanying notes.
F-8
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
WAM!NET Inc. (formerly known as NetCo Communications Corporation), (the
"Company") provides a managed, high speed digital data delivery network
service that integrates the Company's industry-specific work flow applications
with high speed computer and telephony technologies. The Company offers
digital data delivery service designed to provide its subscribers with the
rapid, secure, accurate and reliable transportation and management of
information. In late 1997, the Company no longer considered itself in the
development stage.
The Company was incorporated in Minnesota on September 19, 1994. The Company
was inactive from September 19, 1994 (inception) through December 31, 1994.
Substantial Ownership
Through its ownership of debt and equity securities of the Company, as well
as its designation of a majority of the directors of the Board of Directors of
the Company, WorldCom Inc. ("WorldCom") has the potential to exercise
considerable influence and control over the affairs of the Company. In
addition, WorldCom and its affiliates are non-exclusive suppliers of
telecommunication and other services to the Company.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries: FreeMail, Inc. and NetCo Communications
Corporation of Canada, Inc. All intercompany transactions have been
eliminated.
Revenue Recognition
Revenues from user fees are recorded as revenue in the period the service is
provided to the customer.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents. Investments
classified as cash equivalents consist of high grade commercial paper (A1/P1),
certificates of deposits and United States Treasury Bills.
Investments
Investments at December 31, 1996 consist of certificates of deposits which
are classified as available for sale. The cost of investments approximates
fair value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful life of four to seven years.
Goodwill
The excess of the cost over the fair value of the net assets acquired is
amortized on a straight-line basis over three years. The Company periodically
reviews the recoverability of goodwill based on estimated future cash flows
from the related operations.
F-9
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Income Taxes
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting
and tax bases of assets and liabilities.
Research and Development
Research and development costs are charged to operations in the year
incurred. These costs for 1995, 1996 and 1997 were $539, $1,109 and $3,364,
respectively.
Foreign Currency Translation and Transactions
The Company's Canadian subsidiary's functional currency is considered to be
its local currency. The effect of the cumulative translation adjustment for
the fiscal year ended December 31, 1997 is not material and has not been
separately disclosed in the Company's financial statements.
Stock Split
In February, 1998, the Board of Directors declared a five-for-one Common
Stock split effected in the form of a stock dividend. The number of shares,
options and warrants and the conversion price and exercise price per share
have been adjusted to reflect this stock split on a retroactive basis.
Net Loss Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share (Statement 128). Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to fully diluted earnings per share
under the previous rules. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the Statement 128
requirements. Diluted earnings per share is not presented as the effect of
outstanding options and warrants are antidilutive.
Interim Financial Information
The accompanying consolidated financial statements as of March 31, 1998 and
for the three month periods ended March 31, 1997 and 1998 are unaudited. In
the opinion of the management of the Company, these consolidated financial
statements reflect all adjustments, consisting only of normal and recurring
adjustments necessary for a firm presentation of the consolidated financial
statements. The results of operations for the three month period ended March
31, 1998 are not necessarily indicative of the results that may be expected.
F-10
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification
Certain amounts presented in the December 31, 1996 financial statements have
been reclassified to conform with the December 31, 1997 presentation.
2. CONTINUED EXISTENCE
On March 5, 1998, the Company sold 208,530 Units consisting of 13 1/4%
Senior Discount Notes due 2005 and warrants to purchase a total of 1,257,436
shares of common stock. Each Unit consists of $1,000 principal amount at
maturity of 13 1/4% Senior Discount Note and three warrants. Each warrant
entitles the holder to purchase 2.01 shares of common stock at an exercise
price of $.01 per share. The sale of the Units resulted in net proceeds to the
Company of $120,622,093. Prior to the sale of the Units, there was substantial
doubt about the Company's ability to continue as a going concern. With the
completion of the Unit offering, the Company believes that it has a sufficient
cash on hand to satisfy its cash requirements for at least the next twelve
months.
3. LONG-TERM DEBT
Equipment financing notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
FINOVA Technology Finance; installment note; monthly payments
of $43 and an additional final installment of $242 including
interest imputed at 13.44%; secured by equipment; due April
2001........................................................ $ -- $1,518
FINOVA Technology Finance; installment note; monthly payments
of $91 and an additional final installment of $509 including
interest imputed at 13.35%; secured by equipment; due May
2001........................................................ -- 3,248
Transamerica Business Credit; installment note; monthly
payments of $46 and an additional final installment of $207
including interest imputed at 13.53%; secured by equipment;
due May 2001................................................ -- 1,606
Transamerica Business Credit; installment note; monthly
payments of $42 and an additional final installment of $187
including interest imputed at 13.43%; secured by equipment;
due May 2001................................................ -- 1,457
Leasetec Corporation; installment note; monthly payments of
$47 including interest imputed at 13.50%; unsecured; due
December 1998............................................... -- 521
Leasetec Corporation; installment note; monthly payments of
$83 including interest imputed at 13.50%; unsecured; due
April 1999.................................................. -- 1,123
------ ------
-- 9,473
Less current portion......................................... -- 3,039
------ ------
$ -- $6,434
====== ======
</TABLE>
F-11
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LONG-TERM DEBT (CONTINUED)
Subsequent to December 31, 1997 the Company entered into a $1,469
installment note with Transamerica Business Credit.
Maturities of notes payable as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................ $3,039
1999............................................ 2,284
2000............................................ 2,242
2001............................................ 1,908
------
$9,473
======
</TABLE>
LINE OF CREDIT AGREEMENT
In September 1997, the Company entered into a three year $25,000 line of
credit agreement with a bank. The line of credit is guaranteed by WorldCom and
the Company must obtain WorldCom's consent prior to each borrowing under the
line. At December 31, 1997, the amount outstanding on the line of credit was
$18,800. The line of credit has both Eurodollar and Floating Rate advances.
The Eurodollar and Floating Rate accrue interest at 55 basis points above
LIBOR (6.27% at December 31, 1997) and prime (8.50% at December 31, 1997),
respectively. Interest on the LIBOR borrowings is payable upon maturity and
the prime borrowings is payable quarterly. Subsequent to year end the Company
increased the borrowings on the line of credit by $3,187.
In connection with WorldCom's guarantee of the line of credit agreement, the
Company issued Class A warrants to purchase 8,396,170 common shares and Class
B Warrants to purchase 14,204,835 common shares at an initial exercise price
of $3.90 per share. The Class A warrants are immediately exercisable and
expire on December 31, 2000. The Class A warrants were deemed to have a value
of $4,766 which will be amortized as interest expense over the life of the
agreement. Amortization of the warrants for the year ended December 31, 1997
was $397. The unamortized value of the warrants has been reflected in the
financial statements as a reduction of the outstanding amount owed under the
line of credit. The Class B warrants are exercisable based on a calculation
that factors the outstanding balance and repayments made on the line of credit
during the final twelve months of the agreement. The Class B warrants expire
on December 31, 2000. It is Management's intention to fully repay the credit
facility before the final twelve months of the agreement with funds received
in a proposed Rule 144A private placement by the end of the first quarter
1998. The Class B warrants were deemed to have no value based on Management's
intentions and the unpredictability of the factors used to calculate the
number of warrants exercisable.
4. BRIDGE FINANCING
On December 29, 1995, the Company entered into a bridge financing agreement
(Bridge Loan) which provides funding up to $1,600. The Bridge Loan accrued
interest at 10% per annum and was payable on the earlier of December 31, 1996
or the date of closing of a qualifying preferred stock financing. In
connection with the financing, the Company granted warrants to purchase
1,600,000 shares of common stock at $1.00 per share. The warrants were deemed
to have a value of $109 which was recorded as interest expense over the life
of the Bridge Loan. Additionally, the Company granted the placement agent
warrants to purchase 160,000 shares of Common Stock at $1.00 per share
exercisable over five years.
F-12
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BRIDGE FINANCING (CONTINUED)
On March 19, 1996, the Company issued a total of $1,000 of subordinated
notes. The subordinated notes accrued interest at 10% per annum and were
payable on the earlier of December 31, 1996 or the date of closing of a
qualifying financing transaction. In connection with the issuance of the
notes, the Company granted warrants to purchase 1,000,000 shares of common
stock at $1.50 per share. The warrants were deemed to have a value of $57
which was recorded as interest expense over the life of the subordinated
notes. Additionally, the Company granted the placement agent warrants to
purchase 100,000 shares of common stock at $1.50 per share.
On June 24, 1996, the Company issued $3,000 of subordinated notes. The
subordinated notes accrued interest at 10% per annum and were payable on the
earlier of December 31, 1996 or the date of closing of a qualifying financing
transaction. In connection with the subordinated notes, the Company sold for a
price of $.01 each Common Stock warrants to purchase 3,000,000 shares of
common stock at $1.50 per share. The warrants to purchase 3,000,000 shares of
common stock were deemed to have a value of $120 which was recorded as
interest expense over the life of the subordinated notes. Additionally, the
Company granted the placement agent warrants to purchase 300,000 shares of
common stock at $1.50 per share.
On June 30, 1997, the Company entered into a promissory note agreement with
WorldCom which provided funding up to $10,000. The Company was advanced
$10,000 on the promissory note. The promissory note accrued interest at 12%
per annum and was paid in full as of December 31, 1997.
5. SUBORDINATED NOTES PAYABLE
In March through May of 1995, the Company issued a total of $250 of
convertible subordinated notes which are due December 31, 1999. Interest on
the notes accrues at an annual rate of 8%, payable semi-annually. The Company
may redeem the notes at any time commencing January 1, 1997, upon notice to
the holders at 110% of the face amount of the notes plus interest. The holder
has the right to convert the unpaid principal amount of the notes into shares
of common stock at a conversion price of $.38 per share.
On May 24, 1995, $100 of the notes were converted into 263,160 shares of
common stock at the conversion price of $.38 per share. On July 3, 1996, $25
of the notes were converted into 65,790 shares of common stock at the
conversion price of $.38 per share. On December 31, 1997, $25 of the notes
were converted into 65,790 shares of common stock at the conversion price of
$.38 per share.
In September 1996, the Company issued to WorldCom a $5,000 convertible
subordinated note which is due September 30, 1999. Interest on the note
accrues at an annual rate of 10%, payable semi-annually, commencing with the
first payment on March 30, 1997. The Company may redeem the note at any time
commencing January 1, 1998, upon notice to the holder's at the outstanding
principal amount of the note plus interest. The holder has the right to
convert the principal amount of the note into shares of common stock at a
conversion price of $1.00 per share.
In November 1996, the Company entered into a Redeemable Preferred Stock,
Subordinated Note and Common Stock Warrant Purchase Agreement ("Investment
Agreement") with WorldCom. Pursuant to the agreement, the Company sold 100,000
shares of Class A Preferred Shares, $10.00 par value. The preferred shares are
required to be redeemed on December 31, 1999 at a price of $10.00 per share
plus an amount equal to all accumulated and unpaid dividends. Dividends are
payable at the rate of 7% ($.175 per quarter per share) and shall start to
cumulate on January 1, 1997, whether or not earned. Cumulated dividends on the
preferred stock
F-13
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUBORDINATED NOTES PAYABLE (CONTINUED)
were $70 at December 31, 1997. The Class A Preferred Shares also carry voting
rights equal to Common Shares and possess special voting rights that entitle
the holder to elect a majority of the Directors.
Under the Subordinated Note Agreement, the Company has available an
aggregate amount of $28,500. The Company has the option to issue additional
notes not more frequently than once each quarter, commencing with the calendar
quarter ending March 31, 1997. The note accrues interest at 7% per annum, is
payable semi-annually and is due December 31, 2003. During 1997, $1,363 of
accrued interest was converted into additional subordinated notes. The amount
outstanding on the subordinated note agreement was $19,000 and $20,363 at
December 31, 1996 and December 31, 1997, respectively.
In connection with the Investment Agreement, the Company sold for a price of
$0.01 each, Common Stock Warrants entitling WorldCom to purchase 20,787,500
shares of common stock at an initial exercise price of $.96 per share. The
warrants are immediately exercisable and expire on December 31, 2000. The
warrants have an appraised value of $4,906 which will be amortized as interest
expense over the life of the warrant agreement. Amortization of the warrants
for the year ended December 31, 1997 was $1,227. The unamortized value of the
warrants has been reflected as a reduction of the subordinated note. The
initial exercise price of $.96 per share increased to $.98 per share on March
31, 1997, and shall thereafter increase by an amount of $.016 per share on the
last day of each calendar quarter during the term of the warrant, commencing
with the calendar quarter ending June 30, 1997. The exercise price was $1.03
per share on December 31, 1997.
The carrying amounts of the Company's debt instruments in the balance sheets
at December 31, 1996 and 1997 approximate fair value.
6. COMMITMENTS AND CONTINGENCIES
The Company enters into various term contracts with suppliers of
telecommunications services for the purpose of receiving discounts off the
standard service offerings. Some of these contracts will result in termination
liabilities if the contract is terminated prior to the expiration date of the
contract. The termination liabilities are generally based upon the minimum
monthly dollar amount committed to the vendor multiplied by a termination
liability percentage, multiplied by the number of months remaining in the
contract. Total data communications expense under telecommunication contracts
was $46, $816 and $7,364 for the years ended December 31, 1995, 1996 and 1997,
respectively. The Company's data communications expense under
telecommunication contracts with WorldCom was $0, $2 and $1,375 for the years
ended December 31, 1995, 1996 and 1997, respectively. Guaranteed monthly usage
levels of data communications with certain of the Company's telecommunication
vendors and WorldCom at December 31, 1997 aggregate to the following annual
amounts:
<TABLE>
<CAPTION>
GUARANTEED USAGE GUARANTEED USAGE
(ALL VENDORS) (WORLDCOM)
---------------- ----------------
<S> <C> <C>
1998.................................... $ 4,255 $3,080
1999.................................... 3,741 3,000
2000.................................... 2,204 1,750
2001.................................... 194 --
2002.................................... 138 --
------- ------
$10,532 $7,831
======= ======
</TABLE>
F-14
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
The termination contingency of data communications with certain of the
Company's telecommunication vendors and WorldCom at December 31, 1997
aggregate to the following annual amounts:
<TABLE>
<CAPTION>
TERMINATION
CONTINGENCY TERMINATION
(ALL CONTINGENCY
VENDORS) (WORLDCOM)
----------- -----------
<S> <C> <C>
1997.............................................. $4,645 $2,916
1998.............................................. 1,783 929
1999.............................................. 682 350
2000.............................................. 54 --
2001.............................................. 65 --
------ ------
$7,229 $4,195
====== ======
</TABLE>
The Company also has operating leases for its office space. Operating
expenses including maintenance, utilities, real estate taxes and insurance are
paid by the Company. Total rent expense under operating leases was $47, $208
and $592 for the years ended December 31, 1995, 1996 and 1997, respectively.
Future minimum lease obligations in excess of one year as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................... $ 798
1999............................................................... 743
2000............................................................... 529
2001............................................................... 461
2002............................................................... 461
Thereafter......................................................... 1,345
------
$4,337
======
</TABLE>
During 1996, the Company entered into a sale-leaseback agreement for
equipment. The total lease obligation is $239 which is to be paid over a
thirty month period. In connection with this lease financing, the leasing
company was granted warrants to purchase 45,000 shares of common stock at
$1.50 per share. The warrants were deemed to have a value of $14 which will be
recorded as interest expense over the life of the agreement. The minimum
future obligation on the capital lease is $90. The entire balance is
classified as current.
7. INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $41,292. These carryforwards are available to offset future
taxable income through 2012 and are subject to the limitations of Internal
Revenue Code Section 382 resulting from changes in ownership.
F-15
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME TAXES (CONTINUED)
Components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
Deferred assets:
Net operating loss.......................................... $ 3,525 $ 15,691
Warrant amortization........................................ -- 619
Other....................................................... -- 238
------- --------
Subtotal..................................................... 3,525 16,548
Deferred liability:
Depreciation and amortization............................... (39) (562)
------- --------
Net deferred income tax assets.............................. 3,486 15,986
Valuation allowance......................................... (3,486) (15,986)
------- --------
Net deferred income taxes.................................... $ -- $ --
======= ========
</TABLE>
8. CAPITAL STOCK
In February 1998, the Company amended the Articles of Incorporation to
increase its authorized capital from 20,000,000 shares to 100,000,000 shares,
90,000,000 of which shall be classified as common shares, 100,000 of which
shall be Class A preferred shares and 9,900,000 of which shall be undesignated
shares.
9. STOCK OPTIONS AND WARRANTS
In September 1994, the Company adopted an Incentive Stock Option Plan that
includes incentive stock options to be granted to certain eligible employees
and non-employee directors of the Company. The Company has authorized the
grant of options to management personnel for up to 22,071,400 shares and up to
4,725,000 of the Company's common stock under the plan and outside the plan,
respectively. A majority of the options granted have 10 year terms and vest
and become fully exercisable at the end of 3 years of continued employment.
In November 1996, the Chief Executive Officer and Chief Technology Officer
were each granted options to purchase 2,000,000 shares of common stock at an
exercise price of $.96. These options vest in incremental amounts based on the
number of installed customer sites and remain exercisable until December 31,
2007. In 1997, the Company recorded $297 in compensation relating to these
option grants. Subsequent to year end, the Board of Directors agreed to amend
the stock option agreements whereas the shares are fully vested effective
January 3, 1998. The amendment constitutes a repricing and accordingly the
Company will record $11,405 as compensation expense in January 1998.
During 1997, the Company granted non-plan options to various consultants to
purchase 347,500 shares of the Company's common stock at an exercise price of
$.96 per share. The options were deemed to have a value of $92 and was
recognized as compensation expense.
Subsequent to December 31, 1997, the Company granted to employees options to
purchase a total of 656,250 shares of common stock at an exercise price of
$3.90 per share. Additionally, the Company granted options to purchase a total
of 400,000 shares at an exercise price of $3.90 per share to two consultants.
F-16
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STOCK OPTIONS AND WARRANTS (CONTINUED)
Option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS OUTSTANDING EXERCISE
FOR GRANT --------------------- PRICE
UNDER PLAN PLAN NON-PLAN PER SHARE
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Establishment of 1994 Stock Option
Plan............................. 500,000 -- -- $ --
Additional shares reserved for is-
suance........................... 2,500,000 -- -- --
Granted........................... (532,500) 32,500 377,500 .45
---------- ---------- ---------
Balance at December 31, 1995...... 2,467,500 532,500 377,500 .45
Additional shares reserved for
issuance......................... 4,071,400 -- --
Granted........................... (2,992,800) 2,992,800 4,000,000 1.09
Canceled.......................... 1,646,400 (1,646,400) -- 1.48
---------- ---------- ---------
Balance at December 31, 1996...... 5,192,500 1,878,900 4,377,500 .90
Additional shares reserved for
issuance......................... 15,000,000 -- --
Granted........................... (3,131,250) 3,131,250 347,500 1.38
Canceled.......................... 257,750 (257,750) -- .86
Exercised......................... -- (30,000) -- .45
---------- ---------- ---------
Balance at December 31, 1997...... 17,319,000 4,722,400 4,725,000 1.09
========== ========== =========
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.45 730,000 7.2 years $ .45 715,000 $.45
.96 8,454,900 9.1 years .96 1,366,795 .96
3.90 262,500 9.8 years 3.90 0 --
--------- ---------
.45-
3.90 9,447,400 9.0 years 1.11 2,081,795 .79
</TABLE>
The Company has shares exercisable within the plan of 440,000 and 1,167,795
at December 31, 1996 and 1997, respectively, at a weighted average exercise
price of $.53 and $.81 per share, respectively. The Company also has shares
exercisable outside the plan of 576,500 and 914,000 at December 31, 1996 and
1997, respectively, at a weighted average exercise price of $.64 and $.76 per
share, respectively. The fair value of options granted within the plan in
1995, 1996 and 1997 was $.12, $.27 and $.34 per share, respectively. The fair
value of options granted outside the plan in 1995, 1996 and 1997 was $.12,
$.27 and $.27 per share.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
F-17
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STOCK OPTIONS AND WARRANTS (CONTINUED)
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a minimum
value option pricing model with the following weighted-average assumptions for
1995, 1996 and 1997: risk-free interest rate of 6.5%; dividend yield of 0% and
a weighed-average expected life of the option of 5 years.
The minimum value option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Net loss as reported............................ $(1,277) $(7,596) $(33,636)
Pro forma net loss.............................. (1,408) (7,763) (34,168)
Net loss per common share as reported........... (.24) (1.18) (5.18)
Pro forma net loss per common share............. (.27) (1.20) (5.26)
</TABLE>
During the initial phase-in period, the effects of applying statement 123
for recognizing compensation cost may not be representative of the effects on
reported net loss or income for future years because the options in the
Incentive Stock Option Plans vest over several years and additional awards
will be made in the future.
During 1996, the Company granted a consultant warrants to purchase 150,000
shares of common stock at an exercise price of $.60 per share for services
provided. The warrants are immediately exercisable and expire November 17,
2002. The warrants were valued at $15 and were charged to expense.
The following is a table of the warrants to purchase shares of the Company's
Common Stock:
<TABLE>
<CAPTION>
WARRANTS EXERCISE PRICE EXPIRATION
OUTSTANDING EXERCISABLE PER SHARE DATE
----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994
Granted:
Note payable............ 416,665 416,665 $ .60 2000
Bridge Loan #1.......... 1,760,000 1,760,000 1.00 2000
---------- ---------- ----------
Balance at December 31,
1995....................... 2,176,665 2,176,665 .60-1.00
Granted:
Consulting Service...... 150,000 150,000 .60 2002
Bridge Loan #2.......... 1,100,000 1,100,000 1.50 2003
Bridge Loan #3.......... 3,300,000 3,300,000 1.50 2003
Lease Financing......... 45,000 45,000 1.50 2003
7% Subordinated Notes... 20,787,500 20,787,500 1.03 2000
---------- ---------- ----------
Balance at December 31,
1996....................... 27,559,165 27,559,165 .60-1.50
Line of Credit............ 22,601,005 8,396,170 3.90 2000
---------- ---------- ----------
Balance at December 31,
1997....................... 50,160,170 35,955,335 $.60-$3.90
========== ========== ==========
</TABLE>
F-18
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. EMPLOYMENT AGREEMENTS
In November 1996, the Company entered into Employment Agreements with its
President and Chief Executive Officer and its Chief Technology Officer. The
agreements provide for an annual base salary and a bonus and other
compensation as may be established from time to time by the Board of
Directors. As part of the agreements, the employees were each granted options
to purchase 2,000,000 shares of common stock at an exercise price of $.96. The
agreements contain provisions providing for the maintenance of confidentiality
of proprietary information of the Company and a two-year non-competition
clause in the event of termination of employment. The agreements may be
terminated by either parties for any reason at any time. If, however, the
employees are terminated by the Company without cause, the Company must pay
salary to the employees equal to the employees' then base salary for two
years.
11. SAVINGS AND RETIREMENT PLAN
The Company has a savings and retirement plan covering all eligible
employees. The plan was adopted pursuant to 401(k) of the Internal Revenue
Code. Contributions to the plan are discretionary for the employees. The
Company does not make contributions to the plan.
12. ACQUISITION
In December 1997, the Company acquired the outstanding common stock of
FreeMail, Inc. (FreeMail). The results of operations of the acquired business
are included in the accompanying financial statements since the date of
acquisition.
The Company issued 125,000 shares of common stock, with a fair value of
$488, as consideration in connection with the acquisition. The Company will
pay a quarterly payment to the former shareholders of FreeMail as additional
contingent consideration equal to five percent of the gross collected revenue
derived by the Company from certain identified FreeMail products. The total
amounts of the quarterly payments shall not exceed $3,013. As of December 31,
1997, the Company did not record a liability relating to the FreeMail revenue
since no revenue was collected. The acquisition was accounted for as a
purchase. The inclusion of the FreeMail operating results for periods prior to
the date of acquisition would not have materially affected results of
operations.
13. RELATED PARTY TRANSACTIONS
The Company's corporate in-house counsel owns 250,000 shares, and has been
granted warrants and options to purchase 450,000 shares of Company common
stock. During the years ended December 31, 1995, 1996 and 1997, the Company
incurred legal fees and expenses of approximately $0, $102 and $128,
respectively, to such counsel for services rendered in connection with
litigation and for general legal services.
The Company's corporate counsel is Larkin, Hoffman, Daly & Lindgren, Ltd.
One of the partners of this firm is the father of the Company's President and
Chief Executive Officer and owns 250,000 shares of common stock of the Company
and has been granted an option to purchase 200,000 shares of the Company's
common stock. Additionally, Mr. Hoffman, a partner of this firm, is a director
of the Company and has been granted an option to purchase 75,000 shares of the
Company's common stock. During the years ended December 31, 1995, 1996 and
1997, the Company incurred legal fees and expenses of approximately $0, $75
and $157, respectively, to such counsel for services rendered in connection
with litigation and for general legal services.
F-19
<PAGE>
WAM!NET INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO MARCH 31, 1998 AND THE THREE MONTH PERIOD ENDED
MARCH 31, 1998)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company's marketing services were performed by Kauffman Marketing Group,
Inc. from November 1995 to December 1997. The former President of Kauffman
Marketing Group, Inc. joined the Company as the Vice President of Strategic
Marketing & Communications in December 1997. During the years ended
December 31, 1995, 1996 and 1997, the Company incurred marketing expenses of
approximately $0, $318 and $1,634, respectively, to such firm for strategic
positioning and outside marketing services.
Management believes the fees paid for all the above services rendered to the
Company were on terms at least as favorable to the Company as could have been
obtained from an unrelated party.
14. MAJOR CUSTOMERS
In 1996 two customers accounted for 80%, in aggregate, of net sales. In 1997
three customers accounted for 24%, in aggregate, of net sales.
15. CONTINGENCY
The Company is engaged in certain legal proceedings and claims arising in
the ordinary course of its business. The ultimate liabilities, if any, which
may result from these or other pending or threatened legal actions against the
Company cannot be determined at this time. However, it is the opinion of
management that facts known at the present time do not indicate that there is
a probability that such litigation with have a material effect on the
financial position of the Company.
16. SUBSEQUENT EVENT (UNAUDITED)
On March 13, 1998, the Company purchased all of the outstanding capital
stock of 4-Sight Limited, a private limited company organized under the laws
of the United Kingdom ("4-Sight"), for $20 million in cash plus related
acquisition expenses of $500 and 2,500,000 shares of the Company's common
stock valued at $20,000. In addition, the former shareholders of 4-Sight will
be entitled to receive up to an additional 750,000 shares of the Company's
common stock in the event certain sales objectives are met over the next three
years.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the operating results of 4-Sight have been included in the
consolidated operating results since the date of acquisition.
On acquisition, approximately $31,928 of goodwill was recorded, which is
being amortized on a straight-line basis over 5 years. The following table
shows the pro forma consolidated results of operations as if 4-Sight had been
acquired as of the beginning of the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
UNAUDITED
<S> <C> <C>
Revenues.............................................. $ 20,833 $ 5,363
Net loss.............................................. $(37,942) $(26,725)
Net loss per share.................................... $ (4.22) $ (3.66)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
4-Sight Limited
We have audited the accompanying consolidated balance sheets of 4-Sight
Limited as at August 31, 1996, September 30, 1996 and September 30, 1997, and
the related consolidated statements of operations, shareholders' equity and
cash flows for the year ended August 31, 1996, the month ended September 30,
1996 and the year ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from those generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of 4-Sight Limited at August 31, 1996, September 30, 1996 and September 30,
1997, and the consolidated results of its operations and its cash flows for
the year ended August 31, 1996, the month ended September 30, 1996 and the
year ended September 30, 1997 in conformity with accounting principles
generally accepted in the United States.
Ernst & Young
Chartered Accountants
Southampton, England
May 28, 1998
F-21
<PAGE>
4-SIGHT LIMITED
CONSOLIDATED BALANCE SHEETS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
---------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $1,290 $ 439 $ 3,986
Accounts receivable, less allowance of
$100 as of August 31, 1996; $116 as
of September 30, 1996; $101 as of
September 30, 1997 for doubtful
accounts............................. 2,237 2,133 2,717
Recoverable taxes..................... 48 98 --
Other current assets.................. 226 219 100
Inventories--finished goods........... 935 983 1,152
Prepaid expenses...................... 247 175 377
------ ------- -------
Total current assets................ 4,983 4,047 8,332
------ ------- -------
Property and equipment:
Land and buildings.................... 585 587 604
Fixtures and equipment................ 1,341 1,433 1,990
Motor vehicles........................ 19 19 63
------ ------- -------
1,945 2,039 2,657
Accumulated depreciation.............. 584 614 1,073
------ ------- -------
1,361 1,425 1,584
------ ------- -------
Goodwill, net of accumulated
amortization--August 31, 1996--$19;
September 30 1996--$28; September 30,
1997--$167 ............................ 552 545 503
------ ------- -------
Other assets:
Deferred tax.......................... 31 32 54
------ ------- -------
Total assets........................ $6,927 $ 6,049 $10,473
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $1,119 $ 848 $ 859
Other taxes and social security
costs................................ 244 109 582
Other accounts payable................ 2,079 1,655 609
Income taxes payable.................. 695 686 506
Current portion of long-term debt and
capital lease obligations............ 55 54 71
------ ------- -------
Total current liabilities........... 4,192 3,352 2,627
Long-term, debt less current portion.... 170 166 108
Capital lease obligations less current
portion.............................. -- -- 27
Redeemable preferred ordinary shares of
$.015 each............................. -- -- 5,157
------ ------- -------
Total liabilities................... 4,362 3,518 7,919
------ ------- -------
Shareholders' equity:
Ordinary shares of 1p each
Authorized shares--1,000,000,000 as
of August 31, 1996 and September
30, 1996; 985,374,550 as of
September 30, 1997.................
Issued and outstanding shares--
50,000,000 as of August 31, 1996
and September 30, 1996; 55,000,000
as of September 30, 1997........... 781 783 886
Retained earnings..................... 1,769 1,713 1,589
Translation adjustment................ 15 35 79
------ ------- -------
Total shareholders' equity.......... 2,565 2,531 2,554
------ ------- -------
Total liabilities and shareholder's
equity............................. $6,927 $ 6,049 $10,473
====== ======= =======
</TABLE>
See accompanying notes.
F-22
<PAGE>
4-SIGHT LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED YEAR ENDED
AUGUST 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
--------------- ------------------ ------------------
<S> <C> <C> <C>
Net revenues............. $ 11,446 $ 1,065 $ 18,264
Cost of revenues......... 3,466 324 5,010
---------- ---------- ----------
Gross profit............. 7,980 741 13,254
---------- ---------- ----------
Operating expenses:......
Sales and distribu-
tion.................. 2,173 381 5,750
General and administra-
tive.................. 3,741 419 5,057
---------- ---------- ----------
Total operating ex-
penses.............. 5,914 800 10,807
---------- ---------- ----------
Operating income (loss).. 2,066 (59) 2,447
Other income (expense):
Interest income........ 66 0 112
Interest (expense)..... (48) (9) (55)
---------- ---------- ----------
Profit (loss) before in-
come taxes.............. 2,084 (68) 2,504
Income tax charge........ (606) 7 (916)
---------- ---------- ----------
Net income (loss)........ $ 1,478 $ (61) $ 1,588
========== ========== ==========
Net income per ordinary
share................... $ 0.0286 $ (0.0012) $ 0.0287
========== ========== ==========
Weighted average number
of ordinary shares
outstanding............. 51,637,493 52,777,120 55,343,266
========== ========== ==========
</TABLE>
See accompanying notes.
F-23
<PAGE>
4-SIGHT LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(US DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SHARE CAPITAL
<TABLE>
<CAPTION>
ORDINARY
ORDINARY SHARES
SHARES OF OF 1P
1P EACH EACH
------------- --------
NUMBER AMOUNT
<S> <C> <C>
AUTHORIZED
At September 1, 1995................................ 1,000,000,000 $15,515
Translation adjustment.............................. -- 97
------------- -------
At August 31, 1996.................................. 1,000,000,000 15,612
Translation adjustment.............................. -- 41
------------- -------
At September 30, 1996............................... 1,000,000,000 15,653
Division of share capital........................... (14,625,450) (236)
Translation adjustment.............................. -- 464
------------- -------
At September 30, 1997............................... 985,374,550 $15,881
============= =======
ISSUED
At September 1, 1995................................ 124,990 $ 2
Bonus issue of shares............................... 49,875,010 779
------------- -------
At August 31, 1996.................................. 50,000,000 781
Translation adjustment.............................. -- 2
------------- -------
At September 30, 1996............................... 50,000,000 783
Issued during the period............................ 5,000,000 80
Translation adjustment.............................. -- 23
------------- -------
At September 30, 1997............................... 55,000,000 $ 886
============= =======
</TABLE>
On March 12, 1997 the share capital of the Company was divided into ordinary
shares and preferred ordinary shares.
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE RETAINED TRANSLATION
CAPITAL EARNINGS ADJUSTMENT TOTAL
------- -------- ----------- -------
<S> <C> <C> <C> <C>
At September 1, 1995................. $ 2 $ 1,289 $-- $ 1,291
Bonus issue of shares................ 779 (779) -- --
Net income........................... -- 1,478 -- 1,478
Dividend............................. -- (193) -- (193)
Translation adjustment............... -- (26) 15 (11)
---- ------- ---- -------
At August 31, 1996................... 781 1,769 15 2,565
Net income (loss).................... -- (61) -- (61)
Translation adjustment............... 2 5 20 27
---- ------- ---- -------
At September 30, 1996................ 783 1,713 35 2,531
Issue of shares...................... 80 -- -- 80
Cost of share issue.................. -- (89) -- (89)
Net income........................... -- 1,588 -- 1,588
Dividend............................. -- (1,630) -- (1,630)
Translation adjustment............... 23 7 44 74
---- ------- ---- -------
At September 30, 1997................ $886 $ 1,589 $ 79 $ 2,554
==== ======= ==== =======
</TABLE>
See accompanying notes.
F-24
<PAGE>
4-SIGHT LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED YEAR ENDED
AUGUST 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
--------------- ------------------ ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........ $1,478 $ (61) $1,588
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Depreciation........... 287 30 467
Profit on disposal of
fixed assets.......... -- -- (3)
Amortization of
goodwill.............. 19 9 136
Profit from interest in
associated
undertaking........... (100) -- --
Changes in operating
assets and liabilities:
Accounts receivable.... (720) 111 (519)
Other current assets... (232) (45) 207
Inventories............ (195) (45) (142)
Prepaid expenses....... (159) 73 (195)
Accounts payable....... 584 (274) (23)
Other taxes and social
security costs........ (126) (135) 465
Other accounts
payable............... (476) (431) (1,108)
Income taxes payable... 30 (11) (200)
Effects of exchange
rate changes.......... (10) 20 34
------ ----- ------
Net cash provided by
(used in) operating
activities.............. 380 (759) 707
------ ----- ------
INVESTING ACTIVITIES
Capital expenditures..... (465) (87) (545)
Investment in
subsidiary.............. 138 -- --
Receipts from sales of
tangible fixed assets... -- -- 3
------ ----- ------
Net cash used in
investing activities.... (327) (87) (540)
------ ----- ------
FINANCING ACTIVITIES
Proceeds from sale of
preferred stock......... -- -- 5,157
Share issue costs........ -- -- (89)
Long-term debt (including
current portion)........ (54) (5) (55)
Payment of capital
leases.................. -- -- (3)
Equity dividend paid..... (195) -- (1,630)
------ ----- ------
Net cash provided by
(used in) financing
activities.............. (249) (5) 3,380
------ ----- ------
Net increase in cash and
cash equivalents........ (196) (851) 3,547
Cash and cash equivalents
at beginning of period.. 1,486 1,290 439
------ ----- ------
Cash and cash equivalents
at end of period........ $1,290 $ 439 $3,986
====== ===== ======
Interest paid during the
period.................. $ 48 $ 9 $ 55
====== ===== ======
Tax paid during the
period.................. $ 620 $ -- $1,093
====== ===== ======
SIGNIFICANT NON-CASH
TRANSACTIONS
Acquisition of equipment
under capital lease..... $ -- $ -- $ 45
====== ===== ======
Issue of ordinary shares
to acquire non-voting
stock in subsidiary
undertaking............. $ -- $ -- $ 80
====== ===== ======
</TABLE>
See accompanying notes.
F-25
<PAGE>
4-SIGHT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
4-Sight Limited ( the "Company") was incorporated in England and Wales in
April 1993. The Company's principal activity is the development, marketing and
worldwide distribution of computer software applications.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements, which are prepared under United
States generally accepted accounting principles, include the financial
statements of the Company and all its subsidiaries (together, the "Group").
All inter-company accounts and transactions have been eliminated.
ESTIMATES
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.
GOODWILL
Purchased goodwill is capitalized and amortized over its estimated useful
life.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and short-term deposits with
maturities of less than three months at inception.
INVENTORIES
Inventories are stated at the lower of cost, determined on the basis of the
first in, first out method, and market value.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation is charged on a
straight-line basis over the expected useful lives of the assets. Depreciation
is provided at the following annual rates:
<TABLE>
<S> <C>
Long leasehold buildings..............................2%
Fixtures and equipment............................. 25%
Motor vehicles..................................... 25%
</TABLE>
NET REVENUES
Net revenues represent the net invoiced value of goods and services
excluding value added tax. Goods are invoiced on shipment. The net revenues
and operating profits are attributable to the main activity of the Group.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is written off as incurred.
F-26
<PAGE>
4-SIGHT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(US DOLLARS IN THOUSANDS)
LEASES
The cost of assets held under capital leases is capitalised within the
appropriate fixed asset category and depreciation is provided in accordance
with the accounting policy for the category of asset concerned. The interest
cost is charged over the term of the lease and the capital element of future
lease payments is shown on the balance sheet in liabilities as capital lease
obligations. The cost of operating leases is charged to income as incurred.
FOREIGN CURRENCY TRANSLATION
The functional currency is UK sterling.
Transactions in non-functional currencies are recorded at the rates ruling
at the date of the transactions. Gains and losses resulting from non-
functional currency translations, and the re-measurement of non-functional
currency balances are included in the determination of net income in the
period in which they occur, in accordance with the requirements of Statement
of Financial Accounting Standards No. 52, "Foreign Currency Translation".
The financial statements of overseas subsidiaries are translated at the rate
of exchange ruling at the balance sheet date, and the resulting translation
adjustment is shown as a separate component of shareholders' equity.
EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of
ordinary shares outstanding during the period, applying the treasury stock
method.
INCOME TAXES
The Group accounts for income taxes by the liability method. Deferred income
taxes are provided for on all temporary differences between financial
reporting and tax bases of assets and liabilities.
2. LONG-TERM DEBT
The aggregate amount of bank loans (secured) was as follows:
<TABLE>
<CAPTION>
AUGUST 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
---------- ------------- -------------
<S> <C> <C> <C>
Bank loan accounts: Current por-
tion of long-term loan........... $ 55 $ 54 $ 56
Long-term loan............ 170 166 108
---- ---- ----
$225 $220 $164
==== ==== ====
</TABLE>
The bank loan is collateralized by a fixed charge over the long leasehold
property. The loan is repayable over 5 years from November 21, 1994 by monthly
instalments. Interest is charged at 10% per annum.
F-27
<PAGE>
4-SIGHT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(US DOLLARS IN THOUSANDS)
3. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Group's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1996 SEPT 30, 1996 SEPT. 30, 1997
--------------- ------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Book over tax
depreciation............. $31 $32 $ 54
Overseas operating losses
carried forward.......... 23 43 89
--- --- ----
54 75 143
Less: valuation allowance... 23 43 89
--- --- ----
Net deferred tax assets..... $31 $32 $ 54
=== === ====
</TABLE>
There is no time limit for the utilization of the operating losses carried
forward totalling $75 as of August 31, 1996, $140 as of September 30, 1996 and
$288 as of September 30, 1997 which are specific to certain companies and
cannot be relieved against profits in other Group companies.
For financial reporting purposes, earnings (loss) before income taxes
includes the following components:
<TABLE>
<CAPTION>
AUGUST 31, 1996 SEPT. 30, 1996 SEPT. 30, 1997
--------------- -------------- --------------
<S> <C> <C> <C>
United Kingdom............... $1,945 $ (3) $2,973
United States................ 139 (65) (469)
------ ---- ------
$2,084 $(68) $2,504
====== ==== ======
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1996 SEPT. 30, 1996 SEPT. 30, 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Current: United Kingdom.... $637 $(7) $910
Overseas............ 6 -- 15
Adjustment in respect of
prior years............... (6) -- 13
Increase in net deferred
tax assets................ (31) -- (22)
---- --- ----
$606 $(7) $916
==== === ====
</TABLE>
The reconciliation of income tax computed at the UK statutory tax rate to
the effective rate is:
<TABLE>
<CAPTION>
AUGUST 31, 1996 SEPT. 30, 1996 SEPT. 30, 1997
----------------- ----------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
----------------- --------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory rate.......... $ 688 33.0 $ (22) 33.0 $ 801 32.0
Unrelieveable overseas
tax losses............. -- -- 9 (13.7) 89 3.6
Adjustment to previous
year................... (6) (0.3) -- -- 13 0.5
Utilization of overseas
tax losses............. (46) (2.2) -- -- -- --
Other sundry items...... (30) (1.4) 6 (9.0) 13 0.5
------- ------- ------- ------- ------- -------
$ 606 29.1 $ (7) 10.3 $ 916 36.6
======= ======= ======= ======= ======= =======
</TABLE>
F-28
<PAGE>
4-SIGHT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(US DOLLARS IN THOUSANDS)
4. LEASE COMMITMENTS
OPERATING AND CAPITAL AGREEMENTS
The future minimum rental payments under capital leases and non-cancellable
operating leases at August 31, 1996, September 30, 1996 and September 30, 1997
are:
<TABLE>
<CAPTION>
AUGUST 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
----------------- --------------------- ----------------------
OPERATING CAPITAL OPERATING CAPITAL OPERATING CAPITAL
LEASES LEASES LEASES LEASES LEASES LEASES
--------- ------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998.................... $ 69 $ -- $ 69 $ -- $ 18 $ 18
1999.................... 21 -- 21 -- 12 18
2000.................... -- -- -- -- 11 13
2001.................... -- -- -- -- 3 --
2002.................... -- -- -- -- -- --
---- ----- -------- --------- --------- ---------
$ 90 -- $ 90 -- $ 44 49
==== ======== =========
Less: amount
representing interest.. -- -- (7)
----- --------- ---------
Present value of minimum
lease payments......... -- -- 42
Less: current portion... -- -- (15)
----- --------- ---------
$ -- $ -- $ 27
===== ========= =========
</TABLE>
5. REDEEMABLE PREFERRED ORDINARY SHARES
The preferred ordinary shares entitle the holders to the following rights:
(i) the preferred ordinary shares rank pari passu in all respects as to
dividend with the ordinary shares;
(ii) the preferred ordinary shares rank in priority to all other
shareholders in the event of the winding up of the company;
(iii) the holders of the preferred ordinary shares are entitled to attend
and vote at general meetings of the company.
(iv) the preferred ordinary shares can, at the option of the
shareholders, be redeemed for an amount of $5,157 at any time after October
1, 2004 over three years in equal installments.
F-29
<PAGE>
4-SIGHT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(US DOLLARS IN THOUSANDS)
6. SEGMENT INFORMATION, EXPORT SALES AND MAJOR CUSTOMERS
The Group currently operates in one principal industry segment. The Group's
sales were divided by geographical location as follows:
<TABLE>
<CAPTION>
BY DESTINATION BY ORIGIN BY DESTINATION BY ORIGIN BY DESTINATION BY ORIGIN
AUGUST 30, AUGUST 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997
-------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
United Kingdom.......... $ 8,411 $10,649 $ 565 $ 660 $10,177 $13,687
United States........... 797 797 405 405 4,577 4,577
Rest of Europe.......... 1,218 -- 69 -- 1,903 --
Rest of World........... 1,020 -- 26 -- 1,607 --
------- ------- ------- ------ ------- -------
$11,446 $11,446 $ 1,065 $1,065 $18,264 $18,264
======= ======= ======= ====== ======= =======
Total assets by
reporting entity:
<CAPTION>
AUGUST 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
-------------- ------------- -------------
<S> <C> <C> <C>
United Kingdom.......... $ 5,396 $ 4,395 $ 7,919
United States........... 1,483 1,593 2,496
Germany................. 48 61 58
------- ------- -------
$ 6,927 $ 6,049 $10,473
======= ======= =======
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AUGUST 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
-------------------------- -------------------------- --------------------------
COST DEPRECIATION NET COST DEPRECIATION NET COST DEPRECIATION NET
------ ------------ ------ ------ ------------ ------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long leasehold
property............... $ 585 $ 24 $ 561 $ 587 $ 25 $ 562 $ 604 $ 39 $ 565
Fixtures and equipment.. 1,341 541 800 1,433 570 863 1,990 1,029 961
Motor vehicles.......... 19 19 -- 19 19 -- 63 5 58
------ ---- ------ ------ ---- ------ ------ ------ ------
$1,945 $584 $1,361 $2,039 $614 $1,425 $2,657 $1,073 $1,584
====== ==== ====== ====== ==== ====== ====== ====== ======
</TABLE>
The net book value of motor vehicles at September 30, 1997 includes $46 in
respect of assets held under capital leases.
8. OPERATING INCOME
Operating income is stated after charging:
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED YEAR ENDED
AUGUST 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
---------- ------------- -------------
<S> <C> <C> <C>
Depreciation of owned fixed assets..... $ 284 $30 $ 462
Depreciation of assets held under
finance leases........................ -- -- 5
Amortization and write-off of
goodwill.............................. 48 9 136
Research and development............... 1,015 89 1,035
</TABLE>
F-30
<PAGE>
4-SIGHT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(US DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
9. COMPANIES ACT 1985
These financial statements are not the Company's statutory accounts within
the meaning of section 240 of the Companies Act 1985 of Great Britain. The
Company's statutory accounts are prepared in accordance with accounting
principles generally accepted in the UK in compliance with the Companies Act
1985 and are prepared in sterling. Statutory accounts for the year ended
August 31, 1996 and the thirteen month period ended September 30, 1997, on
which the auditors have given unqualified audit reports, have been delivered
to the Registrar of Companies for England and Wales.
10. EMPLOYEE PROFIT-SHARING AND OPTION PLANS
The Company has adopted two share option schemes as follows.
The employee share option scheme was established on March 19, 1996. The
grant of options under the scheme is discretionary and dependant on the Board
being satisfied that the grant is merited by the individual in the light of
personal performance and contribution to the business.
The executive share option scheme covers senior executives within the group.
The grant of options under the scheme is discretionary and dependant on the
Board being satisfied that the grant is merited by the individual in the light
of personal performance and future contributions to the business.
A summary of the options outstanding under the schemes is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE
EMPLOYEE SCHEME -------- ----------- ---------------- --------
<S> <C> <C> <C> <C>
Granted on March 19, 1996... $.15 2,627,332 5 years $.15
Lapsed...................... .15 (46,612)
---------
Outstanding at August 31,
1996....................... .15 2,580,720 5 years .15
Lapsed...................... --
---------
Outstanding at Sept 30,
1996....................... 2,580,720 5 years .15
Lapsed...................... (150,621)
---------
Outstanding at Sept. 30,
1997....................... .15 2,430,099 5 years .15
=========
EXECUTIVE SCHEME
Granted on March 19, 1996... .15 995,000 5 years .15
Lapsed...................... --
---------
Outstanding at August 31,
1996....................... .15 995,000 5 years .15
Lapsed...................... --
---------
Outstanding at Sept 30,
1996....................... 995,000 5 years .15
Lapsed...................... --
---------
Outstanding at Sept. 30,
1997....................... .15 995,000 5 years .15
=========
</TABLE>
None of the options were exercisable as at September 30, 1997.
The Company accounts for options granted under these plans in accordance
with APB No. 25. Each stock option has an exercise price equal to or above the
market value on the date of grant and accordingly no
F-31
<PAGE>
4-SIGHT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(US DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
compensation expense is recorded for any stock option grants. No options were
granted during the period to September 30, 1997.
The weighted average fair value of options granted at market price in the
year ended August 31, 1996 was 4.5p ($0.07). The determination of the fair
value of the stock options granted in 1996 was calculated using the Black
Scholes method based on (i) risk-free interest rates of 5.4%, (ii) expected
option lives of 6 years and (iii) dividend yield of 0%. Had the fair value
based method of SFAS 123 been used in accounting for stock options the
consolidated results of operations of the Company would not differ materially
from the consolidated results as reported.
F-32
<PAGE>
ACCOUNTANT'S COMPILATION REPORT
The Board of Directors
4-Sight Limited
We have compiled the accompanying balance sheet of 4-Sight Limited as of
December 31, 1997, and the related statement of operations for the twelve
months ended December 31, 1997, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures and the
statements of shareholders' equity and cash flows required by generally
accepted accounting principles. If the omitted disclosures were included in
the financial statements, they might influence the user's conclusions about
the Company's financial position, results of operations, and cash flows.
Accordingly, these financial statements are not designed for those who are not
informed about such matters.
Ernst & Young
Chartered Accountants
Southampton, England
February 20, 1998
F-33
<PAGE>
4-SIGHT LIMITED
CONSOLIDATED BALANCE SHEET
(US DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,253
Accounts receivable, prepaid expenses and other current
assets.................................................... 3,593
Inventories--finished goods................................ 1,313
-------
Total current assets..................................... 9,159
Property and equipment:
Net of accumulated depreciation............................ 1,684
Goodwill, net of accumulated amortization.................... 485
Other assets:
Deferred tax............................................... 54
-------
Total assets............................................. $11,382
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 800
Other taxes and social security costs...................... 202
Other accounts payable..................................... 728
Income taxes payable....................................... 899
Current portion of long-term debt.......................... 238
-------
Total current liabilities................................ 2,867
Long-term debt less current portion.......................... 94
Redeemable preferred ordinary shares of 1p each.............. 5,256
-------
Total liabilities........................................ 8,217
-------
Shareholders' equity:
Ordinary shares of 1p each
Authorized shares--985,374,550...........................
Issued and outstanding shares--55,000,000................ 903
Retained earnings.......................................... 2,276
Translation adjustment..................................... (14)
-------
Total shareholders' equity............................... 3,165
-------
Total liabilities and shareholder's equity............... $11,382
=======
</TABLE>
F-34
<PAGE>
4-SIGHT LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
12 MONTHS ENDED
DECEMBER 31, 1997
-----------------
(UNAUDITED)
<S> <C>
Net revenues.................................................. $19,278
Cost of revenues.............................................. 5,013
-------
Gross profit.................................................. 14,265
Operating expenses:
Sales and distribution...................................... 5,989
General and administrative.................................. 5,029
-------
Total operating expenses...................................... 11,018
Operating income.............................................. 3,247
Other income (expense):
Interest income............................................. 168
Interest expense............................................ (28)
-------
Profit before income taxes.................................... 3,387
Income tax charge............................................. (1,278)
-------
Net income.................................................... $ 2,109
=======
</TABLE>
F-35
<PAGE>
GLOSSARY
The following terms are used in this Offering Memorandum.
Address A point of origin or selected destination on an electric
circuit, such as a telephone number or an e-mail address.
ADSL Asymmetrical Digital Subscribers Line. A technology designed
for conventional copper wire connections which provides a 1.5-
8 Mbps downstream data transfer rates, and 16-640 Kbps
upstream data transfer rates. The speed of the connection is
limited by the distance the signal must travel.
Architecture The overall design of a computer system, including how the
components are connected both physically and functionally.
ATM Asynchronous transfer mode. A communications protocol that
divides digital data into small packets of fixed length (53
byte cells) that facilitates high speed switching.
Bandwidth The number of bits of information which can move through a
communications medium in a given amount of time; the capacity
of a telecommunications circuit/network to carry voice, data
and video information. Typically measured in Kbps and Mbps.
Bandwidth from public networks is typically available to
business and residential end-users in increments from 56 Kbps
to T-3.
Binary A numbering system in base two, which uses only the digits 0
and 1. The first three binary numbers are 01, 10, and 11.
Bit A contraction of "binary digit." It is the smallest piece of
information in a digital system, a 0 or 1.
bps Bits per second. The speed at which a modem can transmit bits
over a telephone line. Standard telephone modems currently
operate at levels of 9,600 bps, 14,400 bps, 28,800 bps, 33,300
bps and 56,000 bps.
Bug An error in hardware or software that prevents it from
operating properly.
Browser Software used to view information on the Internet.
Byte A basic unit of computer information, usually composed of 8
bits. A kilobyte (KB) equals 1,024 bytes. A megabyte (MB)
equals 1,024KB. A gigabyte (GB) equals 1,024MB, or more than
one billion bytes.
CD-ROM Compact Disk-Read Only Memory. A laser disk that stores
digital information that cannot be changed.
CIS Customer Information System. Software a customer uses to track
transactions or billing information.
DS1 The bandwidth of a telephone line capable of transmitting
approximately 11 megabits per minute. Also referred to as
"T1."
DS3 The bandwidth of a telephone line capable of transmitting
approximately 337 megabits per minute. Also referred to as
"T3."
Database An organized collection of information or data in digital form
that is readable by a computer, and may include text, numbers,
images, sounds and video or film clips.
Digital Composed of, or employing, discrete binary representations of
information.
A-1
<PAGE>
Distribution-
Hub A local distribution hub developed by the Company as part of
the WAMINET Service.
Firewall A system placed between networks that filters data passing
through it and prevents unauthorized traffic, thereby
enhancing the security of the network.
Frame Relay A system like ATM that divides digital data into small packets
and routes the packets over a circuit.
GUI Graphical User Interface. A program that allows a user to
operate a computer by selecting and activating graphic symbols
(icons) on the computer display screen, generally by using a
mouse, without having to type instructions on the computer
keyboard.
Hub A sophisticated computer that is capable of converting
protocols, changing transmissions speeds, and routing data to
a variety of nodes.
Icon A graphic symbol appearing on a computer screen that
represents a foundation, object or program and may be chosen
and activated by a graphic user interface.
Interface The boundary where different computer media or devices are
connected.
Internet A global collection of interconnected computer networks which
uses the Internet protocol suite.
ISDN Integrated Services Digital Network. A larger bandwidth
digital telephone services as distinguished from standard,
smaller bandwidth, analog telephone service. DS1 and DS3 are
both ISDN services.
Kbps Kilobits per second. A transmission rate. One kilobit equals
1,024 bits of information.
LAN Local Area Network. A computer network that is principally
contained inside one building or complex and is primarily
connected by direct wires.
Laser Disk A small disk on which digital data are stored as minute pits
or bumps, and which is read by a laser beam. Common examples
are the audio compact disc and the CD-ROM. A 5.25 inch laser
disk is typically capable of storing 680 megabytes.
Mbps Megabits per second. A transmission rate. One megabit equals
1,024 kilobits.
Menu A list of routine command options that appears on a screen in
an interactive program with a graphic user interface.
Modem A device that converts digital data into electrical impulses
for transmission over telephone lines.
Network The interconnection of many individual computers allowing
access to central databases and communication between
computers. Networks serve as thoroughfares over which data are
transported.
NAD Network Access Device. A programmed equipment module developed
by the Company that is leased to its customers and serves as
the interface between the customer's own computers and the
WAM!NET Service.
NOC Network Operations Center. A regional distribution hub developed
by the Company as part of the WAM!NET Service.
A-2
<PAGE>
Nodes Systems or devices, such as computers, terminals, or
communication units, that are connected to a LAN or other
circuit and that have discrete electronic addresses.
On-line Commercial information services that offer a computer user
Service access to a specified slate of information, entertainment, and
communications menus on what appears to be a single system.
Pre-press The various steps involved in the preparation and combination
of text, graphic design, graphics, color separations, photo
retouching, page assembly, printing plate layout, and image
setting that are performed before printing.
Protocol The rules or procedures that control how data are organized
and transmitted from one computer to another.
ROC Regional operations center.
Router A device that uses multiple protocols to link networks and to
locate a node on a network.
T1 See DS1.
T3 See DS3.
A-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Logo]
WAM!NET Inc.
All tendered Original Notes, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
The Exchange Agent
for the Exchange Offer is
U.S. BANK TRUST NATIONAL ASSOCIATION
(f/k/a First Trust National Association)
By Facsimile:
(612) 244-1145
Attention: Specialized Finance
Confirm by telephone:
(612) 244-0444
By Registered or Certified Mail:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Specialized Finance, 4th Floor
By Hand/Overnight Courier:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Specialized Finance, 4th Floor
or
U.S. Bank Trust New York
100 Wall Street
Bond Window, 20th Floor
New York, New York 10005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521 of the Minnesota Business Corporation Act generally
provides for the indemnification of directors, officers and employees of a
corporation made or threatened to be made a party to a proceeding by reason of
the former or present official capacity of the person against judgments,
penalties and fines (including attorneys' fees and disbursements) where such
person, among other things, has not been indemnified by another organization,
acted in good faith, received no improper personal benefit, and with respect
to any criminal proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 9.3 of the Company's Amended and Restated Articles of Incorporation
provide:
9.3 Indemnification. A director of the Corporation shall not be
personally liable to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for (i)
liability based on a breach of the duty of loyalty to the Corporation or
the shareholders (ii) liability for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (iii)
liability under Minnesota Statutes Section 302A.559 or 80A.23; or (iv)
liability for any transaction from which the director derived an improper
personal benefit. If Chapter 302A, the Minnesota Business Corporation Act,
is hereafter amended to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended
Chapter 302A, the Minnesota Business Corporation Act. Any repeal or
modification of this Section 9.3 by the shareholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on
the personal liability of a director of the Corporation at the time of such
repeal or modification.
Section 9.01 of the Company's By-Laws provides:
Section 9.01. The corporation shall indemnify all officers and directors
of the corporation, for such expenses and liabilities, in such manner,
under such circumstances and to such extent as permitted by Minnesota
Business Corporation Act section 302A.521, as now enacted or hereafter
amended. Unless otherwise approved by the board of directors, the
corporation shall not indemnify any employee of the corporation who is not
otherwise entitled to indemnification pursuant to the prior sentence of
this section 9.01.
The Company maintains an insurance policy providing for indemnification of
its officers, directors and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under
certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
2.1 Agreement for the Sale and Purchase of the entire issued share
capital of 4-Sight Limited dated February 11, 1998, among the
Company, WAM!NET (UK) Limited and the Selling Shareholders listed
therein.
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Indenture dated as of March 5, 1998, between the Company, as
Issuer, and First Trust National Association, as Trustee.
4.2(a) Certificate for the Rule 144A Original Notes ($200,000,000).
4.2(b) Certificate for the Rule 144A Original Notes ($8,030,000).
4.3 Certificate for the Regulation S Original Notes.
4.4 Certificate for the Rule 144A Warrants.
4.5 Certificate for the Regulation S Warrants.
4.6(a) Rule 144A Unit Certificate. (200,000 Units)
4.6(b) Rule 144A Unit Certificate. (8,030 Units)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.7 Certificate for the Regulation S Units.
4.8 Form of Certificate for the Exchange Notes (included in Exhibit 4.1
hereto).
4.9 Common Stock Certificate.
4.10 Registration Rights Agreement, dated March 5, 1998, among the
Company and Merrill Lynch Pierce, Fenner & Smith Incorporated,
Credit Suisse First Boston Corporation and First Chicago Capital
Markets, Inc.
4.11 Common Stock Registration Rights Agreement, dated as of March 5,
1998, among the Company, WorldCom Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Credit Suisse First Boston Corporation
and First Chicago Capital Markets, Inc.
4.12 Warrant Agreement, dated as of March 5, 1998, by and between the
Company and First Trust National Association, as Warrant Agent, to
purchase common stock of the Company.
5 Opinion of Willkie Farr & Gallagher.*
8 Opinion of Willkie Farr & Gallagher with respect to certain tax
matters.*
10.1 Credit Agreement among the Company, the Lending Institutions party
thereto, as Lenders, The First National Bank of Chicago, as Agent,
dated as of September 26, 1997.
10.2 Ten Percent Convertible Note Purchase Agreement between the Company
and WorldCom Inc. dated September 12, 1996 ($5,000,000 Note).
10.3 Preferred Stock, Subordinated Note and Warrant Purchase Agreement
between the Company and WorldCom Inc. dated November 14, 1996.
10.4 $28,500,000 Seven Percent Subordinated Note due December 31, 2003,
payable to WorldCom Inc.
10.5 Certificate Representing 100,000 Shares of Class A Preferred Stock
of the Company issued to WorldCom Inc.
10.6 Warrants to purchase 4,157,500 Shares of Common Stock of the Company
exercisable on or before December 31, 2000, issued to WorldCom Inc.
10.7 Right of Refusal Agreement Among WorldCom Inc., Edward Driscoll III
and Alan L. Witters dated December 16, 1996.
10.8 Guaranty Agreement dated September 26, 1997, by and between the
Company and WorldCom Inc.
10.9 Certificate for 1,679,234 Class A Warrants and 2,840,967 Class B
Warrants to purchase Common Stock of the Company, issued to WorldCom
Inc.
10.10 Sublease dated September 24, 1997 between the Company and 1250895
Ontario Limited, relating to the property located at 6100 110th
Street West, Bloomington, Minnesota.
10.11 Service Provision Agreement dated as of July 18, 1997, by and
between the Company and Time Inc.*
10.12 Standby Agreement dated as of July 19, 1997 by and between WorldCom
Inc. and Time Inc.*
10.13 Employment Agreement dated as of November 14, 1996, by and between
the Company and Edward J. Driscoll III.
10.14 Employment Agreement dated as of November 14, 1996, by and between
the Company and Allen Witters.
10.15 Employment Agreement dated as of April 16, 1996, by and between the
Company and James R. Clancy.
10.16 Employment Agreement dated as of May 10, 1995, as amended, by and
between the Company and Mark Marlow.
10.17 Intentionally omitted.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.18 1994 Stock Option Plan.
10.19 Amended and Restated 1994 Stock Option Plan.
10.20 1998 Combined Stock Option Plan.
12 Statement re Computation of Ratios.
15 Acknowledgment of Ernst & Young, chartered accountants, regarding unaudited interim
financial information.
21 List of Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young, chartered accountants.
23.3 Consent of Willkie Farr & Gallagher (included in their opinions filed as Exhibit 5 and
Exhibit 8 hereto).
24 Power of Attorney (included on the signature page hereto).
25 Statement on Form T-1 of Eligibility of Trustee.
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Nominees.
</TABLE>
*To be filed by amendment.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements
or notes thereto.
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 provisions, described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
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, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to 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 that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
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
II-3
<PAGE>
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned Registrans 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.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MINNEAPOLIS, STATE OF
MINNESOTA, ON THE 27TH DAY OF MAY, 1998.
WAM!NET Inc.
/s/ Edward J. Driscoll III
By: _________________________________
NAME: EDWARD J. DRISCOLL IIITITLE:
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER, PRESIDENT
AND TREASURER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each officer and director of WAM!NET
Inc. whose signature appears below constitutes and appoints Edward J. Driscoll
III and Mark Marlow, and each of them, with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Edward J. Driscoll III Chairman of the May 27, 1998
- ------------------------------------- Board, Chief
EDWARD J. DRISCOLL III Executive Officer,
President and
Treasurer
(principal
executive and
financial officer)
/s/ Charles T. Cannada Director May 27, 1998
- -------------------------------------
CHARLES T. CANNADA
/s/ Robert L. Hoffman Director May 27, 1998
- -------------------------------------
ROBERT L. HOFFMAN
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Curtis G. Gray Director May 27, 1998
- -------------------------------------
CURTIS G. GRAY
/s/ K. William Grothe, Jr. Director May 27, 1998
- -------------------------------------
K. WILLIAM GROTHE, JR.
/s/ Mark Marlow Director of Finance May 27, 1998
- ------------------------------------- (principal
MARK MARLOW accounting officer)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S>
2.1 Agreement for the Sale and Purchase of the entire issued share
capital of 4-Sight Limited dated February 11, 1998, among the
Company, WAM!NET (UK) Limited and the Selling Shareholders
listed therein.
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Indenture dated as of March 5, 1998, between the Company, as
Issuer, and First Trust National Association, as Trustee.
4.2(a) Certificate for the Rule 144A Original Notes ($200,000,000).
4.2(b) Certificate for the Rule 144A Original Notes ($8,030,000).
4.3 Certificate for the Regulation S Original Notes.
4.4 Certificate for the Rule 144A Warrants.
4.5 Certificate for the Regulation S Warrants.
4.6(a) Rule 144A Unit Certificate. (200,000 Units)
4.6(b) Rule 144A Unit Certificate. (8,030 Units)
4.7 Certificate for the Regulation S Units.
4.8 Form of Certificate for the Exchange Notes (included in Exhibit
4.1 hereto).
4.9 Common Stock Certificate.
4.10 Registration Rights Agreement, dated March 5, 1998, among the
Company and Merrill Lynch Pierce, Fenner & Smith Incorporated,
Credit Suisse First Boston Corporation and First Chicago
Capital Markets, Inc.
4.11 Common Stock Registration Rights Agreement, dated as of March
5, 1998, among the Company, WorldCom Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation and First Chicago Capital Markets, Inc.
4.12 Warrant Agreement, dated as of March 5, 1998, by and between
the Company and First Trust National Association, as Warrant
Agent, to purchase common stock of the Company.
5 Opinion of Willkie Farr & Gallagher.*
8 Opinion of Willkie Farr & Gallagher with respect to certain tax
matters.*
10.1 Credit Agreement among the Company, the Lending Institutions
party thereto, as Lenders, The First National Bank of Chicago,
as Agent, dated as of September 26, 1997.
10.2 Ten Percent Convertible Note Purchase Agreement between the
Company and WorldCom Inc. dated September 12, 1996 ($5,000,000
Note).
10.3 Preferred Stock, Subordinated Note and Warrant Purchase
Agreement between the Company and WorldCom Inc. dated November
14, 1996.
10.4 $28,500,000 Seven Percent Subordinated Note due December 31,
2003, payable to WorldCom Inc.
10.5 Certificate Representing 100,000 Shares of Class A Preferred
Stock of the Company issued to WorldCom Inc.
10.6 Warrants to purchase 4,157,500 Shares of Common Stock of the
Company exercisable on or before December 31, 2000, issued to
WorldCom Inc.
10.7 Right of Refusal Agreement Among WorldCom Inc., Edward Driscoll
III and Alan L. Witters dated December 16, 1996.
10.8 Guaranty Agreement dated September 26, 1997, by and between the
Company and WorldCom Inc.
10.9 Certificate for 1,679,234 Class A Warrants and 2,840,967 Class
B Warrants to purchase Common Stock of the Company, issued to
WorldCom Inc.
10.10 Sublease dated September 24, 1997 between the Company and
1250895 Ontario Limited, relating to the property located at
6100 110th Street West, Bloomington, Minnesota.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.11 Service Provision Agreement dated as of July 18, 1997, by and
between the Company and Time Inc.*
10.12 Standby Agreement dated as of July 19, 1997 by and between
WorldCom Inc. and Time Inc.*
10.13 Employment Agreement dated as of November 14, 1996, by and
between the Company and Edward J. Driscoll III.
10.14 Employment Agreement dated as of November 14, 1996, by and
between the Company and Allen Witters.
10.15 Employment Agreement dated as of April 16, 1996, by and between
the Company and James R. Clancy.
10.16 Employment Agreement dated as of May 10, 1995, as amended, by
and between the Company and Mark Marlow.
10.17 Intentionally omitted.
10.18 1994 Stock Option Plan.
10.19 Amended and Restated 1994 Stock Option Plan.
10.20 1998 Combined Stock Option Plan.
12 Statement re Computation of Ratios.
15 Acknowledgment of Ernst & Young, chartered accountants,
regarding unaudited interim financial information.
21 List of Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young, chartered accountants.
23.3 Consent of Willkie Farr & Gallagher (included in their opinions
filed as Exhibit 5 and Exhibit 8 hereto).
24 Power of Attorney (included on the signature page hereto).
25 Statement on Form T-1 of Eligibility of Trustee.
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Nominees.
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
DATED 11 FEBRUARY 1998
----------------------
(1) DAVID ANTHONY TOWNEND AND OTHERS
(2) WAM!NET (UK) LIMITED
(3) WAM!NET INC.
________________________________________________________________________________
AGREEMENT
FOR THE SALE AND PURCHASE OF THE
ENTIRE ISSUED SHARE CAPITAL OF
4-SIGHT LIMITED
________________________________________________________________________________
[LOGO APPEARS HERE]
Charles Russell
8-10 New Fetter Lane
London EC4A 1RS
Ref: MACM/26893/1
<PAGE>
<TABLE>
<CAPTION>
I N D E X
---------
PAGE NO.
<S> <C>
1. DEFINITIONS......................................................... 1
-----------
2. INTERPRETATION...................................................... 8
--------------
3. SALE OF SHARES...................................................... 10
--------------
4. CONDITIONS.......................................................... 10
----------
5. INITIAL CONSIDERATION............................................... 11
---------------------
6. DEFERRED CONSIDERATION.............................................. 12
----------------------
7. COMPLETION.......................................................... 14
----------
8. WARRANTIES.......................................................... 18
----------
9. WARRANTORS' LIMITATIONS OF LIABILITY................................ 20
------------------------------------
10. PURCHASER'S REMEDIES................................................ 20
--------------------
11. PURCHASER WARRANTIES................................................ 22
--------------------
12. PURCHASER'S LIMITATIONS OF LIABILITY................................ 22
------------------------------------
13. VENDORS' REMEDIES................................................... 22
-----------------
14. ACTIONS PENDING COMPLETION.......................................... 23
--------------------------
15. RESTRICTIVE COVENANTS............................................... 25
---------------------
16. GUARANTEE........................................................... 27
---------
17. ANNOUNCEMENTS AND CONFIDENTIALITY................................... 28
---------------------------------
18. REGISTRATION RIGHTS................................................. 29
-------------------
19. FURTHER ASSURANCE................................................... 32
-----------------
20. WAIVER AND RELEASE.................................................. 32
------------------
21. ENTIRE AGREEMENT AND VARIATIONS..................................... 32
-------------------------------
22. COSTS............................................................... 33
-----
23. COUNTERPARTS........................................................ 33
------------
24. ASSIGNMENT.......................................................... 33
----------
25. MISCELLANEOUS....................................................... 34
-------------
26. NOTICES............................................................. 34
-------
27. LAWS AND JURISDICTION............................................... 35
---------------------
THE FIRST SCHEDULE.................................................. 36
------------------
THE VENDORS......................................................... 36
-----------
THE SECOND SCHEDULE................................................. 38
-------------------
PART 1.............................................................. 38
------
THE COMPANY......................................................... 38
-----------
PART 2.............................................................. 39
------
THE SUBSIDIARIES.................................................... 39
----------------
THE THIRD SCHEDULE.................................................. 43
------------------
INTELLECTUAL PROPERTY RIGHTS........................................ 43
----------------------------
THE FOURTH SCHEDULE................................................. 44
-------------------
THE PENSION SCHEME.................................................. 44
------------------
THE FIFTH SCHEDULE.................................................. 45
------------------
THE PROPERTIES...................................................... 45
--------------
THE SIXTH SCHEDULE.................................................. 46
------------------
THE TAX DEED........................................................ 46
------------
THE FIRST SCHEDULE.................................................. 60
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
THE COVENANTORS..................................................... 60
---------------
THE SECOND SCHEDULE................................................. 61
-------------------
THE COMPANIES....................................................... 61
-------------
THE SEVENTH SCHEDULE................................................ 62
--------------------
PART I.............................................................. 62
------
THE VENDOR WARRANTIES............................................... 62
---------------------
PART II............................................................. 102
-------
THE PURCHASER WARRANTIES............................................ 102
------------------------
THE EIGHTH SCHEDULE................................................. 106
-------------------
LIMITATIONS OF LIABILITY............................................ 106
------------------------
PART I.............................................................. 106
------
PART II............................................................. 110
-------
</TABLE>
<PAGE>
THIS AGREEMENT is made 1998
- --------------
BETWEEN:-
- -------
(1) THE SEVERAL PERSONS whose names and addresses are set out in columns 1 and
-------------------
2 respectively of Parts 1 and 2 of the First Schedule ("the Vendors");
(2) WAM!NET (UK) LIMITED (company number 3469851) which is registered in
--------------------
England and whose registered office is at 8-10 New Fetter Lane, London EC4A
1RS ("the Purchaser"); and
(3) WAM!NET INC. which is incorporated in the State of Minnesota whose
------------
principal place of business is at 6100 West 110 Street, Minneapolis,
Minnesota 55438, U.S.A. ("WAM!NET").
WHEREAS:-
- -------
(A) 4-Sight Limited ("the Company") is a private limited company incorporated
in England further information about which is contained in Part 1 of the
Second Schedule.
(B) The Vendors have full title guarantee, or are otherwise able to procure the
transfer, free from all liens, charges and encumbrances, of all the issued
shares in the capital of the Company in the numbers set opposite their
names in column 3 of the First Schedule.
(C) The Vendors have agreed to sell and the Purchaser and WAM!NET have agreed
to purchase all of the issued shares in the capital of the Company subject
to and on the terms and conditions set forth herein.
NOW IT IS HEREBY AGREED as follows:-
- -----------------------
1. DEFINITIONS
-----------
In this Agreement the following expressions shall have the following
meanings unless the context requires otherwise:-
"the Audited Accounts" the audited consolidated balance sheet of the
Company and the Subsidiaries made up as at
the Balance Sheet Date and the audited
consolidated profit and loss account of the
Company and the Subsidiaries for the
financial year ended on that
1
<PAGE>
date, and the notes, directors' report and
auditor's report which are annexed thereto (a
true and complete copy of which is attached
to the Disclosure Letter);
"the Balance Sheet Date" 30 September 1997;
"business day" a day other than a Saturday or Sunday or
public holiday in England and Wales or, if a
payment is to be made in US dollars, other
than a day on which banking institutions in
New York are authorised or obliged by law or
executive order to close;
"CAA 1990" the Capital Allowances Act 1990;
"the Companies Acts" statutes for the time being regulating the
activities of companies in the United
Kingdom;
"Completion" completion of the sale and purchase of the
Shares in accordance with the provisions of
Clause 7;
"the Completion Date" the date upon which Completion takes place;
"the Conditions" the conditions referred to in Clause 4;
"the Consideration" the consideration for the sale and purchase
of the Shares as set forth in Clauses 5 and
6;
"Consideration Shares" shares of common stock, par value of U.S.$
0.01 per share, in the capital of WAM!NET
credited as fully paid and non-assessable and
to be issued pursuant to Clauses 5 and 6;
"the Disclosure Letter" a letter of even date herewith from the
Warrantors to the Purchaser
2
<PAGE>
disclosing certain exceptions to the
Vendor Warranties;
"Environmental Law" all laws, regulations, directives, treaties,
codes of practice, circulars, notices,
guidance notes and the like (whether of the
United Kingdom or elsewhere) concerning the
protection of or harm to the Environment or
to health of humans, animals or plants;
"Environmental Licence" any permit, licence, authorisation, consent
or other approval required by any
Environmental Law;
"FRS's" financial reporting standards issued or
adopted by the Accounting Standards Board;
"Intellectual Property" all inventions (whether patentable or not),
patents, utility models, designs (both
registered and unregistered and including
rights in semiconductor topographies),
copyright, trade and service marks (both
registered and unregistered) together with
all:-
(a) rights to the grant of and applications
for the same;
(b) corresponding applications, re-issues,
extensions, divisions and continuations
of the aforesaid; and
(c) supplementary protection certificates
in respect of patents;
and all similar or analogous rights
throughout the world for the full term
thereof;
3
<PAGE>
"Intellectual Property Rights" rights in all Intellectual Property which is
listed in the Third Schedule;
"Investor Vendors" Geocapital IV LP, 3i Group Plc and Media Tec
Investments Limited;
"the Management Accounts" the unaudited consolidated management
accounts of the Company and the Subsidiaries
for the period from the Balance Sheet Date
to the Management Accounts Date (a true and
complete copy of which is attached to the
Disclosure Letter);
"the Management Accounts
Date" 31 December 1997;
"Material Breach" (i) in relation to the Vendor Warranties, an
event (save where the Purchaser has
consented in writing to any such event),
fact or circumstance having occurred which
renders materially untrue, inaccurate or
misleading any of the Vendor Warranties
given on the date of this Agreement or which
would render materially untrue, inaccurate
or misleading any of the Vendor Warranties
if they were repeated immediately prior to
Completion and which in either case
(assuming for these purposes (but not
otherwise) and if applicable that the Vendor
Warranties were to be repeated on
Completion) would give rise to the Purchaser
being entitled to make a Relevant Claim (if
quantifiable) for an amount in excess of
US$500,000 and, if not quantifiable, is in
respect of a matter which has an adverse
material effect on the value of the Shares
having regard to the Company's and the
Subsidiaries' business and financial
condition, taken as a whole; and
4
<PAGE>
(ii) in relation to the Purchaser Warranties,
an event (save where the Vendors have
consented in writing to any such event), fact
or circumstance having occurred which renders
materially untrue, inaccurate or misleading
any of the Purchaser Warranties given on the
date of this Agreement or which would render
materially untrue, inaccurate or misleading
any of the Purchaser Warranties if they were
repeated immediately prior to Completion and
which in either case (assuming for these
purposes (but not otherwise) and if
applicable that the Purchaser Warranties were
to be repeated on Completion) would give rise
to the Vendors being entitled to make a
Relevant Claim (if quantifiable) for an
amount in excess of US$500,000 and, if not
quantifiable, is in respect of a matter which
has an adverse material effect on the value
of the Consideration Shares having regard to
the rights attached to the shares in WAM!NET
which are held by Edward Driscoll III and
Allen Witters;
"Millennium Compliant" the ability to process accurately all date
information (without any change in operations
or in procedures) whether before, during or
after 1st January 2000, including but not
limited to accepting, storing, retrieving and
processing date input, providing accurate
date output and performing accurate
calculations involving dates or portions of
dates in each case in a way which does not
create any ambiguity as to century;
5
<PAGE>
"Opinion Letter" a letter to be dated as of Completion in the
agreed terms to the Vendors from Larkin,
Hoffman, Daly & Lindgren Ltd (US counsel to
WAM!NET);
"Options" options to subscribe for ordinary shares in
the capital of the Company, granted to the
Optionholders by the Company pursuant to the
4-Sight plc Executive Share Option Scheme and
the 4-Sight plc Employee Share Option Scheme;
"Option Assignments" deeds of sale and assignment in the agreed
terms under which the Optionholders will sell
and assign the Options to the Purchaser;
"Optionholders" those persons holding Options and listed in
the list in the agreed terms and marked "A";
"Option Payment" the sum of US$944,755;
"the Properties" the properties short particulars of which are
set out in the Fifth Schedule;
"the Purchaser's Disclosure a letter of even date herewith from the
Letter" Purchaser and WAM!NET to the Vendors
disclosing certain exceptions to the
Purchaser Warranties;
"the Purchaser's Group" the Purchaser and/or WAM!NET and/or any
subsidiary of the Purchaser or of WAM!NET;
"the Purchaser's Solicitors" Charles Russell of 8-10 New Fetter Lane,
London EC4A 1RS;
6
<PAGE>
"the Purchaser Warranties" the statements contained in Part II of the
Seventh Schedule;
"Relevant Claim" a claim under the Purchaser Warranties or, as
the case may be, the Vendor Warranties and/or
of the Tax Deed;
"the Service Agreements" the service agreements to be entered into
between the Company and each of Andrew Steven
Baird, Lyndon David Stickley, David Anthony
Townend and Yorick Phoenix, such service
agreements to be in the agreed terms and
marked "B";
"the Shares" all of the issued shares in the capital of
the Company;
"SSAP's" statements of standard accounting practice
issued or adopted by the Accounting Standards
Board;
"the Subsidiaries" the companies particulars of which are set
out in Part 2 of the Second Schedule;
"the Tax Deed" the deed in the form set out in the Sixth
Schedule;
"Taxation" all forms of taxation, duties, imposts,
levies and rates whenever imposed and whether
of the United Kingdom or elsewhere and in
particular (but without prejudice to the
generality of the foregoing) including income
tax, withholding taxes, corporation tax,
capital gains tax, capital transfer tax,
inheritance tax, value added tax, customs
duties, excise duties, stamp duty, stamp duty
reserve tax, capital duty, national insurance
contributions, social security or other
similar contributions and generally any
7
<PAGE>
other taxes, duties, imposts, levies or other
amounts (whether of a like nature or not) and
any interest, penalty or fine in connection
therewith;
"Tax Authority" any local, municipal, governmental, state,
federal, or other fiscal, revenue, customs or
excise authority, body or official anywhere
in the world entitled to enforce or collect
Taxation, including without limitation, the
UK Inland Revenue and HM Customs and Excise;
"the Taxes Act 1988" the Income and Corporation Taxes Act 1988;
"TCGA 1992" the Taxation of Chargeable Gains Act 1992;
"VATA 1994" the Value Added Tax Act 1994;
"the Vendor Warranties" the statements contained in Part I of the
Seventh Schedule;
"the Vendors' Solicitors" Faegre Benson Hobson Audley, 7 Pilgrim
Street, London EC4V 6DR;
"the Warrantors" Andrew Steven Baird, Lyndon David Stickley,
David Anthony Townend and Yorick Phoenix.
2. INTERPRETATION
--------------
In this Agreement where the context so admits:-
2.1 references to statutory provisions shall be construed as references to
those provisions as amended or re-enacted or as their application is
modified by other provisions (whether before or after the date hereof)
from time to time and shall include references to any provisions of
which they are re-enactments (whether with or without modification)
but shall exclude any new provisions enacted after the date hereof to
the extent that any such provisions alter the law as at the date
hereof;
8
<PAGE>
2.2 references to Clauses and Schedules are references to Clauses hereof
and Schedules hereto; references to sub-clauses are, unless otherwise
stated, references to sub-clauses of the Clause in which such
references appear; references to paragraphs, are, unless otherwise
stated, to paragraphs in the Schedule hereto in which such references
appear; references to sub-paragraphs are, unless otherwise stated, to
sub-paragraphs of the paragraph in which such references appear; and
references to this Agreement include the Schedules;
2.3 the plural includes the singular (and vice versa) and the masculine
includes the feminine;
2.4 the headings in this Agreement are for convenience only and shall not
affect the interpretation hereof;
2.5 save as otherwise provided in the first paragraph of paragraph 8 of
Part I of the Seventh Schedule (Taxation Matters), the expression "the
Company" when used in Part I of the Seventh Schedule (other than in
paragraphs 3(1) to 3(5) and 7(8)(d) inclusive of Part I of the Seventh
Schedule) shall be deemed to mean each of the Subsidiaries and the
Company so that the Vendor Warranties (other than the Vendor
Warranties in such paragraphs) shall apply to each of the Subsidiaries
as well as to the Company;
2.6 if any Vendor Warranty is qualified by the expression "so far as the
Vendor Warrantors are aware" or any similar expression, the Vendor
Warrantors shall be deemed to have made reasonable enquiry in respect
of the subject matter of the Vendor Warranty;
2.7 if any Purchaser Warranty is qualified by the expression "so far as
WAM!NET is aware" or any similar expression, WAM!NET shall be deemed
to have made reasonable enquiry in respect of the subject matter of
the Purchaser Warranty;
2.8 the words "subsidiary" and "holding company" shall have the meanings
given to them by the Companies Act 1985 as amended by the Companies
Act 1989;
2.9 the word "Environment" shall have the meaning given to it in s.1(2) of
the Environmental Protection Act 1990;
9
<PAGE>
2.10 any reference to a document being "in agreed terms" is to a document
in terms which have been agreed by the parties or on their behalf by
their respective Solicitors;
2.11 save as expressly provided to the contrary in this Agreement, all
warranties, covenants, agreements and obligations given or entered
into in this Agreement or in the Tax Deed by more than one person
are given or entered into jointly and severally.
3. SALE OF SHARES
--------------
3.1 The Vendors severally shall sell with full title guarantee and the
Purchaser and WAM!NET shall purchase with effect from the Completion Date
the Shares free from all charges, liens, encumbrances, options, equities
and third party rights of any nature whatsoever and together with all
rights attaching or accruing thereto and in respect of each individual
Vendor the number of Shares set opposite his/its name in column 3 of the
First Schedule.
3.2 The Vendors (for themselves and on behalf of their nominees) hereby
severally waive all rights of pre-emption over any of the Shares conferred
either by the articles of association of the Company or in any other way.
3.3 Neither the Purchaser nor WAM!NET shall be obliged to complete the purchase
of any of the Shares unless the purchase of all the Shares is completed
simultaneously.
4. CONDITIONS
----------
4.1 This Agreement shall be conditional in all respects upon:-
4.1.1 the Commissioners of Inland Revenue notifying the Vendors to the
effect that they are satisfied that the sale and purchase of the
Shares will be such that no notice under section 703(3) of the Taxes
Act 1988 ought to be given in respect of them in such circumstances
that the provisions of section 707(2) of the Taxes Act 1988 will not
apply to any such notification;
4.1.2 the Commissioners of Inland Revenue notifying the Vendors to the
effect that they are satisfied that the exchange of shares provided
for by this Agreement will be effected for bona fide commercial
reasons and will not form part of any such scheme or arrangements as
are mentioned in section 137(1) TCGA 1992;
4.1.3 there having been no Material Breach of any Vendor Warranty;
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<PAGE>
4.1.4 there having been no Material Breach of any Purchaser Warranty;
4.1.5 the receipt by the Vendors' Solicitors of a certificate signed by a
duly authorised officer of WAM!NET to the effect that WAM!NET has
obtained financing of not less than US$125 million available, inter
alia, for the acquisition of the Shares and operation of the
Company's business after Completion, on terms and conditions
satisfactory to WAM!NET at its sole discretion; and
4.1.6 each of the Optionholders having irrevocably sold and assigned all
his rights under or in connection with the Options to the Purchaser
in accordance with the terms of the Option Assignments and
resolutions of the Optionholders and ordinary resolutions of the
Vendors (in their capacity as shareholders in the Company) in each
case in terms reasonably satisfactory to the Purchaser having been
passed (PROVIDED THAT the Warrantors shall (a) procure that offers
to the Optionholders are made by the Company for such rights and (b)
use their reasonable endeavours to procure that such resolutions and
ordinary resolutions are passed in each case within 3 days after
receipt by the Vendor's Solicitors of the certificate referred to in
sub-clause 4.1.5).
4.2 The Warrantors shall use their reasonable endeavours to procure
satisfaction of the Conditions set out in sub-clauses 4.1.1, 4.1.2, 4.1.3
and 4.1.6.
4.3 The Purchaser and WAM!NET shall use their reasonable endeavours to procure
satisfaction of the Conditions set out in sub-clauses 4.1.4 and 4.1.5.
4.4 In the event that the above Conditions are not satisfied or waived by all
the parties on or before 31 March 1998 this Agreement shall lapse and shall
be null and void and no party shall have liability to any other under this
Agreement (other than pursuant to sub-clauses 4.2, 4.3, 10.2 and Clause
17).
5. INITIAL CONSIDERATION
---------------------
5.1 Save as deemed reduced herein, the consideration for the sale and purchase
of the Shares shall be:-
5.1.1 in respect of the Shares to be purchased by the Purchaser, the cash
sum of US$19,055,245;
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<PAGE>
5.1.2 in respect of the Shares to be purchased by WAM!NET, the issue by
WAM!NET of 500,000 Consideration Shares (appropriately adjusted to
reflect stock splits, stock dividends, reorganisations,
consolidations and similar changes); and
5.1.3 in respect of the Shares to be purchased by WAM!NET, the further
consideration referred to in Clause 6.
5.2 The cash sum referred to in sub-clause 5.1.1 shall be divisible among the
Vendors as set opposite each Vendor's name in column 4 of the First
Schedule and paid on Completion to the Vendors' Solicitors.
5.3 Each Vendor shall have issued to him by WAM!NET at Completion such number
of Consideration Shares referred to in sub-clause 5.1.2 as are opposite his
name in column 5 of the First Schedule.
5.4 The Vendors' Solicitors are authorised to receive on behalf of the Vendors
the cash sum referred to in sub-clause 5.1.1 and share certificates for the
Consideration Shares to be issued in accordance with sub-clause 5.1.2;
payment of the cash sum referred to in sub-clause 5.1.1 to the Vendors'
Solicitors shall be a good discharge to the Purchaser of its obligations
under sub-clause 5.2 and delivery to the Vendors' Solicitors of share
certificates of such number of Consideration Shares as are set opposite
each Vendor's name in column 5 of Part 1 or Part 2 (as the case may be) of
the First Schedule shall be a good discharge to WAM!NET of its obligations
under sub-clause 5.3.
6. DEFERRED CONSIDERATION
----------------------
6.1 The further consideration for the sale and purchase of the Shares shall be
the issue by WAM!NET of 150,000 Consideration Shares (appropriately
adjusted to reflect stock splits, stock dividends, reorganisations,
consolidations and similar changes) subject to and in accordance with the
following provisions of this Clause 6.
6.2 WAM!NET will issue further Consideration Shares to the Vendors (in the
relevant percentages set out in column 6 of the First Schedule) as
follows:-
6.2.1 125,000 Consideration Shares if the cumulative Non-US/Canada
Revenues (as hereinafter defined) in the period of 3 years from the
Completion Date equal or exceed US $50,000,000; and
12
<PAGE>
6.2.2 a further 25,000 Consideration Shares if the cumulative Non-
US/Canada Revenues in the period of 3 years from the Completion Date
equal or exceed US$70,000,000.
6.3 For the purpose of the foregoing, "Non-US/Canada Revenues" shall mean the
revenues attributable to customer sites located outside the USA and Canada
and receivable by any member of the Purchaser's Group (including after
Completion, the Company and the Subsidiaries).
6.4 Within 20 business days after the end of each three month period (the first
such period to begin on the Completion Date and end on the last day of the
second month after the month in which Completion occurs) during the 3 years
referred to above, WAM!NET shall prepare and deliver to the Vendors a
certificate (signed by an authorised officer of the WAM!NET) setting out
the cumulative Non-US/Canada Revenues as at the end of such 3 month period,
together with reasonable supporting documentation.
6.5 In the event the Vendors shall dispute any certificate delivered by WAM!NET
pursuant to sub-clause 6.4, they shall notify WAM!NET accordingly in
writing within 20 business days after the date of such certificate. In the
event that the Vendors do not dispute the certificate within 20 business
days of the date of such certificate, such certificate shall be deemed
approved.
6.6 In the event that any dispute regarding any such certificate shall not be
resolved within 30 business days after the date of such certificate, the
matter shall be submitted for determination by an independent certified
public accountant (not employed or otherwise connected, within the meaning
of Section 839 of the Taxes Act 1988, to any parties hereto), acting as
expert and not as arbitrator, agreed between WAM!NET and the Vendors
(failing which by the President for the time being of the Minnesota Society
of Certified Public Accountants). Such determination shall be final and
binding on all concerned. The fees of such accountant shall be borne
equally between WAM!NET on the one hand and the Vendors on the other.
6.7 Each of the Purchaser and WAM!NET (on behalf of itself and the Purchaser's
Group) undertakes with the Vendors that it will procure that the businesses
of the Purchaser's Group are conducted in good faith and in a way which is
not calculated or intended adversely to affect the value to the Vendors of
their contingent right to receive the deferred consideration or any part
thereof pursuant to this Clause 6, or the ability of WAM!NET to satisfy the
same and further undertakes to the Vendors,
13
<PAGE>
but without prejudice to the generality of the foregoing, that until the
third anniversary of the Completion Date each of them:-
6.7.1 shall not enter into or require or cause or permit any member of the
Purchaser's Group to enter into:
(a) any artificial transaction which reduces or defers the level of
Non US/Canada Revenues; or
(b) any other transaction where either:-
(aa) the principal purpose of entering into that transaction
is to reduce or defer the level of Non-US/Canada
Revenues; or
(bb) the effect of entering into that transaction is to reduce
or defer the level of Non-US/Canada Revenues and such
transaction is not entered into in good faith in the best
interests of the Purchaser's Group; and
6.7.2 shall procure that the business and affairs of the Purchaser's Group
shall continue to be conducted on an arms' length basis for the
purpose of ensuring (so far as it is reasonably possible so to do)
that the level of Non-US/Canada Revenues is not distorted or
reduced.
6.8 The issue of further Consideration Shares, if any, pursuant to this Clause
6 shall be made within 14 business days of the next meeting of the board of
directors of WAM!NET to be held (and which shall be held as soon as
reasonably practicable) after the determination (pursuant to sub-clause
6.4, 6.5 or 6.6, as appropriate) that the relevant target for Non-US/Canada
Revenue has been met.
7. COMPLETION
----------
7.1 Completion shall take place at the office of the Vendors' Solicitors on or
before the third business day following the date on which the last
Condition shall have been satisfied or waived or at such other place or on
such other date as may be agreed between the Purchaser and the Vendors'
Solicitors on behalf of the Vendors, whereupon:-
7.1.1 the Warrantors shall severally deliver to the Purchaser:-
14
<PAGE>
7.1.1.1 a certificate in the agreed terms duly signed by each
of them confirming that, inter alia, the Vendor
Warranties are, save as therein set out, true, accurate
and complete in all respects as at Completion and the
provisions of Clause 14 have been complied with and
dated as of Completion;
7.1.1.2 duly executed transfers of the Shares by the registered
holders thereof in favour of the Purchaser or its
nominees together with the relative share certificates;
7.1.1.3 the Tax Deed duly executed by the Warrantors as the
parties referred to therein as the Covenantors;
7.1.1.4 the resignation executed as a deed of S J Clearman as
director of the Company in which he shall acknowledge
in agreed terms that he has no claims against the
Company for compensation for loss of office or
otherwise howsoever;
7.1.1.5 all the statutory and other books of the Company and of
the Subsidiaries together with their certificates of
incorporation and common seals;
7.1.1.6 at the Properties, the deeds and documents constituting
title to the Properties insofar as they are in the
possession of or under the control of the Warrantors or
the Company or the Subsidiaries or any of them;
7.1.1.7 irrevocable powers of attorney in agreed terms executed
by each Vendor in favour of the Purchaser to enable the
Purchaser (pending registration of the transfers
referred to in sub-clause 7.1.1.2) to exercise all
voting and other rights attaching to the Shares and to
appoint proxies for this purpose;
7.1.1.8 the Service Agreements duly executed by each of Andrew
Steven Baird, Lyndon David
15
<PAGE>
Stickley, David Anthony Townend and Yorick Phoenix (in
the case of the relevant Service Agreement in which the
relevant person is named as a party);
7.1.1.9 a letter in agreed terms from each of the Vendors in
which it or he confirms that there are no monies owed
to it or him by the Company or any of the Subsidiaries
other than, in the case of those Vendors who are
employees of the Company or a Subsidiary, customary
accrued expenses and unpaid salary in respect of the
period from the beginning of the month in which
Completion takes place to the Completion Date;
7.1.1.10 a certified copy of a deed of termination and release
in respect of the Subscription and Shareholders'
Agreement dated 12 March 1997 in the agreed terms duly
executed by or on behalf of each of the parties
thereto;
7.1.1.11 Option Assignments duly executed by or on behalf of
each of the Optionholders with the name of the
Purchaser entered as the Purchaser of the Options; and
7.1.1.12 Letters of Investment Intent (in the agreed terms) duly
executed by each Vendor;
7.1.2 the Warrantors shall procure that a board meeting (in the agreed
terms) of the Company (as the same may be required for effecting the
following) shall be held at which it shall be resolved that:-
7.1.2.1 the transfers in respect of the Shares be approved for
registration and that share certificates in respect thereof
be executed as deeds and delivered to the Purchaser and
WAM!NET subject only to the said transfers being duly
stamped;
7.1.2.2 the resignations of the person whose name is set out in
sub-clause 7.1.1.4 be tabled and approved;
16
<PAGE>
7.1.2.3 Edward J. Driscoll III and James R. Clancy shall be
appointed directors of the Company;
7.1.2.4 the Service Agreements be approved;
7.1.3 against compliance with the foregoing provisions, WAM!NET or, as the
case may be, the Purchaser shall:-
7.1.3.1 deliver to the Vendors' Solicitors a certificate in the
agreed terms signed by a duly authorised officer of WAM!NET
confirming that, inter alia, the Purchaser Warranties are,
save as therein set out, true, accurate and complete in all
respects as at Completion and dated as of Completion;
7.1.3.2 deliver to the Vendors' Solicitors certificates for 500,000
Consideration Shares;
7.1.3.3 deliver to the Vendors' Solicitors a certified copy of a
Board Resolution of WAM!NET in the agreed terms
(authorising and issuing to the Vendors the Consideration
Shares referred to in sub-clause 5.1.2 and authorising and
reserving to the Vendors the Consideration Shares referred
to in Clause 6);
7.1.3.4 deliver to the Vendors' Solicitors the Opinion Letter;
7.1.3.5 deliver to the Vendors' Solicitors a counterpart of the Tax
Deed, duly executed by the Purchaser and WAM!NET;
7.1.3.6 deliver to the Vendors' Solicitors counterparts of the
Service Agreements, duly executed by the Company;
7.1.3.7 deliver to the Vendors' Solicitors counterparts of the
Letters of Investment Intent (in the agreed terms) duly
executed by WAM!NET;
7.1.3.8 telegraphically transfer such sum as will ensure that the
net sum of US$20,000,000 (being the cash sum of US
$19,055,245 referred to in sub-clause 5.1.1 and the Option
Payment) is credited to the Vendors' Solicitors account or
accounts (details of which are
17
<PAGE>
to be notified to the Purchaser's Solicitors prior to
Completion).
7.2 If in any respect the obligations of the Warrantors under sub-clauses 7.1.1
and 7.1.2 are not complied with on the date set for Completion, the
Purchaser and WAM!NET may:-
7.2.1 defer Completion to a date not more than 28 days after that date (in
which case this sub-clause 7.2, apart from this sub-clause 7.2.1,
will apply in respect of the date to which Completion is deferred);
or
7.2.2 proceed to Completion as far as practicable (but not including
completion of the purchase of some only of the Shares); or
7.2.3 (without prejudice to their rights and remedies in respect of such
non-compliance) rescind this Agreement.
7.3 If in any respect the obligations of the Purchaser and WAM!NET under sub-
clause 7.1.3 are not complied with on the date set for Completion, the
Vendors may:-
7.3.1 defer Completion to a date not more than 28 days after that date (in
which case this sub-clause 7.3, apart from this sub-clause 7.3.1,
will apply in respect of the date to which Completion is deferred);
or
7.3.2 proceed to Completion as far as practicable (but not including
completion of the sale of some only of the Shares); or
7.3.3 (without prejudice to their rights and remedies in respect of such
non-compliance) rescind this Agreement.
8. WARRANTIES
----------
8.1 The Warrantors hereby jointly and severally warrant to the Purchaser and
WAM!NET that subject to Clause 9 and save as fairly disclosed in the
Disclosure Letter the Vendor Warranties are at the date hereof true,
accurate and complete in all respects.
8.2 The Warrantors jointly and severally undertake to forthwith disclose in
writing to the Purchaser any matter or thing which may become known to them
after the date hereof and prior to Completion which is inconsistent with
any of the Vendor Warranties.
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<PAGE>
8.3 Each of the Vendors (but excluding the Investor Vendors as regards sub-
clause 8.3.6) hereby warrants severally to the Purchaser and WAM!NET that:-
8.3.1 he has full power and authority to enter into and perform this
Agreement and each other document to be exercised and delivered by
him at Completion other than the Tax Deed (collectively, "the
Completion Agreements");
8.3.2 the Completion Agreements, when executed, will constitute valid and
binding obligations upon him in accordance with their terms;
8.3.3 the execution and delivery of and performance by him of his
obligations under the Completion Agreements and the transactions
contemplated thereby will not result in a breach of any provision of
the memorandum and articles of association or other constitutional
documents of such Vendor or a breach of any order, judgment or
decree of any court to which he is a party or by which he is bound;
8.3.4 he is entitled to sell and transfer to the Purchaser the Shares set
opposite his name in column 3 of the First Schedule on the terms of
this Agreement with full title guarantee and without the consent of
any third party;
8.3.5 no person has the right (whether exercisable now or in the future
and whether contingent or not but excluding the pre-emption rights
which have been waived by the Vendors under sub-clause 3.2) to call
for the sale or transfer of any of the Shares set opposite his name
in column 3 of the First Schedule under any option or other
agreement (including conversion rights and save as aforementioned
and pre-emption rights) and there are no claims, charges, liens,
equities or encumbrances on such Share(s);
8.3.6 the execution and delivery of and performance by him of his
obligation under the Completion Agreements and the transactions
contemplated thereby will not result in a breach of any provision of
the memorandum and articles of association of the Company.
8.4 It is acknowledged and agreed by each of the parties hereto that the
Warranties contained in sub-clause 8.3 are the only warranties (other than
warranties as to title to their respective holdings in any of the Shares)
given by the Investor Vendors and, for the avoidance of doubt, the Investor
Vendors shall have no liabilities in respect of any of the matters
19
<PAGE>
warranted by the Warrantors whether under sub-clause 8.1 or Part 1 of the
Seventh Schedule or otherwise.
8.5 Each of the Warrantors hereby warrants severally to the Purchaser and
WAM!NET that:-
8.5.1 he has full power and authority to enter into and perform the Tax
Deed;
8.5.2 the Tax Deed, when executed, will constitute valid and binding
obligations upon him in accordance with its terms;
8.5.3 the execution and delivery of and performance by him of his
obligations under the Tax Deed and the transactions contemplated
thereby will not result in a breach of any provision of the
memorandum and articles of association or other constitutional
documents of the Company or, if appropriate, such Warrantor or a
breach of any order, judgment or decree of any court to which he is
a party or by which he is bound.
8.6 Any amount payable hereunder by virtue of a breach of any of the warranties
or undertakings in sub-clauses 8.1, 8.2, 8.3, 8.4 or 8.5 shall be deemed to
be a reduction in the amount of the Consideration received by the Investor
Vendors or Warrantors (as the case may be) for the Shares.
9. WARRANTORS' LIMITATIONS OF LIABILITY
------------------------------------
9.1 The provisions of Part I of the Eighth Schedule shall, subject to sub-
clause 9.2, operate to limit the liability of the Warrantors under or in
connection with the Vendor Warranties and under or in connection with the
Tax Deed.
9.2 The provisions of paragraphs 1 to 5 (inclusive) of Part I of the Eighth
Schedule shall not operate to limit the liability of the Warrantors under
or in connection with the Vendor Warranties or under or in connection with
the Tax Deed (and the provisions of such paragraphs shall not apply) where
the liability in question arises as a result of fraud on the part of any of
the Warrantors, or where the liability in question relates to a matter
which has been deliberately concealed or withheld by any of the Warrantors.
10. PURCHASER'S REMEDIES
--------------------
20
<PAGE>
10.1 The Warrantors hereby jointly and severally agree with the Purchaser and
WAM!NET that in the event of any breach of the Vendor Warranties and
subject always to sub-clause 9.1 and Part 1 of the Eighth Schedule, they
will pay to the Purchaser or WAM!NET on demand:-
10.1.1 the amount necessary to put the Company and the Subsidiaries into
the position which would have existed if the Vendor Warranties had
not been so breached; and
10.1.2 all reasonable costs and expenses (including legal costs on an
indemnity basis) incurred by the Purchaser, WAM!NET or the Company
or any of the Subsidiaries as a result of such breach.
The rights of the Purchaser and WAM!NET referred to in this sub-clause 10.1
shall not restrict any of the rights of the Purchaser and WAM!NET or the
ability of the Purchaser and WAM!NET to claim damages on any basis
available to them in the event of any breach of the Vendor Warranties.
10.2 The Warrantors hereby jointly and severally agree with the Purchaser and
WAM!NET (and subject always to sub-clause 9.1 and Part 1 of the Eighth
Schedule) to indemnify and keep indemnified each of the Purchaser and
WAM!NET (for themselves and as trustees for the Company and its
Subsidiaries) against any costs, damages, losses and liabilities
(including, without limitation, any liability to Taxation) suffered or
incurred by the Purchaser, WAM!NET, the Company or any Subsidiary by reason
of the implementation of the arrangements contemplated by the Option
Assignments, including without limitation the offers made to the
Optionholders and payments thereto. If any payment hereunder is subject to
Taxation in the hands of the recipient, such further payment shall be made
as is necessary to ensure that the recipient is put in the same position as
if no such Taxation had been due.
10.3 The Purchaser and WAM!NET may at any time prior to Completion (without any
liability on their part) rescind this Agreement by notice in writing to the
Vendors to that effect as soon as reasonably practicable after the
Purchaser or WAM!NET becomes aware of any Material Breach of any Vendor
Warranties.
10.4 The rights, including any such right of rescission conferred on the
Purchaser and WAM!NET by this Clause, shall be in addition to and without
prejudice to all other rights and remedies available to the Purchaser and
WAM!NET.
21
<PAGE>
10.5 The Purchaser and WAM!NET may release or compromise the liability of any of
the Warrantors hereunder or grant to any Warrantor time or other indulgence
without affecting the liability of any other Warrantor hereunder.
10.6 No failure to exercise, and no delay in exercising on the part of the
Purchaser and WAM!NET any right or remedy in respect of any Vendor Warranty
shall operate as a waiver of such right, remedy or Vendor Warranty nor
shall a single or partial exercise of such right or remedy preclude the
exercise of such or any other right or remedy.
10.7 The Warrantors hereby agree with the Purchaser and WAM!NET (for themselves
and as trustees of the Company and the Subsidiaries) to waive any right
which they may have in respect of any misrepresentation, inaccuracy or
omission in or from any information or advice supplied or given by the
Company or the Subsidiaries or any of their officers and employees or
professional advisers in enabling the Warrantors to give the Vendor
Warranties and the Warrantors and their professional advisers to prepare
the Disclosure Letter.
11. PURCHASER WARRANTIES
--------------------
11.1 WAM!NET and the Purchaser hereby jointly and severally warrant to the
Vendors that:-
11.1.1 the Purchaser Warranties are at the date hereof true, accurate and
complete in all respects; and
11.1.2 they will forthwith disclose in writing to the Vendors any matter
or thing which may become known to them after the date hereof and
prior to Completion which is inconsistent with any of the Purchaser
Warranties.
12. PURCHASER'S LIMITATIONS OF LIABILITY
------------------------------------
12.1 The provisions of Part II of the Eighth Schedule shall, subject to sub-
clause 12.2 operate to limit the liability of the Purchaser and WAM!NET
under or in connection with the Purchaser Warranties.
12.2 The provisions of paragraphs 1 to 4 (inclusive) of Part II of the Eighth
Schedule shall not operate to limit the liability of the Purchaser (and the
provisions of such paragraphs shall not apply) under or in connection with
any of the Purchaser Warranties where the liability in question arises as a
result of fraud on the part of the Purchaser or WAM!NET or where
22
<PAGE>
the liability in question relates to the matter which has been deliberately
concealed or withheld by the Purchaser or WAM!NET.
13. VENDORS' REMEDIES
-----------------
13.1 The Purchaser and WAM!NET hereby jointly and severally agree with the
Vendors that in the event of any breach of the Purchaser Warranties and
subject always to sub-clause 12.1 and Part II of the Eighth Schedule, they
will pay to the Vendors on demand:-
13.1.1 the amount necessary to put the Vendors into the position which
would have existed if the Purchaser Warranties had not been so
breached; and
13.1.2 all reasonable costs and expenses (including legal costs on an
indemnity basis) incurred by the Vendors as a result of such
breach;
The rights of the Vendors referred to in this sub-clause 13.1 shall not
restrict any of the rights of the Vendors or the ability of the Vendors to
claim damages on any basis available to them in the event of any breach of
the Purchaser Warranties.
13.2 The Vendors may at any time prior to Completion (without any liability on
their part) rescind this Agreement by notice in writing to the Purchaser
and WAM!NET to that effect as soon as reasonably practicable after the
Vendors become aware of any Material Breach of any Purchaser Warranties.
13.3 The rights including any such right of rescission conferred on the Vendors
by this Clause shall be in addition to and without prejudice to all other
rights and remedies available to the Vendors.
13.4 The Vendors may release or compromise the liability of the Purchaser or
WAM!NET hereunder or grant to either of them time or other indulgence
without affecting the liability of the other.
13.5 No failure to exercise, and no delay in exercising on the part of the
Vendors any right or remedy in respect of any Purchaser Warranty shall
operate as a waiver or such right, remedy or Purchaser Warranty nor shall a
single or partial exercise of such right or remedy preclude the exercise of
such or any other right or remedy.
14. ACTIONS PENDING COMPLETION
--------------------------
23
<PAGE>
The Warrantors undertake to the Purchaser that, in the period from the date
of this Agreement to Completion, the Company and each of the Subsidiaries
shall (except with the prior written consent of the Purchaser) which
consent shall not be unreasonably withheld or delayed:-
14.1 continue its business in the ordinary and usual course and so as to
maintain the same as a going concern;
14.2 not enter into any contract, transaction or arrangements with the Vendors
or any person connected (as such term is defined in section 839 of the
Taxes Act 1988) with the Vendors (other than in respect of the payment of
any remuneration properly accrued due or repayment of business or other
expenses properly incurred);
14.3 save for any increases to which any director or employee is contractually
entitled or which are made pursuant to any review policy currently in force
and which are disclosed in the Disclosure Letter not increase or agree to
increase the remuneration (including, without limitation, pension
contributions, bonuses, commissions and benefits in kind) of its directors
or employees (other than minor increases which the Warrantors shall notify
to the Purchaser as soon as reasonably possible) or provide or agree to
provide any gratuitous payment or benefit in excess of (Pounds)5,000 to any
such person or any of their dependants and no employees (other than casual
employees or employees whose remuneration does not exceed (Pounds)30,000
per annum) shall be engaged or dismissed or have their terms of employment
altered in the case of the Warrantors, in any respect and, in the case of
any other employee, in any material respect;
14.4 not amend or discontinue any of the Pension Schemes or communicate to any
employee any plan, proposal or intention to amend, discontinue or exercise
any discretion in relation to any of the Pension Schemes;
14.5 not acquire or agree to acquire (other than the proposed acquisition of a
new accounting and administration system and the proposed lease of the
"Midland Bank building" in Bournemouth, on the terms details of which are
set out in the Disclosure Letter) or dispose or agree to dispose of any
material asset (other than in the normal course of business) or enter into
any contract or arrangement involving expenditure or liabilities in excess
of (Pounds)50,000;
14.6 not make any payments out of any bank or deposit account exceeding in
aggregate (Pounds)50,000 (except for payments in the normal course of
business);
24
<PAGE>
14.7 not create or agree to create any further security over or encumber or
agree to encumber any of its assets or redeem or agree to redeem any
existing security or give or agree to give any guarantees or indemnities;
14.8 not alter or agree to alter the terms of any existing borrowing
facilities or arrange additional borrowing facilities or incur other
indebtedness for borrowed money (other than pursuant to any existing
borrowing facilities);
14.9 not alter or agree to alter or terminate or agree to terminate any
agreement to which it is a party (and which involves expenditure of more
than (Pounds)50,000 in total) or enter into any unusual or abnormal
contract or commitment save for the proposed acquisition of a new
accounting and administration system and the proposed lease of the
"Midland Bank building" in Bournemouth, on the terms details of which are
set out in the Disclosure Letter;
14.10 enter into (save as a defendant, having given prompt written notice
thereof to the Purchaser) any litigation or arbitration proceedings
(other than routine debt collection or as disclosed in the Disclosure
Letter);
14.11 not declare, pay or make any dividend or other distribution of capital
within the meaning of the Taxes Act 1988 nor redeem or purchase any of
its shares;
14.12 not create, allot or issue any share or loan capital or other securities
or acquire any shares or other interest in any other company;
14.13 not pass any resolution in general meeting other than to re-register the
Company as a private limited company;
14.14 continue its insurance policies and do nothing to render such policies
void or voidable;
14.15 make any change in any method or practice of accounting except for any
such change required by reason of law or regulation; and
14.16 give all reasonable co-operation to the Purchaser (where applicable at
the Purchaser's expense) so as to ensure a smooth, orderly and efficient
continuation of management of the Company and the Subsidiaries after
Completion.
15. RESTRICTIVE COVENANTS
---------------------
25
<PAGE>
15.1 Each of the Warrantors hereby undertakes severally with the Purchaser that
he will not whether directly or indirectly or whether on his own account or
for the account of any other person, firm or company, or as agent,
director, partner, manager, employee, consultant or shareholder of or in
any other person, firm or company:-
15.1.1 during the period from the date hereof to two years and six months
after the Completion Date carry on or be engaged or concerned or
interested in any business which is directly or indirectly in
competition with any business of the Company or any of the
Subsidiaries carried on at the date of this Agreement in such
countries in which such business is carried on at the date of this
Agreement (any such business being referred in this Clause 15 to as
a "Restricted Business");
15.1.2 during the period from the date hereof to two years and six months
after the Completion Date seek in competition with any Restricted
Business to procure orders from, or do business with, any person
firm or company who has been a customer of the Company or any of
the Subsidiaries at any time during the period of twelve months
prior to the Completion Date; or
15.1.3 during the period from the date hereof to two years and six months
after the Completion Date, solicit or endeavour to entice away from
or discourage from being employed by the Company or any of the
Subsidiaries, any person who is at the date hereof an employee of
the Company or any of the Subsidiaries or whom any of such
companies may at the date hereof have agreed to engage as an
employee; or
15.1.4 during the period from the date hereof to two years and six months
after the Completion Date, attempt to employ or negotiate or
arrange the employment of or engagement by any other person of, any
person who is at the date hereof or, at the Completion Date shall
be an employee of the Company or any of the Subsidiaries or whom
any of such companies may at the date hereof have agreed to engage
as an employee.
15.2 It is agreed by the parties that, whilst the restrictions set out in sub-
clause 15.1 are considered fair and reasonable, if it should be found that
any of the restrictions be void as going beyond what is fair and reasonable
in all the circumstances and if by deleting part of the wording it would
not be
26
<PAGE>
void, then such deletions shall be made as shall render sub-clause
15.1 valid and enforceable.
15.3 None of the restrictions in sub-clause 15.1.1 shall be deemed to restrict
or prevent any of the Warrantors from being interested in any business
solely as the owner for investment of securities dealt in on a recognised
stock exchange or the NASDAQ Stock Market and not exceeding 5 per cent in
nominal value of the securities of that class or as the owners of the
Consideration Shares or as officers or employees of the Purchaser's Group.
15.4 The restrictions contained in sub-clause 15.1 shall not take effect until
the day after particulars of this Agreement has been duly furnished to the
Director General of Fair Trading pursuant to Section 24 Restrictive Trade
Practices Act 1976 (unless such restrictions shall take effect without the
need for such furnishing in which case such restrictions shall take effect
from Completion).
16. GUARANTEE
---------
16.1 In consideration of the undertaking by the Vendors to pay WAM!NET the sum
of (Pounds)1 upon written request by WAM!NET, WAM!NET irrevocably and
unconditionally guarantees to the Vendors the due and punctual performance
of each obligation of the Purchaser whether to be performed before on or
after Completion contained in this Agreement. WAM!NET shall pay to the
Vendors from time to time on demand any sum of money which the Purchaser is
at any time liable to pay to the Vendors or any of them under or pursuant
to this Agreement and which is then due and had not been paid at the time
the demand is made. WAM!NET's obligations under this sub-clause 16.1 are
primary obligations and not those of a mere surety. If an obligation of
the Purchaser is void, voidable or unenforceable for any reason, WAM!NET's
obligations under sub-clause 16.1 are unaffected and WAM!NET shall perform
the Purchaser's obligations as if it were primarily liable for the
performance.
16.2 WAM!NET's obligations under sub-clause 16.1 are continuing obligations and
are not satisfied, discharged or affected by an intermediate payment or
settlement of account by, or a change in the constitution or control of, or
the insolvency of, or bankruptcy, winding up or analogous proceedings
relating to, the Purchaser.
16.3 WAM!NET's liability under sub-clause 16.1 is not affected by any
arrangements which any of the Vendors may make with the Purchaser or with
another person which (but for sub-clause 16.3) might operate to
27
<PAGE>
diminish or discharge the liability of WAM!NET or otherwise provide a
defence to a surety.
16.4 Without affecting the generality of sub-clause 16.3, the Vendors may at
any time as they think fit and without reference to WAM!NET:-
16.4.1 grant a time for payment or grant another indulgence or agree to an
amendment, variation, waiver or release in respect of an obligation of
the Purchaser under this Agreement;
16.4.2 give up, deal with, vary, exchange or abstain from perfecting or
enforcing other securities or guarantees held by any of the Vendors;
16.4.3 discharge a party to other securities or guarantees held by any of the
Vendors and realise all or any of those securities or guarantees; and
16.4.4 compound with, accept compositions from and make other arrangements with
the Purchaser or a person or persons liable on other securities or
guarantees held or to be held by the Vendors.
16.5 WAM!NET's liability under sub-clause 16.1 is not affected by the
avoidance of an assurance, security or payment or a release, settlement
or discharge which is given or made on the faith of an assurance,
security or payment, in either case, under an enactment relating to
bankruptcy or insolvency.
17. ANNOUNCEMENTS AND CONFIDENTIALITY
---------------------------------
17.1 Other than to the extent required by law or by any recognised stock
exchange or regulatory or governmental body having jurisdiction (and
then provided that the announcement or disclosure is only made after
consultation with the other parties), or in furtherance of the funding
proposed by WAM!NET and referred to in sub-clause 4.1.6, no announcement
or disclosure concerning the matters provided for in this Agreement
shall be made or issued by or on behalf of the Vendors or the Purchaser
without the prior written approval of the other (such approval not to be
unreasonably withheld or delayed).
17.2 The Vendors each severally agree to keep secret and confidential and not
to use, disclose or divulge to any third party or to enable or cause any
person to become aware of (except for the purposes of the business of
the Company) any confidential information obtained by such Vendor in
connection with the transaction contemplated by this Agreement and
28
<PAGE>
relating to the Purchaser's Group (including after Completion, the
Company and the subsidiaries) including but not limited to lists of
customers, reports, notes, memoranda and all other documentary records
pertaining to the Purchaser's Group (including after Completion, the
Company and the subsidiaries) or their respective business affairs or
products.
17.3 The restrictions in sub-clause 17.2 shall cease to apply to any such
confidential information which:-
17.3.1 at the time of disclosure was in the public domain; or
17.3.2 after disclosure comes into the public domain other than by
breach of the undertakings contained in sub-clause 17.2; or
17.3.3 was proved to be known to the relevant party at the time of
disclosure provided that the source of such information was not
subject to any agreement or other duties relating to
confidentiality in respect thereof.
29
<PAGE>
18. REGISTRATION RIGHTS
-------------------
18.1 Registration Rights
-------------------
If WAM!NET, at any time during the period beginning on the date six
months from the date WAM!NET completes a public offering of its equity
securities and ending on the date seven years from Completion, proposes
to register the sale of any of its securities (except debt securities,
including debt securities convertible into equity securities) under the
Securities Act of 1933 ("the Act"), (except by a claim of exemption or
registration statement on a form (i) that does not permit the inclusion
of shares by its security holders, (ii) that relates to an employee
benefit plan or (iii) that relates to a combination, acquisition or
disposition involving one or more other parties), WAM!NET will give
written notice to all registered holders of Consideration Shares of its
intention to do so and, on the written request of any registered holders
of Consideration Shares received by WAM!NET within fifteen (15) days
after delivery by WAM!NET of any such notice, WAM!NET will use its best
efforts to cause all such Consideration Shares, the holder of which
shall have requested the registration or qualification thereof, to be
included in such registration statement proposed to be filed by WAM!NET.
If any such registration shall be underwritten in whole or in part,
WAM!NET may require that the Consideration Shares requested for
inclusion pursuant to this paragraph be included in the underwriting on
the same terms and conditions as the securities otherwise being sold
through the underwriters. In the event that, in the good faith judgment
of the managing underwriter of such public offering, the total number of
securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering, WAM!NET
need include in such registration only such number of Consideration
Securities and other securities requested to be included in such
registration pro rata among the holders of such Consideration Securities
and other securities on the basis of the number of shares requested to
be included in the registration by each such holder, provided that the
inclusion of Consideration Securities or other shares held by persons
requesting registration shall not reduce the number of WAM!NET
securities being offered in the registration.
18.2 Miscellaneous Registration Rights Provisions
--------------------------------------------
18.2.1 Notwithstanding anything herein to the contrary, WAM!NET may delay
filing a registration statement, and may withhold or terminate efforts
to cause the registration statement to become effective, if WAM!NET
determines in good faith that such registration might adversely affect
WAM!NET.
30
<PAGE>
18.2.2 From time to time WAM!NET shall amend or supplement, at WAM!NET's
expense, the prospectus used in connection therewith to the extent
necessary in order to comply with applicable law. If, after the
registration statement becomes effective, WAM!NET advises the holders of
registered Consideration Shares that WAM!NET considers it appropriate
for the registration statement or any prospectus related thereto to be
amended, the holders of such Consideration Shares shall immediately
suspend any further sales of their registered Consideration Shares until
WAM!NET advises them that the registration statement or prospectus has
been amended.
18.2.3 The holder shall furnish in writing to WAM!NET all information as may be
reasonably requested by WAM!NET or required under applicable securities
law in connection with any registration of Consideration Shares,
including but not limited to, the proposed method of sale or other
disposition of the registered Consideration Shares and any compensation
payable in connection therewith. The holder shall comply with the
provisions of applicable securities law in connection with the
registration of Consideration Shares and the disposition thereof.
18.2.4 All expenses incurred in connection with any registration, qualification
or compliance pursuant to this Agreement, including without limitation,
all registration, filing and qualification fees, printing expenses, fees
and disbursements of counsel for WAM!NET, and expenses of any special
audits incidental to or required by such registration, shall be borne by
WAM!NET, provided however, that the person for whose account the
Consideration Shares covered by such registration are sold shall bear
underwriting commissions, discounts or fees relating to Consideration
Shares, fees of holders' legal counsel and fees and expenses of any
registration begun, the request for which has been subsequently
withdrawn by the holders, in which case such expenses shall be borne by
the holders requesting such withdrawal.
18.2.5 In connection with any registration statement in which the holder's
Consideration Shares are included, the holder will indemnify WAM!NET,
its directors and officers and each person who controls WAM!NET, against
any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a
31
<PAGE>
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such
untrue statement omission is contained in or should be contained in any
information furnished in writing by the holder.
18.2.6 WAM!NET's obligation to proceed with registration under this Agreement
shall terminate on the date on which, in the opinion of legal counsel to
WAM!NET, all common stock of WAM!NET that could be registered under the
United States Securities Act of 1933, as amended, or applicable United
States state securities laws (including Consideration Shares)
("Registrable Securities") held by a holder may be transferred within a
90-day period, or reissued without restriction, in compliance with the
provisions of Rule 144 or 145 under the Act, or any successor provision.
18.2.7 WAM!NET may, at its discretion and in lieu of registering the
Registrable Securities (including Consideration Shares) as provided
herein, repurchase such Registrable Securities (including Consideration
Shares) at "Fair Market Value", as defined below,at any time after
receiving a request for registration of such Registrable Securities. For
purposes of this sub-clause, "Fair Market Value" shall be determined on
the date WAM!NET receives the request for registration.
18.2.8 "Fair Market Value" means, with respect to WAM!NET's Common Stock, as of
any date: (i) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on
the Nasdaq National Market, the reported closing price of the Common
Stock on such exchange or by the Nasdaq National Market as of such date
(or, if no shares were traded on such day, as of the next preceding day
on which there was such a trade); or (ii) if the Common Stock is not so
listed or admitted to unlisted trading privileges or reported on the
Nasdaq National Market, and bid and asked prices therefor in the over-
the-counter market are reported by Nasdaq or National Quotation Bureau,
Inc. (or any such comparable reporting service), the mean of the closing
bid and asked prices as of such date, as so reported by Nasdaq, or, if
no so reported thereon, as reported by National Quotation Bureau, Inc.
(or such comparable reporting services); or (iii) if the Common Stock is
not so listed, or admitted to unlisted trading privileges, or reported
on the Nasdaq National Market, and such bid and asked prices are not so
reported by Nasdaq or National Quotation Bureau Inc. (or any comparable
reporting service), such price as WAM!NET's Board
32
<PAGE>
of Directors determines in good faith in the exercise of its
reasonable discretion.
18.2.9 Upon request of the managing underwriter of any public offering of
WAM!NET's securities, each holder of Consideration Shares agrees to
sign and deliver an appropriate agreement limiting such holder's
right to dispose of the Consideration Shares during the course of,
and for a reasonable time following, such public offering;
provided, however, that such agreement (i) is in customary form
appropriate to such transaction, (ii) is the same form required by
such underwriter from management and other principal shareholders
of WAM!NET, and (iii) has a duration not exceeding 180 days
following the effective date of the registration statement.
19. FURTHER ASSURANCE
-----------------
The Vendors and the Purchaser and WAM!NET shall do and execute, and
shall use their respective best endeavours to procure any other
necessary party to do and execute, all such further acts, things, deeds
and documents as may be necessary to give effect to the terms of this
Agreement.
20. WAIVER AND RELEASE
------------------
20.1 No waiver by any of the parties of any of the requirements hereof or of
any of its rights hereunder shall have effect unless given in writing
and, in the case of a corporate party, signed by a director or other
duly authorised officer of such party.
20.2 The Purchaser may release or compromise the liability of any Vendor
hereunder without affecting the liability of any other Vendor.
21. ENTIRE AGREEMENT AND VARIATIONS
-------------------------------
21.1 This Agreement (together with the documents referred to herein)
constitutes the entire Agreement between the parties with respect to all
matters referred to herein.
21.2 No variations hereof shall be effective unless made in writing and
signed by each of the parties and, in the case of a corporate party, by
a director or other duly authorised officer of such party.
21.3 Each of the Purchaser and WAM!NET hereby acknowledges that it has not
been induced to enter into this Agreement by any representation or
33
<PAGE>
warranty other than the Vendor Warranties and the warranties set forth
in Clause 8.
21.4 The Vendors hereby acknowledge that they have not been induced to enter
into this Agreement by any representation or warranty other than the
Purchaser Warranties.
22. COSTS
-----
22.1 Save where otherwise specifically stated, each party to this Agreement
shall pay its own costs of and incidental to this Agreement (and its
preparation and negotiation) and the sale and purchase hereby agreed to
be made.
22.2 The Purchaser shall pay all stamp duty in respect of the transfer of the
Shares.
23. COUNTERPARTS
------------
This Agreement may be entered into in any number of counterparts and by
the parties to it on separate counterparts each of which when so
executed and delivered shall be an original, but all the counterparts
shall together constitute one and the same instrument.
24. ASSIGNMENT
----------
24.1 This Agreement shall be binding upon and enure for the benefit of the
successors and permitted assigns of the parties but shall not be
assignable save as stated below or otherwise with the agreement of all
the parties. Any assignment in breach of this sub-clause 24.1 shall be
void and of no force or effect.
24.2 The Purchaser (and any permitted assignee) may at any time assign all or
any of its rights and benefits under this Agreement (including the
Vendor Warranties and any cause of action arising from any of them) to
any member of the Purchaser's Group provided that, if any member to whom
such rights and benefits are assigned ceases to be a member of the
Purchaser's Group, it shall re-assign the rights and benefits to the
Purchaser or another member of the Purchaser's Group.
24.3 Any Vendor may at any time assign all or any of its rights to receive
Consideration Shares under Clause 6 to employee(s) of the Company and/or
any of its subsidiaries from time to time and (with the prior written
consent of WAM!NET) to any other person PROVIDED THAT in any event such
assignment shall be conditional on an opinion of Counsel for
34
<PAGE>
WAM!NET being received on terms reasonably acceptable to WAM!NET that
such assignment is exempt from registration under the US Securities Act
of 1933, as amended and under any applicable US state securities laws.
24.4 Any Vendor may at any time sell its Consideration Shares and assign the
rights thereto to any other Vendor subject to the condition set out in
the proviso to sub-clause 24.3.
25. MISCELLANEOUS
-------------
25.1 The provisions of this Agreement insofar as the same shall not have been
performed at Completion (including but not limited to the Vendor
Warranties and the Purchaser Warranties) shall remain in full force and
effect notwithstanding Completion.
25.2 Time shall be of the essence of this Agreement, both as regards the
dates and periods mentioned and as regards any dates and periods which
may be substituted for them in accordance with this Agreement or by
agreement in writing between the parties.
25.3 If any provision of this Agreement is held to be invalid or
unenforceable, then such provision shall so far as it is invalid or
unenforceable be given no effect and shall be deemed not to be included
in this Agreement but shall not otherwise render any of the remaining
provisions of this Agreement invalid or unenforceable.
25.4 If any matter referred to in this Agreement requires the approval or
agreement of the Vendors, such approval or agreement shall be deemed to
have been given by all of the Vendors if it has been given in writing by
such number of Vendors who, at the date hereof, hold 75% or more of the
Shares. For the purposes of this Agreement, the approval or agreement of
a deceased Vendor shall be deemed to have been given if given by such
deceased Vendor's personal representatives.
26. NOTICES
-------
26.1 Any notice to be given hereunder shall either be delivered personally
(including by courier) or sent by first class recorded delivery post (if
to an addressee in the same country as the sender) or airmail or fax to
the party to be served at the address set out opposite his name in the
Preamble or in the First Schedule (as the case may be) or relevant fax
number (as the case may be) notified from time to time to the other
parties for this purpose) or such other address or relevant fax number
(as the case may be) as may from time to time be notified to the other
parties
35
<PAGE>
hereto for this purpose. A notice shall be deemed to have been served as
follows:-
26.1.1 if personally delivered, at the time of delivery;
26.1.2 if posted by overland mail at the expiration of two business days
after the envelope containing the same was delivered into the
custody of the postal authorities;
26.1.3 if posted by airmail at the expiration of five business days
after the envelope containing the same was delivered into the
custody of the postal authorities;
26.1.4 if sent by fax, at the expiration of one business day after the
same was properly despatched (provided that a copy of the notice
was also sent by first class recorded delivery post or airmail
within 24 hours of the fax transmission).
26.2 In proving such service it shall be sufficient to prove that personal
delivery was made, or that the envelope containing such notice was properly
addressed and delivered into the custody of the postal authority as a pre-
paid first class recorded delivery letter, or airmail letter, or that the
fax was properly addressed and despatched and the sender's machine shall
have indicated that the message has been received at the addressee's
machine, as the case may be.
27. LAWS AND JURISDICTION
---------------------
27.1 The construction, validity and performance of this Agreement (other than
Clause 18) shall be governed by the laws of England. The construction,
validity and performance of Clause 18 shall be governed by US federal law
and the laws of the State of Minnesota.
27.2 In relation to any legal action or proceedings to enforce this Agreement or
arising out of or in connection with this Agreement or the Tax Deed, each
party irrevocably submits to the non-exclusive jurisdiction of the English
courts.
27.3 Geocapital IV L.P. hereby irrevocably appoints the Vendors' Solicitors as
its agent for service of process in England in relation to any disputes or
proceedings arising out of or in connection with this Agreement.
27.4 WAM!NET hereby irrevocably appoints the Purchaser's Solicitors as its agent
for service of process in England in relation to any disputes or
36
<PAGE>
proceedings arising out of or in connection with this Agreement or the Tax
Deed.
IN WITNESS this Agreement has been signed by or on behalf of each of the parties
- ----------
hereto the day and year first before written.
37
<PAGE>
THE FIRST SCHEDULE
------------------
THE VENDORS
-----------
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
NAME ADDRESS NO OF SHARES CASH CONSIDERATION CONSIDERATION SHARES % OF DEFERRED
- ---- ------- ------------ ------------------ -------------------- -------------
CONSIDERATION
-------------
<S> <C> <C> <C> <C> <C>
(Ordinary unless
otherwise stated)
David Anthony Townend 3 Marwell Close 31,680,000 $7,991,094 263,460 48.95%
Littledown
Bournemouth
Dorset
Andrew Steven Baird 30 Denbigh Road 9,000,000 $2,270,197 74,846 13.90%
London W13 8NH
Lyndon David Stickley 14 State Street 5,000,000 $1,261,220 41,581 7.72%
Marblehead
Massachusetts
USA
Yorick Phoenix 4,320,000 $1,089,694 35,926 6.67%
6 Princes Road
Poole
Dorset BH12 1BH
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6)
NAME ADDRESS NO OF SHARES CASH CONSIDERATION CONSIDERATION SHARES % OF DEFERRED
- ---- ------- ------------ ------------------ -------------------- -------------
CONSIDERATION
-------------
<S> <C> <C> <C> <C> <C>
(Ordinary unless
otherwise stated)
Media Tec Unit 18 5,000,000 $1,261,220 41,581 7.72%
Investments Limited Mill Wall
Wickham's Cay
Tortola
British Virgin Island
Geocapital IV L.P. One Bridge Plaza 11,883,178 $4,200,820 34,617 12.22%
Fort Lee Preferred Ordinary
New Jersey Shares
USA
31 Group PLC 91 Waterloo Road 2,742,272 $ 981,000 7,989 2.82%
London SE1 8XP Preferred Ordinary
Shares
</TABLE>
39
<PAGE>
THE SECOND SCHEDULE
-------------------
PART 1
------
THE COMPANY
-----------
(i) Directors: Antony Gerard Ebel, Anthony Richard Prest,
Andrew Steven Baird, Lyndon David Stickley,
David Anthony Townend, Stephen Joshua
Clearman
(ii) Secretary: Andrew Steven Baird
(iii) Registered Office: Gild House, 64-68 Norwich Avenue West,
Bournemouth BH2 6AW
(iv) Date of Incorporation: 7 April 1993
(v) Country of Incorporation: England and Wales
(vi) Registered Number: 2807473
(vii) Auditors: Ernst & Young
(viii) Accounting Reference Date: 30 September
(ix) Charges: Legal Mortgage dated 13 December 1994 in
favour of National Westminster Bank Plc.
(x) Authorised Share Capital: (Pounds)10,000,000 divided into 985,374,550
ordinary shares of 1 pence each and
14,625,450 convertible redeemable preferred
ordinary shares of 1 pence each
(xi) Issued Share Capital: HOLDER NO. & CLASS OF
------ --------------
SHARES
------
As per columns (1), (2) and (3) of The First
Schedule
40
<PAGE>
PART 2
------
THE SUBSIDIARIES
----------------
(A) 4-SIGHT (INTERNATIONAL) LIMITED
(i) Directors: Christopher Holly, Harvey George
Jones, Anthony Richard Prest,
Andrew Steven Baird, Yorick
Phoenix, Lyndon David Stickley,
David Anthony Townend
(ii) Secretary: Andrew Steven Baird
(iii) Registered Office: Gild House, 64-68 Norwich Avenue West,
Bournemouth, Dorset BH2 6AW
(iv) Date of Incorporation: 4 June 1990
(v) Country of Incorporation: England and Wales
(vi) Registered Number: 2508346
(vii) Auditors: Ernst & Young
(viii) Accounting Reference Date: 30 September
(ix) Charges: Mortgage Debenture dated 9 August 1994
in favour of National Westminster
Bank Plc
(x) Authorised Share Capital: (Pounds)100,000 divided into 25,000
redeemable preference shares of(Pounds)1
each, 250 convertible preference shares
of (Pounds)100 each and 50,000 ordinary
shares of (Pounds)1 each
(xi) Issued Share Capital: HOLDER NO. & CLASS OF
------ --------------
SHARES
------
41
<PAGE>
the Company 1,139 ordinary shares and
250 convertible preference shares
(xii) Percentage beneficially
owned by the Company: 100%
(B) 4-SIGHT (SOFTWARE) LIMITED
(i) Directors: Andrew Steven Baird, David
Anthony Townend, Anthony Richard
Prest, Christopher Holly
(ii) Secretaries: Andrew Steven Baird, David
Anthony Townend
(iii) Registered Office: Gild House, 64-68 Norwich Avenue
West, Bournemouth, Dorset BH2 6AW
(iv) Date of Incorporation: 15 November 1995
(v) Country of Incorporation: England and Wales
(vi) Registered Number: 3126535
(vii) Auditors: Ernst & Young
(viii) Accounting Reference Date: 30 September
(ix) Charges: None
(x) Authorised Share Capital: 100 (Pounds) divided into 100
ordinary shares of (Pounds)1 each
(xi) Issued Share Capital: HOLDER NO. & CLASS
------ -----------
OF SHARES
---------
the Company 2 ordinary shares
(xii) Percentage beneficially
owned by the Company: 100%
42
<PAGE>
(C) 4-SIGHT INC.
(i) Directors: Andrew Titley
(ii) Secretary: Andrew Titley
(iii) Registered Office: 1209 Orange Street, Wilmington,
Delaware 19801, U.S.A.
(iv) Date of Incorporation: 4 August 1994
(v) Country of Incorporation: U.S.A.
(vi) Registered Number: N/A
(vii) Auditors: None
(viii) Accounting Reference Date: 30 September
(ix) Charges: None
(x) Authorised Share Capital: 3,000 shares of common stock, par value
of $1.00 per share
(xi) Issued Share Capital: HOLDER NO. & CLASS
------ -----------
OF SHARES
---------
the Company 1,999 shares of
common stock
(xii) Percentage beneficially
owned by the Company: 100%
(D) 4-SIGHT GMBH
(i) Directors: David Anthony Townend, Andrew Steven
Baird
(ii) Secretary: None
43
<PAGE>
(iii) Registered Office: Hamburg, Germany
(iv) Date of Incorporation: 12 September 1995
(v) Country of Incorporation: Germany
(vi) Registered Number: HR B 59 578
(vii) Auditors: None
(viii) Accounting Reference Date: 31 December
(ix) Charges: None
(x) Authorised Share Capital: DM 50,000
(xi) Issued Share Capital: HOLDER NO. & CLASS
------ -----------
OF SHARES
---------
the Company DM 50,000
(xii) Percentage beneficially
owned by the Company: 100%
44
<PAGE>
THE THIRD SCHEDULE
------------------
INTELLECTUAL PROPERTY RIGHTS
----------------------------
1. all rights in and to the products listed in attachment 14 of the Previous
Disclosure Letter (as defined in the Disclosure Letter) and the addendum to
that attachment dated 28 January 1998 (both jointly hereinafter referred to
as the "Intellectual Property Report") and all rights in and to all other
products which the Company is developing and has released and/or developed
at any time (all these products jointly hereinafter referred to as the
"Products");
2. all rights in and to all other software programs, files, documentation,
databases, artwork, inventions, trade secrets and other information and
materials created, developed, and/or designed by the Company's past and
present employees whilst in the Company's employ and/or any third parties
on behalf of the Company;
3. all rights, by way of licence, in and to third party programs and libraries
(so described in the Intellectual Property Report) listed in the
Intellectual Property Report and all other third party programs and
libraries which are currently used in the development and/or design of any
of the Products and/or which are incorporated in any of the Products or are
otherwise used by the Company;
4. all rights, by way of a licence agreement, in and to information of a
confidential nature of a third party disclosed to the Company for the
purpose of using such information subject to the terms of the agreement;
5. all registered and unregistered third party trade marks which the Company
features on any of the packaging, instruction manuals and/or any other
documentation and/or artwork designed and/or used in conjunction with the
Company's business and/or in any of the Company's promotional and/or
advertising materials;
6. all registered trade marks and applications for the same listed in the fax
of Mrs Lait of Barker, Brettell & Duncan to Mr Baird of 21 January 1998 and
unregistered trademarks developed by or on behalf of the Company;
7. all rights, by way of licence, in and to the software used by the Company
for accounting, administrative and general office purposes.
45
<PAGE>
THE FOURTH SCHEDULE
-------------------
THE PENSION SCHEME
------------------
U.S.
----
4-SIGHT, L.C. 401(k) PLAN
U.K.
----
The Equitable Personal Pension Plan with the Equitable Life Assurance
Society (dormant)
46
<PAGE>
THE FIFTH SCHEDULE
------------------
THE PROPERTIES
--------------
<TABLE>
<CAPTION>
DATE PREMISES ORIGINAL PARTIES TERM
- ---- -------- ---------------- ----
<S> <C> <C> <C>
13.12.94 Units 4, 5 and 6 Graybird Properties 999 years commencing
(Numbers 64-68) Limited (Landlord) commencing
Norwich Avenue West 4-Sight (Software)
Bournemouth Limited (Tenant) (2)
Dorset
20.11.96 70 Norwich Avenue West Peter John Ruckwood Period commencing
Bournemouth (Landlord) (1) 01.01.97 and expiring
Dorset 4-Sight plc (2) 30.04.99
16.10.97 Oserbekstrasse COH City Office Period commencing
90A-C Hamburg 22083 Hamburg GmBH (1) 01.12.97 and
Germany 4-Sight GmBH (2) terminable thereafter,
but no earlier than
31.12.98, on any
calendar quarter on 6
months' notice
29.02.96 Suites 3600 and 3700 Cummings Property 29.02.96 to 30.08.99
800 West Cummings Park Management Inc (1)
Woburn 4-Sight LC (2)
Massachusetts
U.S.A
01.07.97 Suite 3800 Cummings Property 01.07.97 to 30.07.2001
800 West Cummings Park Management Inc (1)
Woburn 4-Sight LC (2)
Massachussets
U.S.A
Undated 1824 Industrial Circle John E Spencer Snr (1) Rolling yearly renewal
West Des Moines CE Software Inc (2) period 15 August to 14
Polk, Iowa, USA August
</TABLE>
47
<PAGE>
THE SIXTH SCHEDULE
------------------
THE TAX DEED
------------
THIS DEED is made this day of 1998
- ---------
BETWEEN:-
- -------
(1) THE SEVERAL PERSONS whose names and addresses are set out in columns 1 and
-------------------
2 respectively of the First Schedule hereto ("the Covenantors"); and
(2) WAM!NET (UK) LIMITED (company number 3969851) whose registered office is at
--------------------
8-10 New Fetter Lane, London EC4A 1RS and WAM!NET INC. whose principal
------------
place of business is at 6100 West 110 Street, Minneapolis, Minnesota 55438,
U.S.A (collectively "the Purchaser").
WHEREAS by an Agreement ("the Agreement") between, amongst others, the
- -------
Covenantors and the Purchaser, the Covenantors, amongst others, agreed to sell
the entire issued share capital of 4-Sight Limited to the Purchaser and by
virtue of the Agreement the Covenantors agreed to enter into this Deed.
NOW THIS DEED WITNESSETH as follows:-
- ------------------------
1. DEFINITIONS
-----------
In this Deed:-
1.1 "Claim" includes any assessment, notice, demand or other document
issued or action taken by or on behalf of a Tax Authority whereby the
Company is or is sought to be made liable to make a payment of
Taxation or a Relief is denied or is sought to be denied;
1.2 "Event" means any event, act, transaction or omission, whether or not
the Company is a party thereto, and includes (without limitation) a
receipt or accrual of income or gains, distribution, deemed
distribution, failure to distribute, acquisition, disposal, transfer,
payment, loan, advance, Completion and any combination of two or more
such occurrences;
1.3 "Company" means each and every company listed in the Second Schedule
hereto or any one of them as the context requires;
48
<PAGE>
1.4 "Relief" means any loss, relief, allowance, exemption, set off,
credit, rebate, refund, right to repayment or deduction in respect of
any Taxation or any set off or deduction in computing, or against,
profits, income or gains of any description or source for the purposes
of any Taxation;
1.5 reference to income or profits or gains earned, accrued or received,
shall include income or profits or gains deemed to have been or
treated as or regarded as earned, accrued or received for the purposes
of any legislation relating to Taxation;
1.6 reference to the loss of Relief or of a right to repayment of Taxation
shall include the loss, reduction, modification, cancellation,
nullification, withdrawal, counteracting or clawback of any Relief or
right to repayment of Taxation;
1.7 reference to any liability to Taxation shall include not only any
liability to make any actual payment of Taxation (whether made before
or after the date hereof and whether satisfied or unsatisfied at the
date hereof) but also:-
1.7.1 the loss of any Relief which has been shown as an asset in the
Audited Accounts or has been taken into account in computing
(and reducing) a provision (for deferred tax or otherwise)
which appears in the Audited Accounts or which has resulted in
no such provision being made in the Audited Accounts; or
1.7.2 the amount of any Relief which has either:-
(a) been treated as an asset in the Audited Accounts or has
been taken into account in computing (and reducing) a
provision (for deferred tax or otherwise) which appears
in the Audited Accounts or which has resulted in no such
provision being made in the Audited Accounts; or
(b) arises in consequence of an Event occurring or is
otherwise attributable to a period after Completion;
which in each case is used to relieve income, profits or gains
or which has been set against any liability to make an actual
payment of Taxation in circumstances where (but
49
<PAGE>
for such utilisation or set off) the Purchaser would have been
entitled to make a claim against the Covenantors pursuant to
Clause 2 of this Deed (subject always to the provisions of
Clause 3 of this Deed);
1.8 In any case mentioned in Clause 1.7 above there shall be treated as an
amount of Taxation for which a liability has arisen:-
1.8.1 in a case which falls within Clause 1.7.1 or Clause 1.7.2,
where the Relief which was subject to the loss or utilisation
was a deduction from or offset against Taxation, the amount of
the Relief;
1.8.2 in a case which falls within Clause 1.7.1 or 1.7.2, where the
Relief which was lost or utilised was a deduction from or
offset against income or profits or gains:-
(a) if the Relief is lost, the amount of Taxation which
would, on the basis of the rates of Taxation current at
Completion, have been saved had such Relief been
available, on the assumption that income, profits or
gains in respect of the earliest period for which such
Relief is available are such that the Relief (and all
other Reliefs available to the Company) could have been
utilised in full (and so that for this purpose any actual
liability to Taxation as a result of the loss of the
Relief shall be disregarded);
(b) if the Relief is the subject of such set off, the amount
of Taxation which has been saved in consequence of such
setting off;
1.9 reference to the result of Events on or before the date hereof shall
include the combined result of two or more Events the first of which
shall have taken place on or before the date hereof;
1.10 "Taxation" means all forms of taxation, duties, imposts, levies and
rates whenever imposed and whether of the United Kingdom or elsewhere
and in particular (but without prejudice to the generality of the
foregoing) includes income tax, withholding taxes, corporation tax,
capital gains tax, capital transfer tax, inheritance tax, value added
tax, customs duties, excise duties, development land tax, stamp duty,
stamp duty reserve tax, capital
50
<PAGE>
duty, national insurance contributions, social security or other
similar contributions and generally any other taxes, duties, imposts,
levies or other amounts (whether of a like nature or not) and any
interest, penalty or fine in connection therewith;
1.11 "Tax Authority" means any local, municipal, governmental, state,
federal or other fiscal, revenue, customs or excise authority body or
official anywhere in the world, entitled to enforce or collect
Taxation including, without limitation, the UK Inland Revenue and HM
Customs and Excise; and
1.12 unless the context otherwise requires words and expressions defined in
the Agreement have the same meaning in this Deed as in the Agreement.
2. COVENANT
--------
2.1 Subject as hereinafter provided the Covenantors hereby jointly and
severally covenant with the Purchaser to pay to the Purchaser or to pay, as
directed by the Purchaser, to the Purchaser or to the Company an amount
equal to:-
2.1.1 any liability to Taxation of the Company which arises as a result of
or by reference to any income, profits, or gains earned, accrued or
received on or before Completion or as a result of or in connection
with any Event occurring on or before Completion and whether alone
or in conjunction with other circumstances and whether or not any
such Taxation is primarily chargeable against or attributable to any
other person, firm or company;
and without limitation of the foregoing,
2.1.2 any liability to Taxation of the Company which arises as a result of
the making of a direction by HM Customs and Excise in respect of any
supply made before Completion between companies which either form
part of the same group of companies for the purposes of Value Added
Tax or which at the time of that supply are capable of forming such
a group;
2.1.3 any Inheritance Tax for which the Company is or may become liable
which:-
51
<PAGE>
(a) is at Completion a charge on any of the shares or assets of the
Company or gives rise to a power to sell, mortgage or charge
any of the shares or assets of the Company; or
(b) after Completion becomes a charge on or gives rise to a power
to sell, mortgage or charge any of the shares or assets of the
Company being a liability in respect of additional Inheritance
Tax payable as a result of the death of any person within seven
years after a transfer of value (or deemed transfer of value)
if a charge on or power to sell, mortgage or charge any such
shares or assets existed at Completion or would, if the death
had occurred immediately before Completion and the Inheritance
Tax payable as a result of such death had not been paid, have
existed at Completion; or
(c) arises as a result of a transfer of value by or to the Company
occurring on or before Completion,
and in determining whether a charge on or power to sell, mortgage or
charge any of the shares or assets of the Company exists at any
time, the fact that any Inheritance Tax is not yet payable or may be
paid by instalments shall be disregarded, and Inheritance Tax shall
be treated as becoming due and a charge or power to sell, mortgage
or charge as arising on the date of the transfer of value or other
date or Event on or in respect of which it becomes payable or arises
and the provisions of Section 213 of the Inheritance Tax Act 1984
shall not apply thereto;
2.1.4 any liability to Taxation for which the Company is or may become
liable in respect of or arising from any Event after Completion
outside the ordinary course of business of the Company as carried on
at Completion occurring in pursuance of a legally binding obligation
incurred or arrangement entered into by the Company on or before
Completion and which has not been disclosed in writing to the
Purchaser;
2.1.5 the reasonable costs and expenses incurred or payable by the
Purchaser and/or the Company in connection with or in consequence of
any Claim for Taxation or liability to Taxation or otherwise in
respect of any matter for which the Covenantors are liable under the
foregoing paragraphs of this Clause 2.1.
52
<PAGE>
2.2 Any amount payable hereunder by virtue of the covenant contained in Clause
2.1 above shall so far as possible be deemed to be a reduction in the
consideration for the Shares agreed to be sold under the Agreement.
3. EXCLUSIONS
----------
3.1 The covenant given by the Covenantors under Clause 2 above shall not cover
any liability to Taxation:-
3.1.1 to the extent that the liability was specifically taken into account
in making any provision or reserve in respect of such liability to
Taxation in the Audited Accounts or to the extent that payment or
discharge of such liability has been taken into account in the
Audited Accounts; or
3.1.2 to the extent that any provision or reserve made in the audited
accounts of the Company is insufficient only by reason of any
increase in the rates of Taxation introduced after Completion with
retrospective effect; or
3.1.3 to the extent that the liability to Taxation arises or is increased
as a result of any change in the law relating to Taxation or as a
result of any withdrawal, replacement or amendment of any published
statement of practice or extra-statutory concession announced or
made after Completion with retrospective effect; or
3.1.4 to the extent that the liability to Taxation arises wholly in
consequence of a voluntary act or omission after Completion (which
could reasonably have been avoided) carried out by the Purchaser or
the Company or any member of the Purchaser's Group otherwise than in
the ordinary course of business of the Company and which the
Purchaser was or ought reasonably to have been aware could give rise
to the liability to Taxation in question but so that this exclusion
shall not extend to any voluntary act or omission carried out (a)
pursuant to a legally binding obligation (whether pursuant to
contract or by virtue of any law or regulation) existing on or
before Completion; or (b) with the prior written consent of the
Covenantors; or
3.1.5 to the extent that the loss occasioned has been recovered pursuant
to any claim under the Vendor Warranties or recovered from any third
party; or
53
<PAGE>
3.1.6 to the extent that such liability to Taxation was discharged prior
to Completion (net of any cost to the Purchasers' Group in making
such discharge); or
3.1.7 to the extent that any Relief which has not been utilised in the
Audited Accounts or which is not shown as an asset in the Audited
Accounts arises in respect of or as a consequence of any Event
occurring before the Balance Sheet Date is available to the Company
to set against or otherwise mitigate the liability to Taxation
giving rise to the claim; or
3.1.8 to the extent and insofar that it arises or is increased as a
consequence of any failure to or delay by the Purchaser or the
Company in complying with any of their obligations under this Deed;
or
3.1.9 to the extent that it arises in the ordinary course of business of
the Company either as a result of or in respect of any Event which
occurred after the Balance Sheet Date or in respect of or by
reference to any income profits or gains actually earned, accrued
or received after the Balance Sheet Date; or
3.1.10 to the extent that it arises in respect of or by reference to any
income profits or gains earned, accrued or received after the
Balance Sheet Date to the extent that the consideration actually
earned, accrued, received or receivable in relation thereto is not
less than the consideration deemed to have earned, accrued or
received for Taxation purposes;
3.1.11 to the extent that it is a liability in respect of value added tax
relating to supplies made by the Company before Completion in
respect of which value added tax has been properly charged and the
tax invoice issued but which value added tax is not yet due and
payable to HM Customs & Excise unless and to the extent that such
value added tax is not actually received by the Company; or
3.1.12 to the extent that the liability arises by reason of a voluntary
disclaimer by the Company after Completion of the whole or any part
of any allowance to which it is entitled under Part II CAA 1990 or
by reason of the revocation by the Company after Completion of any
claim for a Relief made (whether provisionally or otherwise) by it
prior to
54
<PAGE>
Completion in each case where the allowance or Relief was
taken into account in the Audited Accounts; or
3.1.13 to the extent that the liability has been made good by
insurers or otherwise compensated without cost to the
Purchaser or the Company.
3.2 The provisions of Part I of the Eighth Schedule to the Agreement shall
operate to limit the liability of the Covenantors under this Deed save in
the circumstances referred to in Clause 9.2 of the Agreement (in which case
the provisions of paragraphs 1 to 5 (inclusive) of Part I of the Eighth
Schedule to the Agreement shall not apply to limit the liability of the
Covenantors under this Deed).
3.3 In calculating the liability of the Covenantors in respect of any Claim
credit will be given to the Covenantors to the extent of any provision or
reserve in respect of Taxation made in the audited accounts of the Company
which proves and is certified by the Company's auditors to be an over-
provision or over-reserve PROVIDED THAT in computing any such over-
provision or over-reserve no account shall be taken of any change in law or
the practice of any Tax Authority introduced or announced after the Balance
Sheet Date or any Relief arising after the Balance Sheet Date.
4. CONDUCT OF NEGOTIATIONS AND PROCEEDINGS
---------------------------------------
4.1 If any matter or circumstance which may give rise to a Claim relevant for
the purposes of this Deed comes to the attention of the Purchaser, it
shall:-
4.1.1 forthwith give written notice thereof to the Covenantors indicating
in reasonable detail the nature of the Claim and further shall
procure that the Company shall promptly supply the Covenantors with
full details of the Claim as soon as the Purchaser becomes aware of
them including a reasonable estimate of the amount and details of
the date on which payment in respect of the Claim is due; and
4.1.2 if the Covenantors indemnify the Purchaser and the Company to their
reasonable satisfaction against all losses, costs, damages and
expenses (including any interest or penalty on overdue Taxation and
any additional Taxation) which may be incurred thereby (and provide
security for costs reasonably satisfactory to them in respect of
such indemnity) take such steps as the Covenantors
55
<PAGE>
may reasonably request to avoid, dispute, resist, appeal, compromise
or defend the Claim and provide the Covenantors with such
information, books, records and correspondence as are in the control
of the Purchaser or the Company and which the Covenantors shall
reasonably require for the purpose of contesting such Claim and
shall give the Covenantors such assistance and reasonable co-
operation for the purposes of taking such action as the Covenantors
may reasonably request.
4.2 Neither the Purchaser nor the Company shall be obliged to appeal against
any Taxation assessment raised on it if:-
4.2.1 having given the Covenantors written notice of the receipt of the
Taxation assessment in accordance with provisions of Clause 4.1.1,
it has not within 15 business days received instructions in writing
from the Covenantors in accordance with the provisions of Clause
4.1.2 to make that appeal;
4.2.2 any period prescribed by the relevant legislation relating to
Taxation for making of an appeal against the liability for Taxation
which is the subject of the claim has expired before any request is
made by the Covenantors in accordance with Clause 4.1.2;
4.2.3 this will involve contesting any Taxation assessment beyond the
first appellate body (excluding the Tax Authority demanding the
Taxation in question) in the jurisdiction concerned, unless the
Covenantors furnish the Purchaser with the written opinion of tax
counsel of at least 10 years standing to the effect that an appeal
against the assessment in question will, on the balance of
probabilities, succeed.
4.3 Subject to compliance of the Purchaser with its obligations under Clause
4.1.1 the Purchaser and the Company shall be entitled without reference to
the Covenantors to admit, compromise, settle, discharge or otherwise deal
with any Taxation assessment after whichever is the earliest of:-
4.3.1 the Purchaser or the Company being notified by any of the
Covenantors that they consider that the assessment should no longer
be resisted;
4.3.2 the expiry of a period of 20 business days following the service of
a notice by the Purchaser or the Company on the Covenantors, or on
any of them, requiring the Covenantors to clarify or explain the
terms of any request made under Clause 4.1.2, during which
56
<PAGE>
period no such clarification or explanation has been received by the
Purchaser or the Company; and
4.3.3 the expiry of any period prescribed by applicable legislation for
the making of an appeal against either the Taxation assessment or
the decision of any court or tribunal in respect of any such
assessment, as the case may be.
4.4 Neither the Purchaser nor the Company shall be required to take any action
which in its reasonable opinion is likely to materially prejudice its
business or result in the Purchaser or the Company or any company which
forms part of the Purchaser's Group incurring a liability to Taxation or an
increased liability to Taxation which would not otherwise have arisen.
4.5 The Purchaser shall make no settlement or compromise of any liability to
Taxation for which a claim has been made under this Deed and in respect of
which the Covenantors have made any such request as is referred to in
Clause 4.1.2 above, nor agree any matter in the course of disputing the
said claim likely to affect the amount thereof without the prior written
approval of the Covenantors of the terms of the proposed settlement or
agreement (such approval not to be unreasonably withheld or delayed) and
upon settlement or final adjudication of the said claim the Covenantors
shall forthwith discharge any liability to Taxation arising from the said
claim in accordance with Clause 6 below.
4.6 Clause 4.1.2 shall not apply in respect of a Claim if the Covenantors or
the Company have committed an act or are responsible for an omission in
relation to the Claim which the Purchaser or the Company reasonably
considers constitutes fraudulent or negligent conduct.
5. TAX RETURNS
-----------
5.1 The Covenantors or their duly authorised agents (at the expense of the
Covenantors) shall at their option be responsible for and have the conduct
and control of preparing, submitting to and agreeing with the relevant Tax
Authority all Tax returns and computations of the Company for all
accounting periods ended on or before the Completion, provided that such
Tax returns and computations shall be prepared on a basis consistent with
that upon which such returns and computations have been prepared by the
Covenantors (or their duly authorised agent) previously, save to the extent
that any change in such basis is required in order to comply with any
change in generally accepted accounting principles or any change in
legislation, law or published practice of, or any requirement of,
57
<PAGE>
any Tax Authority or to take account of any change in any interpretation
thereof.
5.2 The Purchaser and the Covenantors shall each respectively provide (or
procure the provision to) the other or their duly authorised agents of such
information and assistance which may reasonably be required to prepare,
submit and agree all such outstanding Tax computations and returns,
including, without limitation, the causing of any computations, returns,
notices, claims, elections and agreements to be authorised signed and
returned by the Company to the Covenantors or their duly authorised
representatives for submission to the appropriate Tax Authority provided
that the Purchaser shall not be obliged to and shall not be obliged to
procure that the Company take any such action as is mentioned in this sub-
clause in relation to any Tax return or other document that is not full,
true and accurate in all material respects.
5.3 The Covenantors shall ensure that all such Tax returns and computations,
together with any related correspondence, are delivered to the Purchaser
before submission to the Tax Authority concerned, and the Covenantors shall
consult the Purchaser and consider the Purchaser's comments concerning the
same.
6. DATE FOR PAYMENT
----------------
6.1 Where the Covenantors are liable to make a payment pursuant to this Deed,
the due date for making such payment which shall be made in cleared funds
shall be :-
6.1.1 in a case which involves the making of an actual payment of Taxation
by the Company, the date that is three business days immediately
before the last date on which the Company would have had to pay to
the relevant Tax Authority the Taxation that has given rise to the
Covenantors' liability under this Deed in order to avoid incurring a
liability to interest or a charge or penalty in respect of that
liability to Taxation; or
6.1.2 in respect of a liability to Taxation falling within Clause 1.7.1
within five business days after the date on which the Covenantors
are notified by the Purchaser or the Company that the Covenantors
have a liability for a determinable amount;
6.1.3 in respect of a liability to Taxation falling within Clause 1.7.2
the date that is one business day before the last date upon which
the Company would have had to make an actual payment of Taxation
58
<PAGE>
but for the utilisation or set off of the Relief, as the case may
be, in order to avoid incurring a liability to pay interest or a
charge or a penalty;
6.1.4 in any other case, within five business days after the date when the
Covenantors have been notified by the Company or the Purchaser that
the Covenantors have a liability for a determinable amount, such
notice to be accompanied by reasonable evidence of the liability in
question having been incurred.
6.2 If any sum due and payable by the Covenantors under this Deed is not paid
on the due date for payment as ascertained in accordance with the
provisions of this Deed, the Covenantors shall in addition to that sum, pay
interest on the amount for the time being unpaid from the due date for
payment of the sum to and including the day of actual payment of the sum
(or the next business day if the day of actual payment is not a business
day). The interest shall accrue from day to day (before as well as after
judgment) at the rate of 2% per annum above the base lending rate for the
time being of Lloyds Bank plc and shall be compounded quarterly on the
usual quarter days.
7. GROSSING UP
-----------
7.1 Any payment by the Covenantors to the Purchaser or to the Company hereunder
shall be paid free and clear of all deductions, withholdings, set offs or
counterclaims whatsoever, save as may be required by law. If any
deductions or withholdings shall be required by law, the Covenantors shall
be obliged to pay to the Purchaser or to the Company such sum as will,
after such deduction or withholding has been made, leave the Purchaser or
the Company with the same amount as it would have been entitled to receive
in the absence of any such requirement to make a deduction or withholding.
7.2 If any payment by the Covenantors to the Purchaser or the Company hereunder
shall be subject to Taxation in the hands of the recipient then the sum
payable shall be increased by such amount as will ensure that, after
payment of Taxation, the Purchaser or the Company receives a net sum equal
to the sum which it would otherwise have received under this Deed had the
payment not been subject to Taxation provided always that if any payment is
initially made on the basis that the amount due is taxable in the hands of
the recipient and it is subsequently determined that is not, the Purchaser
shall promptly refund to the Covenantors the excess amount paid.
59
<PAGE>
8. REFUNDS
-------
If the Covenantors have made a payment under Clause 2 of this Deed and the
Purchaser or the Company subsequently receives from any other person (other
than the Company or the Purchaser) any sum in respect of the Taxation
concerned (otherwise than by reason of any Relief arising in consequence of
an Event occurring after Completion), the Purchaser or the Company shall
forthwith repay or procure the repayment to the Covenantors of the amount
received (including any interest or repayment supplement paid by the Tax
Authority relating to the period after receipt of the relevant payment from
the Covenantors on or in respect thereof, less any costs reasonably and
properly incurred in recovering such amount and any Taxation on such
amount) not exceeding the payment by the Covenantors hereunder.
9. CORRESPONDING SAVINGS
---------------------
9.1 If any payment is made by the Covenantors under this Deed in respect of a
liability to Taxation and the Company or the Purchaser receives a Relief in
respect of the liability to Taxation in question, the Purchaser shall pay
to the Covenantors the lower of the amount of Taxation that the Purchaser,
the Company or any member of the Purchaser's Group actually saves by virtue
of the relief (less any reasonable costs of obtaining or recovering such
relief and any Taxation suffered thereon) and the aggregate payments
previously made by the Covenantors under this Deed.
9.2 Any payment to be made by the Purchaser pursuant to Clause 9.1 shall be
made 5 business days after the date on which Taxation would have been
recoverable by a Taxation Authority but for the use of the Relief.
10. GENERAL
-------
10.1 Any liability of the Covenantors to the Purchaser or to the Companies under
the provisions of this Deed may in whole or in part be released, varied,
compounded or compromised by the Purchaser and by the Companies in their
absolute discretion without in any way prejudicing or affecting their
rights against the Covenantors hereunder. A waiver by the Purchaser and/or
by the Company of any breach by the Covenantors of the covenants and
undertakings contained in this Deed or the acquiescence of the Purchaser
and/or the Company in the act, whether of commission or omission, which but
for such acquiescence would be a breach as aforesaid, shall not constitute
a general waiver of such covenant or undertaking or of any subsequent act
contrary thereto.
60
<PAGE>
10.2 The provisions of Clauses 20.2, 21.2, 22, 23, 24.1, 24.2, 25.2, 25.3, 25.4,
26 and 27 of the Agreement shall apply as if repeated herein with
references to the Vendors in such provisions being deemed to be references
herein to the Covenantors and references therein to this Agreement being
deemed to be references herein to this Deed.
11. SECONDARY LIABILITIES
---------------------
11.1 WAM!NET (UK) Limited and WAM!NET Inc hereby jointly and severally covenant
with the Covenantors to pay to the Covenantors an amount equivalent to any
liability to Taxation of the Company for which the Covenantors are assessed
under Section 767A Taxes Act together with any reasonable costs and
expenses properly incurred by the Covenantors in connection with such
Taxation or a claim under this Clause.
11.2 The covenant contained in Clause 11.1 shall:
11.2.1 not apply to any Taxation to the extent that the Purchaser could
claim payment in respect of it under Clause 2.1 of this Deed;
11.2.2 not apply to Taxation which has been recovered under Section
767B(2) Taxes Act (and the Covenantors shall procure that no such
recovery is sought to the extent that payment is made hereunder).
IN WITNESS whereof this Deed has been executed by the Covenantors and the
- ----------
Purchaser and delivered the day and year first above written.
61
<PAGE>
THE FIRST SCHEDULE
------------------
THE COVENANTORS
---------------
(1) (2)
NAME ADDRESS
- ---- -------
Andrew Steven Baird 30 Denbigh Road
London W13 8NH
Lyndon David Stickley 14 State Street
Marblehead
Massachusetts
USA
David Anthony Townend 3 Marwell Close
Littledown
Bournemouth
Dorset
Yorick Phoenix
6 Princes Road
Poole
Dorset BH12 1BH
62
<PAGE>
THE SECOND SCHEDULE
-------------------
THE COMPANIES
-------------
<TABLE>
<CAPTION>
(1) (2) (3)
NAME NUMBER REGISTERED OFFICE
- ---- ------ ------------------
<S> <C> <C>
4-Sight PLC 2807473 64-68 Norwich Avenue, West
Bournemouth, BH2 6AW, England
4-Sight (International) 2508436 " "
Limited
4-Sight Software Limited 3126535 " "
4-Sight Inc N/A 1209 Orange Street, Wilmington,
Delaware 19801 U.S.A.
4-Sight GmbH HR B59 578 Hamburg, Germany
</TABLE>
63
<PAGE>
THE SEVENTH SCHEDULE
--------------------
PART I
------
THE VENDOR WARRANTIES
---------------------
1. THE SHARES
----------
No person has the right (whether exercisable now or in the future and
whether contingent or not) to call for the allotment or issue of any shares
or loan capital of the Company (under any option or other agreement
(including conversion rights and rights of pre-emption)).
2. SUPPLY OF INFORMATION
---------------------
(1) ACCURACY AND ADEQUACY OF INFORMATION DISCLOSED TO THE PURCHASER
---------------------------------------------------------------
All information contained in the Recitals and Schedules to this Agreement
and the Disclosure Letter (including the documents listed therein) is true
and accurate in all respects and none of the Warrantors is aware of any
fact or matter or circumstances not disclosed in writing to the Purchaser
which renders any such information untrue, inaccurate or misleading.
(2) COPIES OF AUDITED ACCOUNTS, THE MANAGEMENT ACCOUNTS AND MEMORANDUM AND
----------------------------------------------------------------------
ARTICLES OF ASSOCIATION
-----------------------
The copies of the Audited Accounts, the Management Accounts and the
memorandum and articles of association of the Company delivered to the
Purchaser are complete and accurate copies of the originals thereof and, in
the case of the memorandum and articles of association, contain full
details of the rights and restrictions attaching to the share capital of
the Company and have attached to them copies of all such resolutions and
agreements as are required by law to be delivered to the Registrar of
Companies for registration and all other resolutions passed by the Company
or any class of members, other than resolutions relating to ordinary
business at any annual general meeting of the Company.
(3) STATUS OF 4-SIGHT LIMITED
-------------------------
The criteria set out in paragraph 4(a)(i)-(iv) of the Introduction to the
City Code on Take Overs and Mergers do not apply to 4-Sight Limited.
64
<PAGE>
3. ACCOUNTS AND RECORDS
--------------------
(1) AUDITED ACCOUNTS
----------------
(a) The bases and policies of accounting adopted for the purpose of
preparing the Audited Accounts are the same as those adopted in
preparing the audited consolidated accounts of the Company in respect
of the two accounting periods of the Company last preceding the
Balance Sheet Date.
(b) The Audited Accounts give a true and fair view of the Company and of
the Company and the Subsidiaries as a whole at the Balance Sheet Date
and of the state of affairs of the Company and of the Company and the
Subsidiaries at the Balance Sheet Date and of the profits and losses
of the Company and of the Company and the Subsidiaries for the
financial period ended on the Balance Sheet Date.
(c) The Audited Accounts comply with the requirements of the Companies
Acts and were prepared in accordance with current FRS's and SSAP's
applicable to a United Kingdom company.
(d) The Audited Accounts:-
(i) disclose, to the full extent required by applicable accounting
standards, all the assets of the Company and of the Company and
the Subsidiaries, as at the Balance Sheet Date;
(ii) make adequate provision to the full extent required by
applicable accounting standards for all actual liabilities of
the Company and the Subsidiaries as at the Balance Sheet Date;
(iii) make proper provision to the full extent required by applicable
accounting standards (or note in accordance with good accounting
practice) for all contingent liabilities of the Company and of
the Company and the Subsidiaries as at the Balance Sheet Date;
(iv) make provisions reasonably regarded as adequate for all bad and
doubtful debts of the Company and the Subsidiaries as at the
Balance Sheet Date.
65
<PAGE>
(2) VALUATION OF STOCK AND WORK-IN-PROGRESS
---------------------------------------
The stock and work-in-progress were included in the Audited Accounts at
figures not exceeding the amounts which could in the circumstances existing
at the Balance Sheet Date reasonably be expected to be realised in the
normal course of carrying on the business of the Company.
(3) TAXATION
--------
(a) Full provision or reserve has been made in the Audited Accounts for
all Taxation liable to be assessed on the Company or for which it is
or may become accountable in respect of:-
(i) profits, gains or income (as computed for Taxation purposes)
arising or accruing or deemed to arise or accrue on or before
the Balance Sheet Date;
(ii) any transactions effected or deemed to be effected on or before
the Balance Sheet Date or provided for in the Audited Accounts;
and
(iii) distributions made or deemed to be made on or before the
Balance Sheet Date or provided for in the Audited Accounts.
(b) Proper provision or reserve for deferred taxation in accordance with
accounting principles and standards generally accepted in the United
Kingdom at the Balance Sheet Date has been made in the Audited
Accounts.
(c) Except as disclosed by the Audited Accounts and save in so far as full
provision is made in them in a deferred taxation account for Taxation
in respect of any chargeable gains or balancing charges which would
arise or accrue in respect of any asset or machinery and plant on
disposal thereof at the values at which they are included in them, no
asset with a book value in excess of (Pounds)5,000 is included in the
Audited Accounts at such value that if it were obtained on the
disposal or deemed disposal of the asset a chargeable gain or
balancing charge would arise or accrue.
(4) EXCEPTIONAL ITEMS
-----------------
The profits of the Company for the three years ended on the Balance Sheet
Date as shown by the Audited Accounts and by the audited
66
<PAGE>
accounts of the Company for previous periods delivered to the Purchaser and
the trend of profits thereby shown have not (except as disclosed in such
accounts) been affected by inconsistencies in accounting practices or by
the inclusion of non-recurring items of income or expenditure or by
transactions entered into otherwise than on normal commercial terms.
(5) BOOK DEBTS
----------
None of the book debts of a value in excess of (Pounds)3,000 in respect of
any debt which were included in the Audited Accounts or which have
subsequently arisen, have been outstanding for more than three months from
their due dates for payment or have been released on terms that the debtor
has paid less than the full value of his debt and, so far as the Warrantors
are aware all such debts have realised or will realise in the normal course
of collection their full value as indicated in the Audited Accounts or in
the books of the Company after taking into account the provision for bad
and doubtful debts made in the Audited Accounts. For the avoidance of
doubt, a debt shall not be regarded as realising its full value to the
extent that it is paid, received or otherwise recovered in circumstances in
which such payment, receipt or recovery is void, voidable or otherwise
liable to be reclaimed or set aside.
(6) ACCOUNTING AND OTHER RECORDS
----------------------------
The statutory books, books of account and other records of whatsoever kind
of the Company are in all material respects up-to-date and maintained in
accordance with all applicable legal requirements on a proper and
consistent basis and contain accurate records in all material respects of
all matters required to be dealt with in such books and all such books and
records and all other material documents (including documents of title and
copies of all subsisting agreements to which the Company is a party) which
are the property of the Company or ought to be in its possession are in its
possession or under its control and no notice or allegation that any is
incorrect or should be rectified has been received. All accounts,
documents and returns required by law to be delivered or made to the
Registrar of Companies or any other authority have been duly and correctly
delivered or made.
(7) THE MANAGEMENT ACCOUNTS
-----------------------
The Management Accounts:-
(a) have been prepared in good faith and with due diligence and on bases
and principles which are consistent with those used in the
67
<PAGE>
preparation of the unaudited management accounts of the Company and
the Subsidiaries for the financial year ended on the Balance Sheet
Date; and
(b) so far as the Warrantors are aware, give a fair and not misleading
view in all material respects of the financial state of affairs of the
Company and the Subsidiaries and their results for the period from the
Balance Sheet Date to the Management Accounts Date.
(8) CHANGES SINCE THE BALANCE SHEET DATE
------------------------------------
Since the Balance Sheet Date:-
(a) there has been no material adverse change in the financial position or
turnover of the Company;
(b) the Company's business has been carried on in the ordinary course,
without any material interruption or alteration in its nature, scope
or manner, and so as to maintain the same as a going concern;
(c) the Company has not entered into any transaction or assumed or, so far
as the Warrantors are aware, incurred any liabilities (including
contingent liabilities) or made any payment not provided for in the
Audited Accounts otherwise than in the ordinary course of carrying on
its business;
(d) the Company's profits have not been adversely affected by
inconsistencies in accounting practices, by the inclusion of non-
recurring items of income or expenditure, by transactions entered into
otherwise than on normal commercial terms;
(e) the Company has not entered into any unusual, long term or onerous
commitments or contracts;
(f) the Company's business has not been materially and adversely affected
by the loss of any important customer or source of supply or by an
abnormal factor not affecting similar businesses to a like extent and
none of the Warrantors is aware of any facts which are likely to give
rise to any such effects;
(g) no dividend or other distribution has been declared, made or paid to
the Company's members and no loan capital or share capital of
68
<PAGE>
the Company has been repaid in whole or in part or has become liable
to be repaid;
(h) the Company has not allotted or issued or agreed to issue any share or
loan capital or other securities convertible into shares or loan
capital;
(i) the Company has not made or received any surrender relating to group
relief or the benefit of advance corporation tax; and
(j) there has been no unusual increase or decrease in the level of the
Company's stock.
4. FINANCE
-------
(1) BORROWINGS
----------
(a) The amounts borrowed by the Company (as determined in accordance with
the provisions of the relevant instrument) do not exceed any
limitation on its borrowing contained in its Articles of Association
or in any debenture or other deed or document binding upon it.
(b) The Company does not have outstanding any loan capital, and has not
currently or within the 3 years preceding the date of this Agreement,
factored any of its debts or engaged in financing of a type which is
not required to be shown or reflected in audited accounts or borrowed
any money which it has not repaid nor otherwise has it the benefit of
any overdraft, loan or other financial facilities, save as disclosed
in the Disclosure Letter.
(c) A statement of all the bank accounts of the Company and of the credit
or debit balances on such accounts as at a date not more than seven
days before the date hereof is annexed to the Disclosure Letter. The
Company has no other bank or deposit accounts (whether in credit or
overdrawn) and since such statement there have been no payments out of
any such accounts except for routine payments and the balance on
current account are not now substantially different from the balances
shown on such statements.
(2) INSURANCE
---------
69
<PAGE>
(a) Particulars of the insurances of the Company are contained in the
Disclosure Letter to which copies of the policies are attached.
(b) All the assets of the Company which are of an insurable nature have
been and are at the date of this Agreement insured to the full
replacement value thereof against fire and other risks normally
insured against by companies carrying on similar businesses or owning
property of a similar nature and the Company has been and is at the
date of this Agreement adequately covered against accident, third
party injury, damage and other risks normally covered by insurance by
such companies.
(c) In respect of all such insurances:-
(i) all premiums have been duly paid to date;
(ii) all the policies are in force and, so far as the Warrantors are
aware, are not voidable on account of any act, omission or non-
disclosure on the part of the insured party;
(iii) there are no special or unusual terms or restrictions, the
premiums payable are not materially in excess of the normal
rates and neither the Company nor any Subsidiary has been given
notice of any circumstances in existence which are likely to
give rise to any increase in premiums; and
(iv) no claim is outstanding and neither the Company nor any
Subsidiary has been given notice of any circumstances which are
likely to give rise to any claim.
(4) GRANTS
------
Particulars of all investment or other grants, loan subsidies or financial
assistance received by virtue of any statute by the Company during the
previous six years are contained in the Disclosure Letter and, so far as
the Warrantors are aware, and act or transaction has been effected in
consequence of which the Company is or may be held liable to forfeit or
refund in whole or in part any such grant or loan or any for which
application has been made.
(5) WORKING CAPITAL
---------------
70
<PAGE>
Having regard to existing bank and other facilities, the Company has or
will have sufficient working capital for the purposes of continuing to
carry on its business in its present form and at its present level of
turnover for a period of 12 months after Completion and for the purposes of
executing, carrying out and fulfilling in accordance with their terms, all
projects and contractual obligations which remain outstanding.
5. TRADING AND CONTRACTUAL ARRANGEMENTS
------------------------------------
(1) CAPITAL COMMITMENTS
-------------------
The Company does not have any outstanding capital commitments in excess of
an aggregate of (Pounds)50,000.
(2) CONTRACTS
---------
The Company is not now a party to or subject to any contract, obligation or
liability which involves or may reasonably be expected to involve a
liability on the Company of in excess of (Pounds)50,000 and which:-
(a) is of an unusual or abnormal nature or not wholly on an arm's length
basis in the ordinary and usual course of business;
(b) is of a long-term nature (that is, unlikely to have been fully
performed, in accordance with its terms, more than 12 months after the
date on which is was entered into or undertaken);
(c) is incapable of termination in accordance with its terms, by the
Company, on 60 days' notice or less;
(d) is of a loss-making nature (that is to say, known to be likely to
result in a loss on completion of performance);
(e) cannot readily be fulfilled or performed on time without undue, or
unusual, expenditure of money or effort;
(f) invoices payment by reference to fluctuations in the index of retail
prices, or any other index, or in the rate of exchange for any
currency.
(3) GUARANTEES ETC
--------------
71
<PAGE>
Save as disclosed in the Audited Accounts or the Disclosure Letter, there
is not outstanding any guarantee, indemnity or suretyship given by or for
the benefit of the Company.
(4) DEBTS, CONTRACTS AND ARRANGEMENTS WITH CONNECTED PERSONS ETC
------------------------------------------------------------
(a) With the exception of the loans, debts and securities particulars of
which are contained in the Disclosure Letter and which will have been
discharged prior to Completion, there are:-
(i) no loans made by the Company to the Vendors and/or any director
of the Company and/or any person connected with any of them (as
such expression is defined in Section 839 of the Taxes Act 1988)
and the Company has not been a party to any transaction to which
any of the provisions of s.320 (substantial property
transactions involving directors, etc), s.322 (liabilities
arising from contravention of s.320) or s.330 (general
restrictions on loans etc to directors and persons connected
with them) Companies Act 1985 may apply;
(ii) no debts owing to the Company by any of the Vendors and/or any
director of the Company and/or any person connected (as defined
in paragraph (i) above) with any of them;
(iii) no debts owing by the Company other than debts which have arisen
in the ordinary course of business; and
(iv) no securities for any such loans or debts.
(b) With the exception of the contracts and arrangements particulars of
which are contained in the Disclosure Letter, there are no existing
contracts or arrangements to which the Company is a party and in which
any of the Vendors and/or any director of the Company and/or any
person connected with any of them are interested whether directly or
indirectly (other than by reason of their shareholdings in the
Company).
(c) There are not outstanding, nor during the past three years have been,
any arrangements or understandings (whether legally binding or not)
between the Company and any person who is a shareholder, or the
beneficial owner of any interest, in the Company or in any Subsidiary
or any person connected (as such
72
<PAGE>
expression is defined in Section 839 of the Taxes Act 1988) with any
such person, relating to the management of the Company's business, or
the appointment or removal of directors of the Company, or the
ownership or the letting of any of the assets of the Company, or the
provision, supply or purchase of finance, goods, services or other
facilities to, by or from the Company, or otherwise howsoever relating
to its affairs.
(d) None of the Warrantors have any material right or interest, direct or
indirect, in any business other than that now carried on by the
Company which is or, so far as the Warrantors are aware, will become
competitive with the business of the Company.
(5) EFFECT OF SALE OF THE SHARES
----------------------------
(a) Compliance with this Agreement does not and will not conflict with or
result in the breach of or constitute a default under any agreement or
instrument to which the Company is now a party or relieve any other
party to a contract with the Company of its obligations under such
contract or entitle such party to terminate such contract, whether
summarily or by notice.
(b) So far as the Warrantors are aware (but without having made specific
enquiry of any third party), neither entering into nor completing this
Agreement will or is likely to cause the Company to lose the benefit
of any right or privilege it presently enjoys or any person who
normally does business with or gives credit to the Company not to
continue to do so on the same basis or any officer or senior employee
of the Company to leave its employment.
(6) DEPENDENCE ON INDIVIDUAL SUPPLIERS OR CUSTOMERS
-----------------------------------------------
Neither more than 10 per cent of the aggregate amount of all the purchases,
nor more than 10 per cent of the aggregate amount of all the sales, of the
Company in each case during the 12 month period preceding the date hereof
are obtained or made from or to the same supplier or customer (including
any person, firm or company in any way connected with such supplier or
customer) nor, so far as the Warrantors are aware, is any material source
of supply to the Company, or any material outlet for the sales of the
Company, in jeopardy or likely to be in jeopardy.
(7) COMMISSIONS AND FINDER'S FEES
-----------------------------
73
<PAGE>
No one is entitled to receive from the Company any finder's fee, brokerage
or other commission in connection with the purchase of the Shares.
(8) JOINT VENTURE, PARTNERSHIPS ETC
-------------------------------
The Company is not and has not agreed to become, a member of any joint
venture, consortium, partnership or other unincorporated association and
the Company is not and has not agreed to become a party to any agreement or
arrangement for participating with others in any business sharing
commissions or other income.
(9) AGENCY AGREEMENTS AND AGREEMENTS RESTRICTING BUSINESS
-----------------------------------------------------
The Company is not a party to any agency, distributorship, marketing,
purchasing, manufacturing or licensing agreement (excluding "off the shelf"
software licences) or arrangement or other agreement or arrangement which
is material to the Company's business and which is exclusive or restricts
its freedom to carry on its business in any part of the world in such
manner as it thinks fit.
(10) STOCK AND WORK-IN-PROGRESS
--------------------------
The stock-in-trade currently held is not excessive but is adequate in
relation to the current trading requirements of the business of the
Company, is in good, undamaged and merchantable condition, is not obsolete
or slow-moving and is capable of being sold by the Company in the ordinary
course of its business in accordance with its current price list, without
rebate or allowance to a purchaser (or to the extent that this is not the
case, adequate provision or reserve has been made therefor in the Audited
Accounts or Management Accounts).
(11) SUFFICIENCY OF ASSETS
---------------------
The assets owned or leased by the Company and the facilities and services
to which the Company has a contractual right comprise all the assets,
facilities and services necessary for the carrying on of the business of
the Company in the manner in which it is presently conducted.
6. LEGAL MATTERS
-------------
(1) COMPLIANCE WITH LAWS
--------------------
74
<PAGE>
The Company is carrying on its business in accordance with applicable laws,
regulations and byelaws in the United Kingdom and in any relevant foreign
country and so far as the Warrantors are aware there is no investigation or
enquiry by, or order, decree or judgment of, any court or any governmental
agency or regulatory body outstanding or anticipated against the Company or
which might reasonably be expected to have a material adverse effect upon
its assets or business.
(2) LICENCES AND CONSENTS
---------------------
All material statutory, municipal and other licences, consents, permits and
authorities necessary for the carrying on of the business of the Company as
now carried on have been obtained and are valid and subsisting and all
conditions applicable to any such licence, consent (including planning
consent), permit or authority have been complied with and none of the
Warrantors is aware of any breach of them or of any intended or likely
suspension, cancellation, refusal or revocation of any of them.
(3) COMPLIANCE WITH AGREEMENTS
--------------------------
The terms of all material leases, tenancies, licences, concessions and
agreements of whatsoever nature to which the Company is a party have in all
material respects been duly complied with by all the parties thereto and so
far as the Warrantors are aware there are no circumstances likely to give
rise to any breach of such terms.
(4) LITIGATION
----------
(a) Since the Balance Sheet Date the Company has not received notice of
any claim for damages or seeking any other relief against the Company.
(b) Neither the Company nor in relation to any notice for which the
Company is vicariously responsible, any director or (so far as the
Warrantors are aware) employee is engaged whether as plaintiff or
defendant or otherwise in any legal action, proceedings or arbitration
(other than as plaintiff in the collection of debts arising in the
ordinary course of its business) nor is being prosecuted for any
criminal offence and, so far as the Warrantors are aware, there are no
such proceedings or prosecutions pending or threatened.
75
<PAGE>
(c) So far as the Warrantors are aware, there are no investigations,
disciplinary proceedings or other circumstances likely to lead to any
such claim or legal action, proceedings or arbitration (other than as
aforesaid) or prosecution in which the Company may become involved.
(5) INSOLVENCY ETC
--------------
(a) No order has been made, petition presented, resolution passed or
meeting convened for the winding up of the Company.
(b) No petition has been presented for an administration order to be made
in relation to the Company, nor has any such order been made.
(c) No receiver and/or manager (including an administrative receiver) has
been appointed of the whole or any part of any of the property, assets
and/or undertaking of the Company.
(d) No composition in satisfaction of the debts of the Company, or scheme
or arrangements of its affairs, or compromise or arrangement between
it and its creditors and/or members or any class of its creditors
and/or members, has been proposed, sanctioned or approved.
(e) No distress, distraint, charging order, garnishee order, execution or
other process has been levied or, so far as the Warrantors are aware,
applied for in respect of the whole or any part of any of the
property, assets and/or undertaking of the Company.
(f) So far as the Warrantors are aware, no event has occurred causing, or
which upon intervention or notice by any third party may cause, any
floating charge created by the Company to crystallise or any charge
created by it to become enforceable, nor, so far as the Warrantors are
aware, has any such crystallisation occurred or is such enforcement in
process.
(g) In relation to any property or assets held by the Company under hire
purchase, conditional sale, chattel leasing or retention of title
agreement or otherwise belonging to a third party which are material
to the carrying on of the Company's business, no event has occurred
which entitles, or which upon intervention or notice by the third
party may entitle, the third party to repossess the
76
<PAGE>
property or assets concerned or terminate the agreement or any licence
in respect of the same.
(h) The Company is not unable to pay its debts within the meaning of s.123
Insolvency Act 1986.
(i) The Company has not been party to any transaction with any third party
or parties which, in the event of any such third party going into
liquidation or an administration order or a bankruptcy order being
made in relation to it or him, would constitute (in whole or in part)
a transaction at an undervalue, a preference, an invalid floating
charge or an extortionate credit transaction or a transaction
defrauding creditors under ss. 238 to 245 (inclusive) or ss. 339 to
344 (inclusive) or s.423 Insolvency Act 1986.
(j) None of the persons who at present is, or who at any time within the
last three years was, a director or officer of the Company is or at
any material time was subject to any disqualification order under the
Companies Acts.
(k) No steps have been taken or are contemplated by the Warrantors or any
of them or by the Company or any third party, and so far as the
Warrantors are aware, no circumstances exist, which may at any time
hereafter lead to a result which renders any of the warranties
contained in sub-paragraphs (a) to (j) (inclusive) above to be no
longer true or accurate and no events or circumstances analogous to
any of those referred to in sub-paragraphs (a) to (j) (inclusive)
above have occurred, subsist or are contemplated in any jurisdiction
other than England.
(6) COMPETITION AND RESTRICTIVE PRACTICES
-------------------------------------
(a) The Company (so far as the Warrantors are aware) is not a party to
any agreement, arrangement or concerted practice and is not carrying
on any practice which in whole or in part:-
(i) is or requires to be registered under the Restrictive Trade
Practices Acts;
(ii) contravenes Articles 85(1) or 86 of the Treaty of Rome or which
has been notified to the Commission of the European Communities
for negative clearance, exemption or other administrative
measure;
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(iii) contravenes the provisions of the Consumer Credit Act 1974;
(iv) contravenes or is invalidated by the provisions of the Resale
Prices Act 1976;
(v) constitutes an anti-competitive practice as defined in the
Competition Act 1980; or
(vi) contravenes or is invalidated by any anti-trust legislation in
any other jurisdiction where the Company has assets or carries
on business.
(b) The Company has not received any financial or other benefit that
requires to be notified to the Commission of European Communities as a
state aid pursuant to Article 93 of the Treaty of Rome.
(c) The Company has not, within the preceding six years prior to the date
of this Agreement Completion, received any notification that
proceedings under any applicable anti-trust law have been initiated
nor are any such proceedings contemplated by any of the Vendors or any
of the directors of the Company nor within such period has it received
notice of any claim having been made or threatened alleging any anti-
trust law contravention.
(7) DEFECTIVE PRODUCTS
------------------
The Company has not been given notice that it has manufactured, sold or
supplied products which are, or were, or will become, in any material
respect, faulty or defective, or which do not comply with any warranties or
representations expressly or impliedly made by the Company, or with all
applicable regulations, standards and requirements.
(8) POWERS OF ATTORNEY
------------------
The Company has not given a power of attorney or any other authority
(express, implied or ostensible) which is still outstanding or effective to
any person to enter into any contract or commitment or do anything on its
behalf, other than any authority to employees to enter into routine trading
contracts in the normal course of their duties.
(9) FILING OF DOCUMENTS
-------------------
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All charges in favour of the Company have (if appropriate) been registered
in accordance with the provisions of s. 395 and s.398 Companies Act 1985.
(10) NO QUESTIONABLE PAYMENTS
------------------------
None of the directors, nor, so far as the Warrantors are aware, officers,
agents, employees or other persons acting on behalf of the Company has been
party to the use of any assets of the Company for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political
activity or to the making of any direct or indirect unlawful payment to
government officials or employees from such assets or to the establishment
or maintenance of any unlawful or unrecorded fund of group monies or other
assets or to the making of any deliberately false or fictitious entries on
the books or records of the Company or to the making of any unlawful
payment.
(11) WARRANTIES AND INDEMNITIES
--------------------------
The Company has not sold or otherwise disposed of any shares or assets in
circumstances such that it is, or may reasonably be expected to be, still
subject to any liability (whether contingent or otherwise) under any
representation, warranty or indemnity given or agreed to be given on or in
connection with such sale or disposal but excluding any representation
implied by law or given or agreed to be given in the ordinary course of
trading.
7. EMPLOYEES ETC
-------------
(1) EMPLOYEES AND TERMS OF EMPLOYMENT
---------------------------------
(a) Particulars are contained in the Disclosure Letter of all existing
contracts of service with directors or employees of the Company
carrying remuneration (including benefits) at a rate in excess of
(Pounds)25,000 per annum and of all consultancy agreements with the
Company.
(b) There are not in existence any contracts of service with directors or
employees of the Company, nor any consultancy agreements with the
Company, which cannot be terminated by three months' notice or less
without giving rise to any claim for damages or compensation (other
than a statutory redundancy payment or statutory compensation for
unfair dismissal).
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(c) No changes to the contracts or agreements with the directors of the
Company or contracts or agreements referred to in sub-paragraph (a)
above have been made or proposed whether by the Company or any
director, employee or consultant since the Balance Sheet Date.
(2) LIABILITIES TO AND FOR EMPLOYEES
--------------------------------
(a) There are no amounts owing to any present or former directors or
employees of the Company other than remuneration accrued due or for
reimbursement of business expenses, and no directors or senior
employees (being for this purpose employees with a remuneration
package (including benefits) in excess of (Pounds)25,000 p.a.) of the
Company have given or been given notice terminating their contracts of
employment.
(b) Save to the extent (if any) to which provision or allowance has been
made in the Audited Accounts, the Company has not made or agreed to
make any payment to or provided or agreed to provide any benefit for
any present or former director or employee which is not allowable as a
deduction for the purposes of Taxation.
(c) The Company is not liable to pay any industrial training levy and does
not have outstanding any undischarged liability to pay to any
governmental or regulatory authority in any jurisdiction any
contribution, taxation or other impost arising in connection with the
employment or engagement of employees or directors by it.
(d) Save to the extent (if any) to which provision or allowance has been
made in the Audited Accounts or Management Accounts or (if applicable)
in the audited accounts of the Company for the financial periods
preceding the Balance Sheet Date (true and accurate copies of which
are annexed to the Disclosure Letter):-
(i) no liability has been incurred by the Company in the 3 years
preceding the date of this Agreement for breach of any contract
of service or for services, for redundancy payments (including
protective awards) or for compensation for wrongful dismissal or
unfair dismissal or for failure to comply with any order for the
reinstatement or re-engagement of any employee or for race, sex
or disability discrimination; and
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(ii) no gratuitous payment has been made or promised by the Company in
the 3 years preceding the date of this Agreement in connection
with the actual or proposed termination or suspension of
employment or variation of any contract of employment of any
present or former director or employee.
(e) The Company has not received notice of any claims pending or
threatened against the Company and the Warrantors are not aware of any
circumstances likely to give rise to such a claim:-
(i) by an employee or workman or third party, in respect of an
accident or injury which is not fully covered by insurance; or
(ii) by an employee or director in relation to his terms and
conditions of employment or appointment.
(3) COMPLIANCE WITH STATUTES
------------------------
The Company has in relation to each of its employees (and so far as
relevant to each of its former employees) complied in all material respects
with:-
(a) all obligations imposed on it by Article 119 of the Treaty of Rome and
all statutes, regulations and codes of conduct and practice relevant
to the relations between it and its employees or any trade union and
has maintained current adequate and suitable records regarding the
service of each of its employees;
(b) all collective agreements and customs and practices for the time being
dealing with such relations or the conditions of service of its
employees; and
(c) all relevant orders and awards made under any relevant statutes,
regulation or code of conduct and practice affecting the conditions of
service of its employees.
(4) REDUNDANCIES
------------
Within a period of one year preceding the date of this Agreement the
Company has not given notice of any redundancies to the relevant Secretary
of State or started consultations with any independent trade union or
unions under the provisions of s.188 Trade Union and Labour
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<PAGE>
Relations (Consolidation) Act 1992 or Regulation 10 of the Transfer of
Undertakings (Protection of Employment) Regulations 1981 and the Company
has not failed to comply with any such obligations under the said s.188 or
Regulation 10 of the said Regulations.
(5) INDUSTRIAL DISPUTES AND NEGOTIATIONS
------------------------------------
(a) The Company has (if applicable) complied with all recommendations made
by the Advisory Conciliation and Arbitration Service and with all
awards and declarations made by the Central Arbitration Committee.
(b) The Company is not involved in any industrial or trade dispute or any
dispute or negotiation regarding a claim of material importance with
any trade union or association of trade unions or organisation or body
of employees and there are no facts known, or which would on
reasonable enquiry be known to the Warrantors which might indicate
that there may be any such dispute.
(6) SHARE INCENTIVE, BONUS SCHEMES ETC
----------------------------------
The Company does not have in existence and is not proposing to introduce
any share incentive scheme, share option scheme or profit sharing scheme
for all or any part of its directors or employees.
(7) INDUSTRIAL AGREEMENTS
---------------------
The Company has not within the preceding 3 years prior to the date of this
Agreement entered into any union membership, security of employment,
recognition or other collective agreement (whether legally binding or not)
with a trade union and has not within such period done any act which might
be construed as recognition.
(8) PENSIONS
--------
(a) No agreement or arrangement (other than the Pension Schemes) exists
for the provision by the Company of any relevant benefits (as defined
in s. 612(1) Taxes Act 1988, being a retirement benefits scheme
defined in s. 630 Taxes Act 1988) for any person employed or formerly
employed by the Company of for any dependant of any such person.
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(b) The Company is not providing any ex gratia pensions or other like
payments for any person employed or formerly employed by the Company
or any dependant of any such person.
(c) No undertaking or assurance has been given to all or any of the
persons employed or formerly employed by the Company as to the
continuance, introduction, increase or improvement of any retirement
death or disability benefits (whether or not there is a legal
obligation to do so).
(d)
(1) List of Plans - Part I of the Fourth Schedule to this Agreement
-------------
contains an accurate and complete list of all 4-Sight, Inc. employee
benefit plans ("Employee Benefit Plans"), within the meaning of
section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), including any deferred compensation, separation,
retention, severance or similar plan or agreement, whether or not any
such Employee Benefit Plan is otherwise exempt from the provisions of
ERISA, established, maintained or contributed to by 4-Sight, Inc.
(2) Status of Plans - 4-Sight, Inc. does not maintain or contribute to any
---------------
Employee Benefit Plan subject to ERISA that is not in substantial
compliance with ERISA. None of the Employee Benefit Plans is a "multi
employer plan," as defined in ERISA Section 4001(a)(3), or is a
defined benefit pension plan subject to Title IV or ERISA. 4-Sight,
Inc. is not delinquent in any obligation to make contributions to any
multiemployer plan or to any Employee Benefit Plan subject to Internal
Revenue Code ("Code") Section 412 or Title IV of ERISA and has not
terminated or withdrawn from participation in any such plan.
(3) Contributions - Full payment has been made of all amounts which 4-
-------------
Sight, Inc. is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which 4-Sight, Inc. is a party, to have paid as contributions thereto
as of the last day of the most recent fiscal year of such Employee
Benefit Plan ended prior to the date hereof. 4-Sight, Inc. has made
adequate provision for reserves to meet contributions that have not
been made because they are not yet due under the terms of any Employee
Benefit Plan or related agreements. Benefits under all Employee
Benefit Plans are as represented and have not been increased
subsequent to the date as
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<PAGE>
of which documents evidencing Employee Benefit Plans have been
provided to the Purchaser.
(4) Tax Qualification - Each Employee Benefit Plan intended to be
-----------------
qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(5) Transactions - 4-Sight, Inc. has not engaged in any action or
------------
transaction with respect to an Employee Benefit Plan or any
participant or beneficiary under an Employee Benefit Plan which would
subject it to a tax, penalty, damages or liability under ERISA or the
Code, nor have any of 4-Sight, Inc.'s directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached in any material respect any of their responsibilities
or obligations imposed upon fiduciaries under Title I of ERISA which
would result in any claim being made under, by or on behalf of any
such plans by any party.
(6) Audits or Suits - So far as the Warrantors are aware, there are no
---------------
pending or threatened audits, investigations, claims, suits,
grievances or other proceedings involving any Employee Benefit Plan,
or any rights or benefits thereunder, other than the ordinary and
usual claims for benefits by participants, dependents or
beneficiaries.
(7) Plan Amendment or Termination - Neither 4-Sight, Inc. nor any
-----------------------------
successor is restricted or prohibited from amending, merging, or
terminating any Employee Benefit Plan in accordance with the terms of
any such plan and applicable law.
(8) Documents - The Warrantors have delivered or caused to be delivered to
---------
the Purchaser true and complete copies of (i) all Employee Benefit
Plans as in effect, together with all amendments thereto which will
become effective at a later date, as well as the latest Internal
Revenue Service determination letter obtained with respect to any such
Employee Benefit Plan qualified under Section 401 or 501 of the Code,
and (ii) Form 5500 for the most recent completed fiscal year for each
Employee Benefit Plan required to file such form.
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<PAGE>
8. TAXATION MATTERS
----------------
For the purposes of this paragraph 8, "Company" means all or any of the Company
and the Subsidiaries and "UK Company" means the Company and any Subsidiary which
is resident in the United Kingdom for the purposes of Taxation.
(1) GENERAL TAXATION MATTERS
------------------------
(a) RESIDENCE
---------
No Company is treated as resident for Taxation purposes in any
jurisdiction other than or in addition to the jurisdiction of its
incorporation.
(b) TAX PROVISIONS
--------------
Full provision or reserve has been made in the Audited Accounts for
all Taxation liable to be assessed on any Company or for which it is
accountable in respect of income, profits or gains earned, accrued or
received on or before the Balance Sheet Date or any event on or before
the Balance Sheet Date, including distributions made down to such date
or provided for in the Audited Accounts, and full provisions has been
made in the Audited Accounts for deferred Taxation in accordance with
generally accepted accounting principles.
(c) ADMINISTRATION
--------------
(i) Each Company has properly and punctually made all returns,
notices and claims relating to Taxation and provided all such
information and maintained all such records on a proper basis in
relation to Taxation as are required to be provided or maintained
by it and all such returns, notices, claims and information given
to the Inland Revenue or other relevant Tax Authority were, when
given, in all material respects, true and accurate and none of
such returns is disputed nor so far as the Warrantors are aware
likely to be disputed by, or is yet to be determined by, or is
subject to agreement with, the Inland Revenue or any other Tax
Authority concerned (in the United Kingdom or elsewhere).
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<PAGE>
(ii) Since the Balance Sheet Date, no accounting period of any
Company has ended.
(iii) Each Company has duly made all claims, disclaimers and
elections assumed to have been made for the purposes of the
Audited Accounts.
(iv) No transaction has been effected by any Company in respect of
which any consent or clearance from the Inland Revenue or other
Tax Authority was required without such consent or clearance
having been validly obtained before the transaction was
effected on the basis of a full and accurate disclosure to the
Inland Revenue or other Tax Authority of all relevant material
facts, circumstances and considerations, and all such
transactions have been carried into effect only in accordance
with the terms of the relevant consent or clearance.
(v) No Company has taken any action which has had, nor so far as
the Warrantors are aware will have, the result of altering,
prejudicing or in any way disturbing any arrangement or
agreement which it has previously had with the Commissioners of
Inland Revenue, or the Commissioners of Customs and Excise, or
other Tax Authority.
(vi) The Disclosure Letter sets out full particulars of any
agreement arrangement or dispensation between any Company and
the Inland Revenue or other Tax Authority which is currently
effective.
(d) PAYMENT OF TAX
--------------
Each Company has duly and punctually paid all Taxation whether of the
United Kingdom or elsewhere which it has become liable to pay and
neither the Company nor any director or officer of any Company has
paid, or is or has become liable to pay, any fine, penalty, surcharge
or interest in connection with any claim for Taxation under the Taxes
Management Act 1970 or the VATA 1994 or any other statutory provision
relating to Taxation.
(e) DISTRIBUTIONS
-------------
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<PAGE>
(i) No UK Company has made a distribution within the meaning of
s.210 (bonus issue following repayment of share capital) Taxes
Act 1988 or issued any share capital as paid up otherwise than
by receipt of new consideration within the meaning of Part VI
Taxes Act 1988.
(ii) No Company is bound to make any distribution except any
dividend disclosed in its audited statutory accounts.
(iii) No Company has repaid or agreed to repay or redeemed or agreed
to redeem or purchased or agreed to purchase any of its share
capital or capitalised or agreed to capitalise in the form of
debentures or redeemable shares, any profits or reserves or any
class or description.
(f) FOREIGN INCOME DIVIDENDS
------------------------
(i) No UK Company has, prior to the date hereof, made any elections
under s.246A Taxes Act 1988.
(ii) No UK Company has not made any distribution which is deemed to
be a foreign income dividend by virtue of Schedule 7 Finance
Act 1997.
(g) PAYMENTS UNDER DEDUCTION
------------------------
All payments by any Company to any person which ought to have been
made under deduction of tax have been so made and the Company has (if
required bylaw to do so) provided certificates of deduction in the
required form to such person and accounted to the Inland Revenue or
other relevant Tax Authority for the Tax so deducted.
(h) PAYMENTS AND DISALLOWANCES
--------------------------
No rents, interest, annual payments or other sums of an income nature
paid or payable by any Company or which any Company is under an
obligation to pay in the future are wholly or partially disallowable
as deductions, loan relationship debits or charges in computing the
profits of the Company for the purposes of Taxation.
87
<PAGE>
(i) LOAN RELATIONSHIPS
------------------
(i) Each UK Company applies an authorised accruals method of
accounting (as that term is defined in s.85 Finance Act 1996)
in respect of all loan relationships (as that term is defined
in s.81 Finance Act 1996) to which it is a party.
(ii) The Disclosure Letter contains full and accurate particulars of
any loan relationship to which any UK Company is a party,
whether as a debtor or as a creditor, where any other party to
that loan relationship is connected with that Company for the
purposes of Chapter II Part IV Finance Act 1996.
(iii) No UK Company has entered into any loan relationship to which
paragraph 11(1) Schedule 9 Finance Act 1996 applies.
(iv) No Company has been nor is entitled to be released from any
liability arising under a debtor relationship of the Company.
(v) No UK Company is a party to any loan relationship which is
subject to the provisions of s.92 (convertible securities) or
s.93 (loan relationships linked to the value of chargeable
assets) Finance Act 1996.
(j) CARRY FORWARD OF LOSSES ETC.
----------------------------
Nothing has been done and no event or series of events has occurred or
will as a result of any contract, agreement or arrangement entered
into before Completion occur which might, when taken together with the
entry into or Completion of this Agreement, cause or contribute to the
disallowance of the carry forward of any losses or excess charges on
income or surplus advance corporation tax under the provisions of
s.245 (calculation etc. of ACT on change of ownership of company),
s.245A (restriction on application of s240 in certain circumstances),
s.393 (losses other than terminal losses) or s.768 or s.768 A, B or C
(change of ownership of company: disallowance of trading losses,
expenses of management and other charges) Taxes Act 1988.
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<PAGE>
(k) GROUP INCOME
------------
The Disclosure Letter contains particulars of all elections made by
any UK Company under s.247 Taxes Act 1988 (dividends etc. paid by one
member of a group to another) and all such elections are now in force.
(l) GROUP RELIEF ETC
----------------
(i) The Disclosure Letter contains full details of all surrenders,
claims, notices, arrangements and agreements for surrenders or
claims or giving of notices to which any UK Company is or has
been a party in the last six accounting periods ending on or
before Completion for:-
(aa) any amounts by way of group relief under the provisions
of Chapter IV of Part X Taxes Act 1988;
(bb) any amount of surplus advance corporation tax under s.240
Taxes Act 1988;
(cc) any amounts of tax refund to be dealt with under s.102
Finance Act 1989.
(ii) The Company has received all payments due to it and made all
payments due from it under any such arrangement or agreement as
is referred to in (i) above for any group relief, advance
corporation tax or tax refund under those provisions.
(iii) No Company (other than a UK Company) has at any time within the
last six accounting periods ending on or before Completion had
its tax affairs dealt with on a consolidated basis nor has any
Company entered into a tax sharing arrangement with any other
company (including without limitation any arrangement whereby
tax losses or tax reliefs are surrendered or claimed or profits
transferred).
(2) CLOSE COMPANIES
---------------
(a) CLOSE COMPANY
-------------
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<PAGE>
The Company is a close company within the meaning of s.414 Taxes Act
1988.
(b) DISTRIBUTIONS
-------------
No distribution within s. 418 Taxes Act 1988 (certain expenses of
close companies included as distributions) has been made by the
Company within six years of the date hereof and no such distribution
will be made before Completion.
(c) LOANS TO PARTICIPATORS
----------------------
The Company has not made (and will not be deemed to have made) within
six years of the date hereof any loan or advance to a participator or
an associate of a participator so as to become liable to make any
payment under s.419 Taxes Act 1988 (loans to participators etc.).
(d) TRADING COMPANY
---------------
The Company is not and has never been a "close investment holding
company" within the meaning of s.13A Taxes Act 1988.
(3) ANTI-AVOIDANCE
--------------
(a) ANTI-AVOIDANCE
--------------
(i) No Company has at any time entered into or been a party to a
transaction or series of transactions containing steps inserted
which the Company was aware had no commercial or business
purpose other than the avoidance or deferral of Taxation; or
(ii) No UK Company has at any time entered into or been party to a
transaction or series of transactions being transactions to
which any of the provisions of Part XVII Taxes Act 1988 could
apply without, in the appropriate cases, having received
clearance in respect thereof from the Inland Revenue.
(iii) No transactions or arrangements involving any Company have
taken place or are in existence which are such that any
provisions relating to transfer pricing have or could be
applied to them (including for the avoidance of doubt, in
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the case of any UK Company, any of the provisions of Sections
770-773 Taxes Act 1988) and no Company is or has been involved in
any other enquiry in any jurisdiction in relation to the
adjustment of profits of associated enterprises for Taxation
purposes.
(b) CONTROLLED FOREIGN COMPANIES
----------------------------
No notice of the making of a direction under s.747 Taxes Act 1988
(imputation of chargeable profits and creditable tax of controlled
foreign companies) has been received by any UK Company and no
circumstances exist which would entitle the Inland Revenue to make
such a direction and to apportion any profits of a controlled foreign
company to any UK Company pursuant to s.752 Taxes Act 1988
(apportionment of chargeable profits and creditable tax.
(5) CAPITAL ASSETS
--------------
(a) BASE VALUES
-----------
(i) On the disposal of any capital asset of a UK Company for a
consideration equal to the book value of that asset in or
adopted for the purpose of the Audited Accounts no liability to
corporation tax on chargeable gains under the TCGA 1992 would
arise (disregarding any right to claim reliefs or allowances
other than amounts falling to be deducted from the consideration
receivable under s.38 TCGA 1992).
(ii) On the disposal by any Company (other than a UK Company) of any
asset for a consideration equal to the value attributed to that
asset in the Audited Accounts no charge to tax will arise.
(b) ROLL-OVER RELIEF
----------------
No UK Company has made a claim under ss. 152 to 156 (inclusive), s.158
or ss.242 to 244 (inclusive) or s.247 TCGA 1992 and no such claim or
other claim has been made by any other person (in particular pursuant
to s.165 or s.175 TCGA 1992) which affects or could affect the amount
or value of the consideration for the acquisition of any asset by the
Company
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<PAGE>
taken into account in calculating liability to corporation tax on
chargeable gains on a subsequent disposal.
(c) CAPITAL ALLOWANCES
------------------
(i) The book value used in preparing the Audited Accounts of each
asset or class of assets in respect of which separate
computations for capital allowances are required to be made (as a
result of an election or otherwise) is such that, on a disposal
of each such asset, or (as the case may be) all the assets in
such class, for a consideration equal to the value so used (and
disregarding any statutory right to claim any allowance or
relief), no balancing charge would arise.
(ii) No claim has been made for the depreciation of any asset of a
Company (other than a UK Company) for Taxation purposes in
circumstances where the claim is likely to be disallowed.
(d) TRANSACTIONS SINCE THE BALANCE SHEET DATE
-----------------------------------------
(i) No liability to Taxation would arise on the disposal by any
Company of any asset acquired since the Balance Sheet Date for
a consideration equal to the consideration actually given for
the acquisition.
(ii) Since the Balance Sheet Date, no Company has entered into or
been party to any transaction which will or so far as the
Warrantors are aware may give rise to a liability to Taxation
other than transactions undertaken in the ordinary course of
trade of that Company (which, for the avoidance of doubt, shall
not include the disposal of a capital asset).
(iii) Since the Balance Sheet Date, no event has occurred as a result
of which a balancing charge may fall to be made under the CAA
1990 against, or any disposal value may fall to be brought into
account under s.24 CAA 1990 by, any UK Company or there may be
a recovery of excess relief within s.46 or s.47 CAA 1990 (or
other legislation relating to capital allowances).
(e) INTRA GROUP TRANSFERS
---------------------
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Neither s.178 nor s.179 TCGA 1992 will have effect in relation to any
asset or property of any UK Company by virtue or in consequence of the
entering into or performance of the Agreement or any other Event since
the Balance Sheet Date.
(6) TAXATION OF EMPLOYEES
---------------------
(a) P.A.Y.E.
--------
(i) Each UK Company has properly operated the Pay As You Earn
System deducting tax as required by law from all payments to or
treated as made to employees and ex-employees of the Company
and punctually accounted to the Inland Revenue for all tax so
deducted.
(ii) Each UK Company has paid all national insurance and graduated
pension contributions for which it is liable and has kept
proper books and records relating to the same.
(iii) No UK Company has suffered any Pay As You Earn or national
insurance audit nor has been notified that any such audit is
expected to be made.
(iv) Each Company (other than a UK Company) has properly accounted
for all payroll, wage and other taxes, including without
limitation, all social security charges for which it is liable.
(b) BENEFITS FOR EMPLOYEES
----------------------
No Company has made any payment to or provided any benefit for any
officer or employee or ex-officer or ex-employee of the Company which
is not allowable as a deduction in calculating the profits of the
Company for Taxation purposes.
(7) STAMP DUTY
----------
(a) All documents which confer any right upon a Company which it may have
an interest in enforcing and all documents which form part of a
Company's title to any asset owned or possessed by it or which the
Company may need to enforce or produce in evidence in any court have
been duly stamped and the Company is not liable to any penalty in
respect of any such duty and there are no circumstances which may give
rise to such a penalty.
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(b) Each Company (other than a UK Company) has duly paid all capital
duties for which it has at any time been liable.
(c) No UK Company has an unsatisfied liability to stamp duty reserve tax.
(8) VALUE ADDED TAX
---------------
For the purposes of this paragraph (8) where the context so requires,
"value added tax" means value added tax which is charged in the United
Kingdom under VATA 1994 and any similar or like tax charged on the supply
of goods or services in any other jurisdiction.
(a) GENERAL
-------
(i) Each Company is registered for the purposes of value added tax
and has been so registered at all times and in all
jurisdictions in which it has been required to be registered by
the relevant legislation.
(ii) Each Company has complied fully with all statutory
requirements, orders, provisions, directions or conditions
relating to value added tax including (for the avoidance of
doubt) the terms of any agreements reached with the
Commissioners of Customs and Excise or other relevant Tax
Authority.
(iii) Each Company maintains and has at all times maintained
complete, correct and up-to-date records for the purposes of
any value added tax legislation and has preserved such records
in such form and for such periods as are required by the
relevant legislation.
(iv) No Company is in arrears with any payment or returns, or liable
to any abnormal or non-routine payment, or any forfeiture or
penalty, or to the operation of any penal provision.
(v) No Company has been required by a Taxation Authority (including
the Commissioners of Customs and Excise) to give security.
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(vi) No Company is, nor has it agreed to become, an agent, manager,
or factor for the purposes of accounting for value added tax
on behalf of any other person other than another Company.
(vii) No Company is or has been treated for value added tax purposes
as a member of a group of companies.
(viii) No Company has made exempt supplies such or of such amount
that it is unable to obtain credit for all input tax paid or
suffered by it.
(xii) There is no asset in respect of which a Company may at any
time be required to make any payment to a Tax Authority by way
of adjustment to input value added tax deductible on the asset
under arrangements giving effect to or comparable with Article
20(2)-(5) EC Sixth Directive (77/388/EC) (capital goods
scheme).
(b) VAT: PROPERTY TRANSACTIONS
--------------------------
The Disclosure Letter contains full details of all properties and
interests in land in which any UK Company is or may be interested
where any supply by it or to it or in relation thereto is or may be
subject to value added tax and all related undertakings, covenants and
agreements relating to the exercise or non-exercise of the election to
waive exemption from value added tax under paragraph 2 Schedule 10
VATA 1994.
(10) INHERITANCE TAX AND GIFTS
-------------------------
(a) POWERS OF SALE FOR INHERITANCE TAX PURPOSES
-------------------------------------------
There are not in existence any circumstances whereby any such power as
is mentioned in s.212 Inheritance Act 1984 could be exercised in
relation to any share in, securities of, or assets of, a Company.
(b) GIFTS
-----
(i) No Company is liable to be assessed to corporation tax on
chargeable gains or to inheritance tax as donor or donee of any
gift or transferor or transferee of value.
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(ii) No Company has been a party to associated operations in
relation to a transfer of value within the meaning of s.268
Inheritance Tax Act 1984.
(iii) No Inland Revenue charge (as defined in s.237 Inheritance Tax
Act 1984) is outstanding over any asset of any Company or in
relation to any shares in the capital of any Company.
(iv) No Company has received any asset as mentioned in s.282 TCGA
1992.
(11) PENSION SCHEMES
---------------
(a) The Company has not received any payment to which s.601(1) Taxes Act
1988 (payments to employers) could apply.
(b) The Pension Schemes are not such, or in such a condition, that the
administration thereof may be obliged to submit proposals to the
Inland Revenue under schedule 22 Taxes Act 1988 (reduction of pension
scheme surpluses).
(12) SHARE SCHEMES
-------------
The Company is not a participating company in any scheme approved under
schedule 9 Taxes Act 1988 (approved share option schemes and profit sharing
schemes).
9. ASSETS (OTHER THAN THE PROPERTIES)
----------------------------------
(1) OWNERSHIP OF THE SUBSIDIARIES
-----------------------------
The Company is the sole beneficial owner of all the issued or allotted
shares of the Subsidiaries free from all liens, claims, charges, equities
and encumbrances and all such shares are fully paid or credited as fully
paid.
(2) SUBSIDIARIES, ASSOCIATES AND BRANCHES
-------------------------------------
The Company:-
(a) is not the holder or beneficial owner of, and has not agreed to,
acquire any share or loan capital of any other company (whether
incorporated in the United Kingdom or elsewhere) other than the
Subsidiaries; and
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(b) does not have outside the United Kingdom any branch, agency or place
of business, or any permanent establishment (as that expression is
defined in the relevant double taxation relief orders current at the
date of this Agreement).
(3) TITLE TO ASSETS
---------------
All assets of the Company (other than the Properties) and all debts due to
it which are included in the Audited Accounts or have otherwise been
represented as being the property of or due to the Company were at the
Balance Sheet Date used or held for the purposes of its business, were at
the Balance Sheet Date the absolute property of the Company and (save for
those subsequently disposed of or realised in the ordinary course of
trading) all such assets and all assets and debts which have subsequently
been acquired or arisen are now the absolute property of the Company and
none is the subject of any option, right to acquire, assignment, mortgage,
charge, lien or hypothecation or other encumbrance whatsoever (excepting
other liens arising by operation of law in the normal course of trading) or
the subject of any factoring arrangement, hire-purchase, conditional sale
or credit sale agreement.
(4) PLANT AND MACHINERY
-------------------
(a) The plant, machinery, vehicles and all other equipment used in
connection with the business of the Company:-
(i) is in all material respects in a reasonable state of repair and
condition and satisfactory working order (fair wear and tear
excepted) and has been regularly and properly maintained;
(ii) (except computer equipment) is not surplus to requirements and
is in the possession and control of the Company and is not
expected to require replacements or additions at a cost in
excess of, in aggregate, (Pounds)10,000 within 12 months from
the date of this Agreement; and
(iii) is capable of doing the work for which it was designed or
purchased.
(b) Maintenance contracts are in full force and effect in respect of all
assets of the Company (except computer equipment) which it is normal
or prudent to have maintained by independent or specialist
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contractors and in respect of all assets which the Company is obliged
to maintain or repair under any agreement (other than assets
maintained by the Company itself) and all such assets have been
maintained regularly to a reasonable technical standard and in
accordance with safety regulations usually observed in relation
thereto and in accordance with the terms of any leasing or other
agreement.
(5) INTELLECTUAL PROPERTY
---------------------
(a) The Company is the sole legal and beneficial owner of or has the
right to use, free and clear of all material liens, claims or
restrictions all Intellectual Property Rights.
(b) All the Intellectual Property Rights are valid and enforceable and are
in full force and effect.
(c) The details of the Intellectual Property Rights which are set out in
the Third Schedule are true, complete and accurate in all material
respects.
(d) All Intellectual Property Rights which are capable of registration
have been registered.
(e) The Company has not granted, or purported to grant, to any third party
any licences (whether express or implied) of the Intellectual Property
Rights nor has the Company created any equitable interest in,
licensed, charged or mortgaged or otherwise encumbered the
Intellectual Property Rights.
(f) All licences to the Company of Intellectual Property which are
disclosed in the Disclosure Letter are in full force and effect, are
valid and are not subject to any notice of termination, nor (so far as
the Warrantors are aware) are there any grounds for termination of any
such licence (including but not limited to termination as a result of
any of the transactions contemplated in this Agreement), nor, as far
as the Warrantors are aware, is the Company in breach of the terms of
any such licence, nor is the Company liable to make any payment (or
provide other consideration) contingent or otherwise to any third
party in respect of the use of any Intellectual Property.
(g) As far as the Warrantors are aware, nothing has been done or omitted
to be done and no circumstances exist which could lead to
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any Intellectual Property Rights ceasing to be valid and enforceable
or whereby:-
(i) any person is able to seek cancellation, rectification or
revocation or any modification of any Intellectual Property
Rights; or
(ii) any applications for registered Intellectual Property Rights
might not proceed to grant or might not proceed to grant in
their current form; or
(iii) any Intellectual Property Rights could lapse or where fines
could become payable for late payment due to failure to pay
fees to any regulatory or governmental authority or any third
party prior to or within six months of the date of this
Agreement.
(h) The Warrantors are not aware of any proceedings, actions or claims
which are pending or threatened:-
(i) impugning the title, validity or enforceability (in whole or in
part) of any of the Intellectual Property Rights; or
(ii) in respect of employee rights to compensation as the inventor
or author of any Intellectual Property Right; or
(iii) with the intention that any third party be permitted to use any
of the Intellectual Property Rights, and in particular by way
of compulsory licence or crown use (or a similar or analogous
right in another jurisdiction).
(i) The carrying on of the business of the Company does not infringe and
has not infringed any Intellectual Property of any third party and, so
far as the Warrantors are aware, the Company does not need to obtain
rights under any Intellectual Property other than the Intellectual
Property Rights in order to continue its business as presently
constituted or in accordance with its current business plan.
(j) All trade secrets, know-how and other confidential information
relating to the business carried on by the Company which were created
by the Company including but not limited to lists of customers and
suppliers, sales targets, sales statistics, prices, market research
reports, business development and planning:-
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<PAGE>
(i) were lawfully created by the Company and were not obtained from
a third party;
(ii) have not been disclosed to any person (save for employees who
were under a duty of confidence) without in each case first
obtaining a written undertaking from the person in question to
keep the same confidential and the Company has disclosed to the
Purchaser the names and identities of all persons who have
given such undertakings; and
(iii) the Company is not under any obligation to disclose the same to
any person.
(k) The Company is not using any get up or trading style which is the same
as or similar to that of a third party who carries on a similar
business to the Company in the countries where the Company conducts
its business.
(l) So far as the Warrantors are aware the Company is not engaged in any
activity which could lead to a third party bringing a claim against
the Company for passing off or (in other jurisdictions) for unfair
competition and so far as the Warrantors are aware the Company does
not have (and never has had) grounds to bring an action against a
third party for passing off or for unfair competition.
(m) The Company has complied at all times with all applicable
requirements of the Data Protection Act 1984.
(n) All software held and/or used by the Company is and will remain
Millennium Compliant.
(o) The Company is not liable to make any payment (or provide other
consideration), contingent or otherwise, to any third party in respect
of any third party licences, relating to any of the Intellectual
Property, which have expired or been terminated and no proceedings,
actions or claims are pending or threatened in respect of third party
rights in and to such Intellectual Property which is the subject of
expired or terminated third party licences.
10. FREEHOLD AND LEASEHOLD PROPERTY
-------------------------------
(1) THE PROPERTIES
--------------
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The Properties comprise all of the premises and land now owned or occupied
by or at any time used in connection with the businesses of the Company.
(2) TITLE
-----
In relation to each Property which is situated in the U.K.:-
(a) the Company or the Subsidiary named in the Fifth Schedule as owner of
the Property is the legal owner of and beneficially entitled to the
whole of the proceeds of sale of and has a good title to the whole of
the Property;
(b) if the title to the Property is registered then the Company is
registered with Absolute Title and if not so registered then the title
of the Company commences with the lease of the relevant Property to
the Company and the Company has in its possession all original
documents and other documents and papers relating to the Company's
title to the Property;
(c) there are no mortgages, charges or debentures, rent charges, liens,
annuities or other unusual outgoings, or trusts affecting the Property
or the proceeds of sale of it;
(d) save as contained or referred to in the lease of the relevant
Property, the Property is not subject to any adverse estate, right,
interest, covenant, restriction, stipulation, easement, option, right
of pre-emption, wayleave, profit a prendre, licence or other right or
informal arrangement in favour of any third party nor is there any
agreement or commitment to create any of the foregoing and where the
Property is subject to any such arrangement the Company has not
received notice of any breach of it and is not aware of any material
breach likely to cause such a notice to be received;
(e) the Property has access and egress over Norwich Avenue West which is
adopted by the appropriate highway authority and are maintainable at
the public expense. The Property drains into a public sewer and is
served by water and electricity utilities. Either the conducting media
serving the Property connect directly to the mains without passing
through land in the occupation or ownership of a third party or, if
they do not, the rights necessary for the enjoyment and present use of
the Property are enjoyed on
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<PAGE>
terms which are set out in the lease relating to the relevant
Property;
(f) where the title of the Property or any part of it is unregistered but
situated in an area of compulsory registration no event has occurred
in consequence of which registration of the Company's title to the
relevant Property should have been effected; and
(g) there are no material outstanding disputes, claims or demands between
the Company and any third party affecting the Property of which the
Warrantors are aware.
(3) TOWN AND COUNTRY PLANNING
-------------------------
In relation to each Property which is situated in the U.K.:-
(a) no development at the Property or use of the Property has been
undertaken by the Company in breach of the Town and Country Planning
legislation;
(b) the planning consents and permissions affecting the Property are
either unconditional or are subject only to conditions which are
neither unusual, personal nor temporary and which have been satisfied
or fully observed and performed up to the date of this Agreement;
(c) there is no resolution, proposal, scheme or order, whether formally
adopted or not, for the compulsory acquisition of the whole or any
part of the Property or any access or egress;
(d) there is no outstanding statutory or other notice relating to the
Property, any business carried on there or the use of the Property;
(e) there is no outstanding monetary claim or liability, contingent or
otherwise, in respect of the Property;
(f) none of the buildings or structures on the Property has been listed
under s.54 Town and Country Planning Act 1971 or s.1 Planning (Listed
Buildings and Conservation Areas) Act 1990, nor has the local
authority authorised the service of any building preservation notice
under s.58 Town and County Planning Act 1971 or s.3 Planning (Listed
Buildings and Conservation Areas) Act 1990 or any repairs notice under
s.115 Town and Country Planning Act 1971 or s.48 Planning (Listed
Buildings and Conservation Areas)
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Act 1990 in respect of the Property or any building or structure
thereon, nor has the local authority made or resolved to make any
noise abatement zone order under s. 63 Control of Pollution Act 1974
for any area which includes the Property;
(g) the Property is not in an urban development area, an improvement area
or an enterprise zone; and
(h) there are no onerous Local Land Charges registered in respect of the
Property.
(4) STATUTORY REQUIREMENTS
----------------------
In relation to each Property which is situated in the U.K.:-
(a) a Fire Certificate has been issued in respect of the Property and
there has been no breach of the provisions or conditions contained in
it;
(b) so far as the Warrantors are aware the Property complies with the
requirements of the Shops Act 1950, the Factories Acts, the Offices,
Shops and Railway Premises Act 1963 (as modified), the Fire
Precautions Act 1971, the Health and Safety at Work etc., Act 1974 and
any similar legislation, bye-laws and regulations made thereunder; and
(c) so far as the Warrantors are aware there is no actual or potential
liability arising under the Control of Pollution Act 1974 or any other
public health legislation which could give rise to any costs,
liabilities or other obligations binding upon either the Vendors or
the Purchaser.
(5) STATE AND CONDITION OF THE PROPERTIES
-------------------------------------
The Property is fit for the purposes for which it is used.
(6) LEASEHOLD PROPERTIES
--------------------
Where the interest of the Company in any Property is leasehold the details
of the date, parties, premises and term have been completed in the Fifth
Schedule and:-
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(a) The Company has paid the rent and the last demands for rent (or
receipts if issued) were unqualified.
(b) So far as the Warrantors are aware, there are no material subsisting
breaches of any covenant or condition contained in the Lease on the
part of either the relevant landlord or the Company and no landlord
has refused to accept rent or made any complaint or objection;
(c) (UK Property only) no structural alterations have been made to the
exterior of the Property at the expense of the Company without
landlord's consents and approvals and all other alterations to the
Property have been made in accordance with the terms of the relevant
Lease and with all necessary consents and approvals and do not have to
be reinstated at the expiry of the term.
(d) (UK Property only) all steps in rent reviews have been duly taken and
no rent reviews are or should be currently under negotiation or the
subject of a reference to any expert or arbitrator of the Courts;
(e) (UK Property only) the Lease does not contain a covenant which
requires the tenant to offer to surrender the same before or as a pre-
condition of an assignment or underletting nor does it contain
requirements to be satisfied on a change of ownership of the share
capital or control of the tenant;
(f) (US Property only) a full and complete lease together with all
amendments thereto and any related documents have been supplied to the
Purchaser and WAM!NET.
(7) PROPERTIES SUBJECT TO LEASES AND LICENCES
-----------------------------------------
No Property is the subject of any Lease or Licence for the benefit of any
person other than the Company.
(8) CONTINGENT LIABILITIES
----------------------
There is no actual or contingent liability on the part of the Company
arising directly or indirectly out of any lease, agreement for lease,
conveyance or licence or other deed previously held by the Company as an
original lessee or underlessee or otherwise in respect of any Property
situated in the U.K.
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(9) REPLIES BEFORE CONTRACT
-----------------------
Any replies given by or on behalf of the Vendor to Enquiries Before
Contract raised by or on behalf of the Purchaser relating in any way to the
Property are true and accurate in all respects.
11. ENVIRONMENTAL ISSUES
--------------------
In respect of such of the Properties which are situated in the U.K.:
(a) So far as the Warrantors are aware the Company has obtained all
necessary Environmental Licences and complied with the terms and
conditions of such Environmental Licences and all other applicable
Environmental Law.
(b) Neither the Company nor (so far as the Warrantors are aware) any of
its directors, officers or employees nor any person for whose acts or
defaults the Company may be vicariously liable is involved (in
relation to any matter for which the Company is vicariously liable) in
any legal, administrative, civil, criminal, arbitration or other
proceedings or investigations in relation to any Environmental Law or
any Environmental Licence or concerned with the pollution or
protection of the Environment or the protection of or harm to the
health of humans, animals or plants in any jurisdiction and, so far as
the Warrantors are aware, none such are pending or threatened by or
against the Company or any such person and, so far as the Warrantors
are aware, there are no facts or circumstances that may give rise to
any such proceedings arbitration or investigations.
(c) So far as the Warrantor are aware, the Company does not own use or
occupy and has not owned used or occupied any land, water supply,
plant or equipment, whether or not in or at the Properties, which
contains or has contained a hazardous substance or article, waste or
other pollutant or contaminant or which is or has been used for the
deposit, storage, treatment or disposal of waste or sewage or been
affected by any pollution, noise or nuisance from any other land or
activity thereon or use thereof and, so far as the Warrantors are
aware, no land or water supply adjoining any land or water supply
owned, used or occupied by the Company has contained or contains any
such hazardous substance, waste or other pollutant or contaminant.
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(d) So far as the Warrantors are aware the Company has not discharged or
emitted into or on, so far as the Warrantors are aware, to the
Environment any hazardous substance or article, pollutant or
contaminant in breach of the terms and conditions of any Environmental
Licence.
(e) The Company has not received or given any notice or other
communications alleging breach of any Environmental Law or
Environmental Licence and, so far as the Warrantors are aware, there
are no facts or circumstances that may give rise to the giving or
receipt of any such notice or communication.
(f) There is and has been no governmental or other investigation, enquiry
or disciplinary proceeding relating to the pollution or protection of
the Environment concerning the Company or the Properties and, so far
as the Warrantors are aware, none is pending or threatened and no
facts or circumstances exist which might give rise to any such
investigations, enquiries or proceedings.
12. MEDIA TEC INVESTMENTS LIMITED
-----------------------------
None of the Warrantors have any interest whatsoever in Media Tec
Investments Limited.
13. NO BROKERS OR FINDERS
---------------------
No person, firm or corporation has or will have, as a result of any act or
omission of any of the Vendors, any right, interest or valid claim against
or upon the Purchaser or WAM!NET for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agreement.
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PART II
-------
THE PURCHASER WARRANTIES
------------------------
1. CORPORATE STATUS
----------------
Each of WAM!NET and the Purchaser is a corporation duly organised, validly
existing and (if appropriate) in good standing under respectively the laws
of the State of Minnesota and England with full corporate power and
authority to own its properties and carry on its business as now conducted.
2. AUTHORITY FOR AGREEMENTS
------------------------
Each of WAM!NET and the Purchaser has the power and authority to execute
and deliver this Agreement and to carry out its obligations hereunder. The
execution, delivery and performance by each of WAM!NET and the Purchaser of
this Agreement and the consummation of the transactions contemplated
therein have been duly authorised by all necessary corporate action on the
part of each. This Agreement has been duly executed and delivered by
WAM!NET and the Purchaser and constitutes the valid and legally binding
obligations of WAM!NET and the Purchaser respectively enforceable against
each such company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganisation and similar laws of general application relating to or
affecting the rights and remedies of creditors.
3. NO CONFLICTS
------------
The execution, delivery and performance of this Agreement and the
consummation of all of the transactions contemplated hereby, except where
the failure to obtain a consent or waiver of any third party will not have
a material adverse effect on WAM!NET and the Purchaser or impair the
ability of WAM!NET or the Purchaser to consummate the transactions thereby
contemplated (i) do not and will not, so far as the Purchaser or WAM!NET is
concerned, require the consent, waiver, approval, license, designation or
authorisation of, or declaration with, any person or public authority; (ii)
do not and will not with or without the giving of notice or the passage of
time or both, violate or conflict with or result in a breach or termination
of any provision of, or constitute a default under, or accelerate or permit
the acceleration of the performance required by the terms of, or result in
the creation of any mortgage,
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security interest, claim, lien, charge or other encumbrance upon any of the
assets of WAM!NET or the Purchaser or pursuant to, or otherwise give rise
to any liability or obligation under the articles or bylaws (or similar
organisational documents) of WAM!NET or the Purchaser under any agreement,
mortgage, deed of trust, indenture, licence, permit or any other agreement
or instrument or any order, judgment, decree, statute, regulation or any
other restriction of any kind or description to which WAM!NET or the
Purchaser is a party or by which WAM!NET or the Purchaser may be bound; and
(iii) will not terminate or result in the termination of any such agreement
or instrument, or in any way affect or violate the terms and conditions of,
or result in the cancellation, modification, revocation or suspension of,
any rights of WAM!NET or the Purchaser.
4. ORGANISATIONAL DOCUMENTS; SUBSIDIARIES
--------------------------------------
The copies of the articles of incorporation and bylaws or memorandum and
articles of association (or similar organisational documents) of WAM!NET
and the Purchaser delivered to the Vendors or their agents prior to the
execution of this Agreement are true and complete copies of the duly and
legally adopted articles of incorporation and bylaws or memorandum and
articles of association (or similar organisational documents) of WAM!NET
and the Purchaser in effect as of the date of this Agreement.
5. QUALIFICATION
-------------
Each of WAM!NET and the Purchaser is duly qualified or licensed to do
business and in good standing as a foreign corporation in each jurisdiction
wherein the nature of its activities or of its properties owned or leased
makes such qualification or licensing necessary and failure to be so
qualified or licensed or in good standing would have a material adverse
impact on its business.
6. FINANCIAL STATEMENTS
--------------------
WAM!NET has heretofore delivered to each of the Vendors a consolidated
balance sheet of WAM!NET and the WAM!NET Subsidiaries at 31 December 1997
(the "Audited Balance Sheet"), together with consolidated statements of
operations, stockholders' equity and cash flow of WAM!NET and the
subsidiaries of WAM!NET ("WAM!NET Subsidiaries") for the fiscal year then
ended, and the report thereon of Ernst & Young, certified public
accountants. Such financial statements present fairly the consolidated
financial condition of
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WAM!NET and the WAM!NET Subsidiaries at the relevant balance sheet date and
the consolidated results of operations of WAM!NET and the WAM!NET
Subsidiaries for the period therein specified, and have been prepared in
accordance with U.S. generally accepted accounting principles applied on a
basis consistent with prior accounting periods.
7. LITIGATION
----------
(a) Since 31 December 1997 neither WAM!NET nor any WAM!NET Subsidiary has
received notice of any claim for damages or seeking any other relief
against WAM!NET or any WAM!NET Subsidiary.
(b) Neither WAM!NET nor any WAM!NET Subsidiary is engaged whether as
plaintiff or defendant or otherwise in any legal action, proceedings
or arbitration (other than as plaintiff in the collection of debts
arising in the ordinary course of its business) nor is WAM!NET nor any
WAM!NET Subsidiary being prosecuted for any criminal offence and, so
far as WAM!NET is aware, there are no such proceedings or prosecutions
pending or threatened.
(c) So far as WAM!NET is are aware, there are no investigations,
disciplinary proceedings or other circumstances likely to lead to any
such claim or legal action, proceedings or arbitration (other than as
aforesaid) or prosecution in which WAM!NET or any WAM!NET Subsidiary
may become involved.
8. CONSIDERATION SHARES
--------------------
The Consideration Shares referred to in sub-clause 5.1.2 are duly
authorised and, when issued at Completion pursuant to the terms of this
Agreement, will be validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions (except restrictions on transfer thereof other than in
compliance with federal and state securities laws). The Consideration
Shares referred to in Clause 6 are duly authorised and reserved to the
Vendors and, when issued pursuant to the terms of this Agreement, will be
validly issued and outstanding, fully paid, nonassessable and free and
clear of all pledges, liens, encumbrances and restrictions (except
restrictions on transfer thereof other than in compliance with federal and
state securities laws). The certificates representing the Consideration
Shares to be delivered by WAM!NET under this Agreement will be genuine, and
WAM!NET has no knowledge of any facts which would impair the validity
thereof.
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9. CAPITAL STOCK
-------------
The authorized capital stock of WAM!NET consists of (a) 90,000,000 shares
of Common Stock, par value U.S. $0.01 per share, of which 1,339,948 shares
of Common Stock are issued and outstanding, and (b) 100,000 shares of Class
A Preferred Stock, par value U.S. $10.00 per share, of which 100,000 shares
are issued and outstanding and (c) 9,900,000 shares of undesignated capital
stock, none of which are issued and outstanding.
All of the outstanding shares of capital stock of each of WAM!NET and the
WAM!NET Subsidiaries were duly authorized and validly issued and are fully
paid and nonassessable.
No holder of any security of WAM!NET is entitled to any preemptive or
similar rights to purchase securities from WAM!NET. All outstanding
securities of WAM!NET and the WAM!NET Subsidiaries have been issued in full
compliance with an exemption or exemptions from the registration and
prospectus delivery requirements of the Securities Act and from the
registration and qualification requirements of all applicable state
securities laws.
10. NO BROKERS OR FINDERS
---------------------
No person, firm or corporation has or will have, as a result of any act or
omission of any of WAM!NET or the WAM!NET Subsidiaries, any right, interest
or valid claim against or upon the Vendors for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agreement.
11. REGISTRATION RIGHTS
-------------------
Other than under Clause 18 WAM!NET has not agreed to register any of its
authorized or outstanding securities under the Securities Act.
110
<PAGE>
THE EIGHTH SCHEDULE
-------------------
LIMITATIONS OF LIABILITY
------------------------
PART I
------
1. No liability shall arise in respect of a Relevant Claim unless the
aggregate amount of all Relevant Claims exceeds (Pounds)300,000 but if the
aggregate of all Relevant Claims exceeds such sum as aforesaid then
(subject to the other provisions hereof), the Warrantors shall be liable
for the whole of such liabilities and not merely for the excess. The
foregoing shall not apply to a Relevant Claim which relates to a liability
to Taxation (as defined in the Tax Deed) arising as a result of any
adjustment of the profits of the Company or any Subsidiary for the purposes
of Taxation in connection with a marketing rebate of approximately
(Pounds)180,000 from the Company to 4-Sight Inc nor, for the avoidance of
doubt, any liability arising pursuant to the indemnity contained in Clause
10.2.
2. (a) The aggregate amount of liabilities of the Warrantors under or in
connection with all Relevant Claims shall not exceed the amount of the
Consideration actually received by the Warrantors. The aggregate
amount of liability of each Warrantor under or in connection with all
Relevant Claims shall not exceed the aggregate amount of the
Consideration actually received by such Warrantor for his Shares
including the Consideration Shares. For the purposes of this paragraph
the Consideration Shares shall be deemed to have a value per Share
equal to the net proceeds of sale not exceeding US$40 per
Consideration Share sold (less Taxation thereon) at arms' length of
such Consideration Shares as are required to meet the Warrantors'
liability for any Relevant Claim (in excess of the cash consideration
received by him) PROVIDED THAT to the extent that prior to the date of
the Relevant Claim, any of such Consideration Shares shall have been
disposed of by way of sale at arms' length, the net proceeds of sale
(less Taxation thereon) shall be substituted pro rata for such value.
(b) The amount of Taxation taken into account in determining the value per
Share for the purposes of sub-paragraph 2(a) above shall be reduced by
the amount of any credit in respect of Taxation given to the Warrantor
as a result of an adjustment of the Consideration which is
attributable to a payment made in respect of a Relevant Claim.
111
<PAGE>
(c) The Warrantors undertake that, to the extent required, they will
dispose of the Consideration Shares held by them by way of arms length
sale in order to meet any Relevant Claim.
(d) The US dollar value of any net proceeds of sale of any Consideration
Shares shall, for the purposes of this paragraph 2 be converted into
sterling at the spot rate (at which dollars are bought with sterling)
on the date on which the net proceeds are received.
3. All Relevant Claims against the Warrantors under or in connection with the
Vendor Warranties shall be wholly barred and unenforceable unless written
particulars thereof (giving reasonable details of the specific matter or
claim in respect of which a claim is made to the extent known to the
Purchaser) shall have been given to the Warrantors by no later than the
second anniversary of Completion or, in the case of any claim by reason of
a breach of a Warranty contained in paragraph 8 of the Seventh Schedule,
within a period of six years from the end of the current accounting
reference period of the Company.
4. All Relevant Claims against the Warrantors under or in connection with the
Tax Deed shall be wholly barred and unenforceable unless written
particulars thereof (giving reasonable details of the specific matter or
claim in respect of which a claim is made to the extent known to the
Purchaser) shall have been given to the Warrantors within a period of six
years from the end of the current accounting reference period of the
Company.
5. Where notice of a Relevant Claim has been duly given, such claim shall be
wholly barred and unenforceable unless proceedings in respect of such claim
shall have been issued and served upon the Warrantors within 12 months
after notice of such claim shall be deemed to have been served (or, if part
of such claim relates to a liability which is contingent, then in respect
of such part only, within 12 months after such liability becomes an actual
liability).
6. Where notice of a Relevant Claim has been duly given and part of such claim
relates to a liability which is contingent, the Warrantors shall not be
under any obligation to make any payment to the Purchaser or (if
applicable) the Company in respect of such liability until such time as it
becomes an actual liability.
112
<PAGE>
7. In the event that the Purchaser or the Company or any of the Subsidiaries
recovers any sum (whether by payment, discount, credit or otherwise) from
any third party which relates to the subject matter of a Relevant Claim the
Purchaser shall offset (after deducting any applicable tax and the
reasonable expenses incurred by the Purchaser or the Company or any of the
Subsidiaries in the recovery thereof) such sum against the amount of the
related claim payable by the Warrantors or, if the Warrantors have already
paid such Relevant Claim, the Purchaser shall pay promptly or procure that
the Company or the Subsidiaries (as the case may be) shall pay promptly
such portion of such sum to the Warrantors, but only to the extent of the
net payment received by the Purchaser from the Warrantors in respect of
such Relevant Claim.
8. In respect of any Relevant Claim paid in full by the Warrantors, the
Warrantors shall be entitled to full subrogation to the rights of the
Company, the Subsidiaries and the Purchaser against the third party to the
extent that the Warrantors have so paid and the Purchaser shall and shall
procure that the Company and the Subsidiaries shall co-operate with all
reasonable requests to aid the Warrantors to collect from the third party,
PROVIDED THAT all reasonable out-of-pocket expenses and all costs, claims,
actions and demands made on the Purchaser or the Company or any of the
Subsidiaries as a result of any action required to be taken by the
Warrantors shall be paid for by the Warrantors.
9. In respect of any Relevant Claim not first paid in full by the Warrantors,
the Purchaser will take such action as the Warrantors may reasonably
require to avoid, resist, contest or compromise any Relevant Claim or
matter which gives or may give rise to a Relevant Claim, and where required
by the Warrantors, give control of the conduct of any Relevant Claim or
matter which may give rise to a Relevant Claim to the Warrantors (provided
that such action or control shall not be required by the Warrantors in
relation to any matters which is likely or might reasonably be expected
directly or indirectly adversely to affect relations with customers or
suppliers of the Company and/or any of the Subsidiaries or may otherwise
adversely affect the business or financial position of the Company and/or
any of the Subsidiaries), and subject in each such case to being
indemnified and secured first to the Purchaser's reasonable satisfaction by
the Warrantors against all reasonable costs in so doing.
10. The Warrantors shall not be liable in respect of a Relevant Claim under or
in connection with the Vendor Warranties if and to the extent that the loss
is or has been included and satisfied in any Relevant Claim under the Tax
Deed nor shall they be liable in respect of a Relevant Claim under or
113
<PAGE>
in connection with the Tax Deed if and to the extent that the loss is or
has been included and satisfied in any Relevant Claim under the Warranties.
To the extent that the Relevant Claim arises under the Vendor Warranties
and also under the Tax Deed, such claim shall first be satisfied under the
Warranties.
11. The Purchaser shall not be entitled to make any Relevant Claim under or in
connection with the Vendor Warranties to the extent that the matter giving
rise to the Relevant Claim has been fairly disclosed in the Disclosure
Letter.
12. The Purchaser shall not be entitled to make any Relevant Claim (and the
Warrantors shall not be liable in respect of any such claim):-
(a) to the extent that the subject matter of the claim is specifically
reserved or provided for or included as a liability in the Audited
Accounts or the Management Accounts;
(b) to the extent that such liability would not have arisen but for a
voluntary act or omission by the Company or any Subsidiary which was
provided for in or carried out to comply with the terms of or give
effect to this Agreement or which is outside the ordinary course of
business after Completion and which could reasonably have been avoided
and which the Purchaser was aware or ought reasonably to have been
aware might give rise to a Relevant Claim (save where such act or
omission is a result of a legally binding obligation of the Company or
the Subsidiary entered into before Completion or is done with the
prior written approval of the Warrantors);
(c) to the extent that liability in respect of such claim arises or is
increased as a result of any increase in the rates of Taxation made or
imposed after Completion with retrospective effect to any period
ending on or before Completion;
(d) to the extent that liability in respect of such claim arises or is
increased as a result of the retrospective imposition of Taxation as a
consequence of any change in the law enacted or in the published
Inland Revenue practice thereof or otherwise made after the date
hereof;
(e) to the extent that such liability arises wholly or partly out of or
the amount thereof is increased as a result of any change in the
accounting principles or practices of the Purchaser or WAM!NET
114
<PAGE>
or the Company or any of the Subsidiaries introduced or having effect
after the date hereof unless the same is introduced to bring such
accounting principles and practices into line with generally accepted
accounting principles and practices in relation to a business of the
type carried on by the Company and the Subsidiaries.
13. In this Part I of this Schedule, any reference to the Purchaser shall be
construed as meaning the Purchaser and/or WAM!NET.
115
<PAGE>
PART II
-------
1. No liability shall arise in respect of a Relevant Claim unless the
aggregate amount of all Relevant Claims exceeds (Pounds)300,000 but if the
aggregate of all Relevant Claims exceeds such sum as aforesaid then
(subject to the other provisions hereof), the Purchaser and WAM!NET shall
be liable for the whole of such liabilities and not merely for the excess.
2. The aggregate amount of liabilities of the Purchaser and WAM!NET under or
in connection with all Relevant Claims shall not exceed US$12,612,204 .
3. All Relevant Claims against the Purchaser and WAM!NET under or in
connection with the Purchaser Warranties shall be wholly barred and
unenforceable unless written particulars thereof (giving reasonable details
of the specific matter or claim in respect of which a claim is made to the
extent known to the Vendors) shall have been given to the Purchaser and
WAM!NET by no later than the second anniversary of Completion.
4. Where notice of a Relevant Claim has been duly given, such claim shall be
wholly barred and unenforceable unless proceedings in respect of such claim
shall have been issued and served upon the Purchaser and WAM!NET within 12
months after notice of such claim shall be deemed to have been served (or,
if part of such claim relates to a liability which is contingent, then in
respect of such part only, within 12 months after such liability becomes an
actual liability).
5. Where notice of a Relevant Claim has been duly given and part of such claim
relates to a liability which is contingent, the Purchaser and WAM!NET shall
not be under any obligation to make any payment to the Vendors in respect
of such liability until such time as it becomes an actual liability.
6. In the event that the Vendors or the Company or any of the Subsidiaries
recovers any sum (whether by payment, discount, credit or otherwise) from
any third party which relates to the subject matter of a Relevant Claim the
Vendors shall offset (after deducting any applicable tax and the reasonable
expenses incurred by the Vendors or the Company or any of the Subsidiaries
in the recovery thereof) such sum against the amount of the related claim
payable by the Purchaser and WAM!NET or, if the
116
<PAGE>
Purchaser and WAM!NET have already paid such Relevant Claim, the Vendors
shall pay promptly such portion of such sum to the Purchaser and WAM!NET,
but only to the extent of the net payment received by the Vendors from the
Purchaser and WAM!NET in respect of such Relevant Claim.
7. In respect of any Relevant Claim paid in full by the Purchaser and WAM!NET,
the Purchaser and WAM!NET shall be entitled to full subrogation to the
rights of the Company and the Subsidiaries and the Vendor against the third
party to the extent that the Purchaser and/or WAM!NET have so paid and the
Vendors shall and shall procure that the Company and the Subsidiaries shall
co-operate with all reasonable requests to aid the Purchaser and/or WAM!NET
to collect from the third party, PROVIDED THAT all reasonable out-of-pocket
expenses and all costs, claims, actions and demands made on the Vendors or
the Company or any of the Subsidiaries as a result of any action required
to be taken by the Purchaser and WAM!NET shall be paid for by the Purchaser
and WAM!NET.
8. In respect of any Relevant Claim not first paid in full by the Purchaser
and/or WAM!NET, the Vendors will take such action as the Purchaser and
WAM!NET may reasonably require to avoid, resist, contest or compromise any
relevant claim or matter which gives or may give rise to a Relevant Claim,
and where required by the Purchaser and WAM!NET, give control of the
conduct of any Relevant Claim or matter which may give rise to a Relevant
Claim to the Purchaser and WAM!NET (provided that such action or control
shall not be required by the Purchaser and WAM!NET in relation to any
matters which are likely or might reasonably be expected directly or
indirectly adversely to affect relations with customers or suppliers of the
Company and/or any of the Subsidiaries or may otherwise adversely affect
the business or financial position of the Company and/or any of the
Subsidiaries), and subject in each such case to being indemnified and
secured first to the Vendors' reasonable satisfaction by the Purchaser and
WAM!NET against all reasonable costs in so doing.
9. The Vendors shall not be entitled to make any Relevant Claim under or in
connection with the Purchaser Warranties to the extent that the matter
giving rise to the Relevant Claim has been fairly disclosed in the
Purchaser's Disclosure Letter.
10. The Vendors shall not be entitled to make any Relevant Claim (and the
Purchaser and WAM!NET shall not be liable in respect of any such claim):-
117
<PAGE>
(a) to the extent that the subject matter of the claim is specifically
reserved or provided for or included as a liability in the Audited
Balance Sheet referred to in paragraph 6 of the Seventh Schedule;
(b) to the extent that liability in respect of such claim arises or is
increased as a result of any increase in the rates of Taxation made or
imposed after Completion with retrospective effect to any period
ending on or before Completion;
(c) to the extent that liability in respect of such claim arises or is
increased as a result of the retrospective imposition of Taxation as a
consequence of any change in the law enacted or in the published
Inland Revenue or other Tax Authority practice thereof or otherwise
made after the date hereof.
118
<PAGE>
SIGNED by )
- ------
DAVID ANTHONY TOWNEND ) /s/ David Townend
- ---------------------
in the presence of:- )
/s/ A.R. Prest
SIGNED by )
- ------
LYNDON DAVID STICKLEY ) /s/ Lyndon David Stickley
- ---------------------
in the presence of:- )
/s/ Peter Basius
SIGNED by )
- ------
ANDREW STEVEN BAIRD ) /s/ Andrew S. Baird
- -------------------
in the presence of:- )
/s/ Clair Baird
SIGNED by )
- ------
YORICK PHOENIX ) /s/ Yorick Phoenix
- --------------
in the presence of:- )
/s/ A.R. Prest
SIGNED by Frank Dearie )
- ------
for and on behalf of ) /s/ Frank Dearie
MEDIA TEC INVESTMENTS )
- ---------------------
LIMITED in the presence of:- )
- -------
/s/ Karen B. Smith
SIGNED by )
- ------
for and on behalf of ) /s/
GEOCAPITAL IV L.P. )
- ------------------
in the presence of:- )
119
<PAGE>
SIGNED by )
- ------
for and on behalf of )
Catherine C. Clarke
3i GROUP PLC ) /s/ Catherine C. Clarke
- ------------
in the presence of:- )
SIGNED by )
- ------
for and on behalf of )
WAM!NET (UK) LIMITED ) /s/ Michael Borman
- --------------------
in the presence of:- )
/s/ Edward J. Driscoll, Jr.
SIGNED by )
- ------
for and on behalf of )
WAM!NET INC. ) /s/ Edward J. Driscoll III
- ------------
in the presence of:- )
/s/ Michael O'Donnell
120
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WAM!NET INC.
ARTICLE 1.
NAME
The name of the corporation is WAM!NET Inc., which shall be referred to in
these Articles of Incorporation as the "Corporation."
ARTICLE 2.
REGISTERED OFFICE
The address of the registered office of the Corporation in Minnesota is
6100 West 110th Street, Minneapolis, Minnesota 55438
ARTICLE 3.
DURATION
The duration of the Corporation shall be perpetual.
ARTICLE 4.
PURPOSE
The Corporation is organized for general business purposes.
ARTICLE 5.
POWERS
The Corporation shall have the unlimited power to engage in and to do any
act necessary or incidental to the carrying out of its purposes, together with
the power to do or perform any acts consistent with or which may be implied from
the powers expressly conferred upon corporations by Minnesota Statutes, Chapter
302A.
<PAGE>
ARTICLE 6.
STOCK
6.1) Capitalization. The aggregate number of shares of stock that the
--------------
Corporation has authority to issue shall be one hundred million (100,000,000)
shares, which shall consist of (a) ninety million (90,000,000) shares of common
stock, with a par value of One Cent ($.01) per share ("Common Stock"); (b) one
hundred thousand (100,000) shares of Class A preferred stock ("Class A Preferred
Stock"); and (c) nine million nine hundred thousand (9,900,000) shares of
undesignated stock. The Board of Directors of the Corporation is authorized to
establish from the undesignated stock, by resolution adopted and filed in the
manner provided by law, one or more classes or series of shares, to designate
each such class or series (which may include but is not limited to designation
as additional Common Stock), and to fix the relative rights and preferences of
each such class or series.
6.2) Class A Preferred Stock. The express terms and provisions of the
-----------------------
shares classified and designated as Class A Preferred Shares are as follows:
(a) Designation and Amount. Each share of Class A Preferred Stock shall
----------------------
have a par value of Ten Dollars ($10.00) per share. The number of shares of
Class A Preferred Stock may be increased or decreased by resolution of the
Board of Directors; provided, that, no decrease shall reduce the number of
shares of Class A Preferred Stock to a number less than the number of
shares then outstanding, plus the number of shares of Class A Preferred
Stock, if any, reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Company convertible into Class A Preferred Stock.
(b) Dividends and Distributions.
---------------------------
(1) The holders of shares of Class A Preferred Stock, in preference
to the holders of Common Stock of the Company, shall be entitled
to receive, when, as and if declared by the Board of Directors
of the Company (the "Directors"), a dividend (the "Quarterly
Dividend") in the amount of Seventeen and One-half Cents ($.175)
per share payable out of the net earnings of the Company
constituting funds legally available for the purpose. The
Quarterly Dividend shall begin to accrue on January 1, 1997, and
shall be payable in cash on the first day of March, June,
September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Class A
Preferred Stock. If the net earnings in any year are not
sufficient to pay the Quarterly Dividend, either in whole or in
part, then any unpaid portion of such dividend will become a
charge against the net earnings of the Company, and will be paid
in full out of the net earnings of the Company in subsequent
years before any dividends are
2.
<PAGE>
paid on the Common Stock of the Company in those years. No dividends
will be paid or set apart for payment on the Common Stock, no
distribution will be made on the Common Stock, and no shares of Common
Stock will be redeemed, retired or otherwise acquired for valuable
consideration unless all theretofore unpaid Quarterly Dividends have
been declared, and the Company has paid those dividends or has set
aside a sum sufficient to pay them.
(2) Dividends shall begin to accrue and accumulate on outstanding shares
of Class A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, in which case
dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination
of holders of shares of Class A Preferred Stock entitled to receive
Quarterly Dividends and before such Quarterly Dividend Payment Date,
in either of which events such Quarterly Dividends shall begin to
accrue and accumulate from such Quarterly Dividend Payment Date.
Accrued but unpaid Quarterly Dividends shall not bear interest.
Dividends paid on the shares of Class A Preferred Stock in an amount
less than the total amount of Quarterly Dividends then accrued and
payable shall be allocated pro rata on a share-by-share basis among
all such shares of Class A Preferred Stock then outstanding. The
Directors may fix a record date for the determination of holders of
shares of Class A Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be
no more than sixty (60) days prior to the date fixed for the payment
thereof.
(c) Voting Rights. The holders of shares of Class A Preferred Stock shall have
-------------
the following voting rights:
(1) Each share of Class A Preferred Stock shall entitle the holder thereof
to one (1) vote for each share of Class A Preferred Stock standing in
the name of the holder on the books of the Company. The holders of
Class A Preferred Stock, voting separately as a class, shall be
entitled to elect a majority of the Directors. The right to elect
Directors may be exercised at any annual meeting of the stockholders
of the Company, at any special meeting held in place of an annual
meeting, or at a special meeting called to elect directors. The right
to elect directors shall continue until December 31, 1999, and then
expire. The directors elected by the Class A Preferred Stock shall
serve until the next annual or special meeting of the stockholders of
the Company and until their respective successors have been elected by
the holders of Class A Preferred Stock and have been qualified. The
term of office of any person elected as a director by the holders of
Class A Preferred Stock shall terminate on December 31, 1999.
3.
<PAGE>
The vacancies created thereby may be filled by resolution of the
remaining Directors who shall have been elected by a vote of the
holders of the Common Stock of the Company. If the office of a
director elected by the holders of Class A Preferred Stock is vacant
prior to December 31, 1999, due to resignation, removal or death, the
vacancy shall be filled by the majority vote of the directors then in
office, even if less than a quorum, upon the recommendation of the
remaining director or directors who were elected by the holders of the
Class A Preferred Stock. If the office of a director who was elected
by the holders of Common Stock is vacant prior to December 31, 1999,
due to resignation, removal or death, the vacancy shall be filled by
the majority vote of the directors then in office, even if less than a
quorum, upon the recommendation of the remaining director or directors
who were elected by the holders of the Common Stock. If the vacancy is
not so filled within forty (40) days after the creation of the
vacancy, a special meeting of the holders of Preferred Stock and/or
Common Stock shall be called and the vacancy or vacancies shall be
filled at that meeting.
(2) In addition to the right to elect a majority of the Directors as
provided in Section 6.2(c)(1), the holder of each share of Class A
Preferred Stock shall be entitled to one (1) vote, voting together
with the holders of Common Stock as a single class, on all matters,
excluding the election of Directors, submitted to the vote of
shareholders of the Company.
(3) Except as otherwise provided in Section 6.2(c) or in Section 6.2(j)
hereof, or in any Certificate of Designations creating another class
or series of preferred stock, or in any similar stock of the Company
hereafter created, or by law, the holders of shares of Class A
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Company having general voting rights shall
vote together as one class on all matters submitted to a vote of
stockholders of the Company.
(4) Except as expressly set forth herein, or as otherwise provided by law,
holders of Class A Preferred Stock shall have no special voting rights
and their consent, as a separate class, shall not be required (except
to the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action.
(d) Certain Restrictions
--------------------
(1) Whenever Quarterly Dividends or distributions payable on Class A
Preferred Stock as provided in Section 6.2(b) are in arrears,
thereafter and until all accrued and unpaid Quarterly Dividends and
distributions, whether or not declared, on shares of Class A Preferred
Stock outstanding shall have been paid in full, the Company shall not,
without the express
4.
<PAGE>
affirmative unanimous approval of the Directors elected by holders of
the Class A Preferred Stock:
a. declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Class A Preferred
Stock;
b. declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Class A
Preferred Stock, except dividends paid ratably on the Class A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
c. redeem or purchase or otherwise acquire for consideration shares
of any stock of the Company ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Class A Preferred Stock, provided that the Company may at any
time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the Company
ranking junior (as to dividends and upon dissolution, liquidation
and winding up) to the Class A Preferred Stock; or
d. redeem or purchase or otherwise acquire for consideration any
shares of Class A Preferred Stock, or any shares of stock ranking
on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Class A Preferred Stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(2) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under Section 6.2(d)(1), purchase or
otherwise acquire such shares at such time and in such manner.
(e) Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary
--------------------------------------
liquidation, dissolution or winding up of the affairs of the Company, no
distribution shall be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Class A Preferred Stock, or (b) to the
5.
<PAGE>
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Class A Preferred Stock unless
each holder of Class A Preferred Stock has received in cash out of the assets of
the Company, whether from capital or earnings, available for distribution to the
shareholders of the Company, before any amount is paid to the holders of Common
Stock, the sum of Ten Dollars ($10.00) per share for each share of Class A
Preferred Stock held by the holder, plus an amount equal to the sum of all
accumulated and unpaid dividends to the date affixed for the payment of the
distribution on the shares of Class A Preferred Stock held by the holder. The
sale or transfer by the Company of all or substantially all of its assets shall
not, for the purposes of determining preferences and liquidation, be deemed to
be a liquidation, dissolution or winding up of the Company.
(f) Preemptive Rights. No holder of any shares of Class A Preferred Stock shall
------------------
be entitled as such, as a matter of right, to subscribe for, purchase or receive
any part of any class whatsoever, or of securities convertible into or
exchangeable for any stock or any class whatsoever, whether now or hereafter
authorized or whether issued for cash or other consideration or by way of a
dividend.
(g) Mandatory Redemption. Unless earlier redeemed or acquired in whole or in
--------------------
part by the Company with the consent of the holder, the shares of Class A
Preferred Stock that remain issued and outstanding shall expire and and shall be
automatically redeemed on December 31, 1999, at par value, plus an amount equal
to all accumulated and unpaid dividends, if any, due with respect to the Class A
Preferred Stock (collectively, the "Redemption Price"). Redemption shall be in
cash out of any funds legally available for the redemption of the Class A
Preferred Stock.
(h) Rank. The Class A Preferred Stock shall rank, with respect to the payment
----
of dividends and the distribution of assets, senior to all other classes and
series of preferred stock.
(i) Reacquired Shares. Any shares of Class A Preferred Stock purchased or
-----------------
otherwise acquired by the Company in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of undesignated stock
and may be reissued subject to the conditions and restrictions on issuance in
the Articles of Incorporation, or in any other Certificate or Designations
creating another class or series of stock or as otherwise required by law.
(j) Amendment. If any proposed amendment to these Articles of Incorporation
---------
would alter or change the preferences, special rights or powers given to the
Class A Preferred Stock so as to affect the Class A Preferred Stock adversely,
or would authorize the issuance of a class or classes of stock having
preferences or rights with respect to dividends or dissolution or the
distribution of assets that would be superior to the preferences or rights of
the Class A Preferred Stock, then the holders of the Class A Preferred Stock
shall be entitled to vote as a series upon such amendment, and the
6.
<PAGE>
affirmative vote of two-thirds of the outstanding shares of Class A
Preferred Stock shall be necessary to the adoption thereof, in addition to
such other vote as may be required by law.
6.3) Preemptive Rights. Shareholders shall not have any preemptive or
-----------------
preferential rights for or to shares of this Corporation, whether now or
hereafter authorized, or to any obligations convertible into shares of this
Corporation, or to any options, warrants or other right to acquire shares of
this Corporation, or to any subscription or right of subscription therefor,
except such, if any, as the Board of Directors in its sole discretion may
determine from time to time, and at such price or terms as the Board of
Directors may fix. The Board of Directors may, at any time and from time to
time, issue and sell for such consideration as may be permitted by law and these
Articles of Incorporation, any or all of the authorized shares of the
Corporation not then issued and any and all of any stock of any class or series
that may hereafter be authorized.
6.4) Issuance of Shares. Subject to this Article 6, the Board of Directors
------------------
may issue any or all shares of the Corporation authorized by these Articles and
not already issued, including any shares previously issued and reacquired by the
Corporation. Upon approval by the Board of Directors, shares may be issued (i)
for any consideration determined appropriate by the Board of Directors, or (ii)
for no consideration in order to effectuate share conversions, dividends or
splits, including reverse splits. The Board of Directors shall determine the
value of non-monetary consideration received for shares.
6.5) Issuance of Rights to Acquire Shares. Subject to Section 6.4, the
------------------------------------
Board of Directors may issue rights to purchase shares of the Corporation, and
shall fix the terms, provisions and conditions of such rights to purchase,
including the conversion basis and the price at which shares may be purchased or
subscribed for. Shares to be issuable upon the exercise of all outstanding
rights to purchase, including such rights to be issued, must be authorized by
these Articles and not already issued.
ARTICLE 7.
SHAREHOLDERS
All shareholder actions shall require an affirmative vote of the holders of
a majority of the voting power of the shares represented and entitled to vote at
a duly held meeting, except where the law requires a vote with respect to all
outstanding shares of the Corporation, in which case the affirmative vote of a
majority of the shares entitled to vote (by class or series if more than one
class or series of shares is outstanding and entitled to vote separately as a
class or series on such matter) shall be sufficient to authorize the action.
ARTICLE 8.
NON-CUMULATIVE VOTING
Unless otherwise provided in these Articles or in a Certificate of
Designation, cumulative voting for directors shall not be permitted.
7.
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ARTICLE 9.
DIRECTORS
9.1) Power; Voting. The Board of Directors shall have the power and
-------------
authority to take any action required or permitted by law or by these Articles.
The Board of Directors shall take action by the affirmative vote of a majority
of directors present at a duly held meeting, except where law requires the
affirmative vote of a larger proportion or number.
9.2) Written Action. Any action required or permitted to be taken at a
--------------
board meeting may be taken by written action signed by a majority of directors.
If the action must also be approved by the shareholders, then the action must be
taken by written action of all the directors.
9.3) Indemnification. A director of the Corporation shall not be
---------------
personally liable to the Corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for (i) liability based on a
breach of the duty of loyalty to the Corporation or the shareholders (ii)
liability for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) liability under Minnesota
Statutes Section 302A.559 or 80A.23; or (iv) liability for any transaction from
which the director derived an improper personal benefit. If Chapter 302A, the
Minnesota Business Corporation Act, is hereafter amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Chapter 302A, the Minnesota Business Corporation Act.
Any repeal or modification of this Section 9.3 by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation at the
time of such repeal or modification.
ARTICLE 10.
BYLAWS
The Board of Directors may adopt bylaws which may contain any provision
relating to the management of the business or the regulation of the affairs of
the Corporation not inconsistent with law or these Articles of Incorporation.
The power to adopt, amend or repeal the bylaws shall be vested in the Board of
Directors.
8.
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Exhibit 3.2
BYLAWS
OF
NETCO COMMUNICATIONS CORPORATION
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Registered Office. The registered office of the
-----------------
corporation in Minnesota shall be that set forth in the articles of
incorporation or in the most recent amendment of the articles of incorporation
or resolution of the directors filed with the secretary of state of Minnesota
changing the registered office.
Section 1.02. Other Offices. The corporation may have such other
-------------
offices, within or without the state of Minnesota, as the directors shall, from
time to time, determine.
Section 1.03. Corporate Seal. The corporation shall have no seal.
--------------
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section. 2.01. Place and Time of Meetings. Except as provided
--------------------------
otherwise by the Minnesota Business Corporation Act, meetings of the
shareholders may be held at any place, within or without the state of Minnesota,
as may from time to time be designated by the directors and, in the absence of
such designation, shall be held at the registered office of the corporation in
the state of Minnesota. The directors shall designate the time of day for each
meeting and, in the absence of such designation, every meeting of shareholders
shall be held at ten o'clock a.m.
Section 2.02. Regular Meetings. (a) A regular meeting of the
----------------
shareholders shall be held on such date, as the board of directors shall by
resolution establish.
(b) Voting as provided in the articles of incorporation and
these bylaws, at a regular meeting the shareholders (i) shall elect qualified
successors for directors who serve for an indefinite term or whose terms have
expired or are due to expire within six months after the date of the meeting and
(ii) shall transact such other business as may properly come before them.
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(c) The number of directors to constitute the board of
directors shall be determined by the board of directors or by the shareholders
(subject to the authority of the board of directors thereafter to increase or
decrease the number of directors as permitted by law).
Section 2.03. Special Meetings. Special meetings of the shareholders
----------------
may be held at any time and for any purpose and may be called by the chief
executive officer, the chief financial officer, two or more directors or by a
shareholder or shareholders holding 10% or more of the voting power of all
shares entitled to vote, except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or affect a business
combination, including any action to change or otherwise affect the composition
of the board of directors for that purpose, must be called by 25% or more of the
voting power of all shares entitled to vote. A shareholder or shareholders
holding the requisite percentage of the voting power of all shares entitled to
vote may demand a special meeting of the shareholders by written notice of
demand given to the chief executive officer or chief financial officer of the
corporation and containing the purposes of the meeting. Within 30 days after
receipt of demand by one of those officers, the board of directors shall cause a
special meeting of shareholders to be called and held on notice no later than 90
days after receipt of the demand, at the expense of the corporation. Special
meetings shall be held on the date and at the time and place fixed by the chief
executive officer or the board of directors, except that a special meeting
called by or at demand of a shareholder or shareholders shall be held in the
county where the principal executive office is located. The business transacted
at a special meeting shall be limited to the purposes as stated in the notice of
the meeting.
Section 2.04. Quorum. Adjourned Meetings. The holders of a majority of
--------------------------
the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. In case a quorum shall not be
present at a meeting, the meeting may be adjourned from time to time without
notice other than announcement at the time of adjournment of the date, time and
place of the adjourned meeting. If a quorum is present, a meeting may be
adjourned from time to time without notice other than announcement at the time
of adjournment of the date, time and place of the adjourned meeting. At
adjourned meetings at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed. If a
quorum is present when a meeting is convened, the shareholders present may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders originally present to leave less than a quorum.
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Section 2.05. Voting. At each meeting of the shareholders every
------
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the articles of incorporation or statutes
provide otherwise, shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
those shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote except if otherwise required by statute, the
articles of incorporation, or these bylaws.
Section 2.06. Record Date. The board of directors may fix a date, not
-----------
exceeding 60 days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of, and to
vote at, such meeting, notwithstanding any transfer of shares on the books of
the corporation after any record date so fixed. If the board of directors fails
to fix a record date for determination of the shareholders entitled to notice
of, and to vote at, any meeting of shareholders, the record date shall be the
20th day preceding the date of such meeting.
Section 2.07. Notice of Meetings. There shall be mailed to each
------------------
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his address as shown by the books of the corporation, a notice
setting out the time and place of each regular meeting and each special meeting,
except (unless otherwise provided in section 2.04 hereof) where the meeting is
an adjourned meeting and the date, time and place of the meeting were announced
at the time of adjournment, which notice shall be mailed at least five days
prior thereto (unless otherwise provided in section 2.04 hereof); except that
notice of a meeting at which a plan of merger or exchange is to be considered
shall be mailed to all shareholders of record, whether entitled to vote or not,
at least fourteen days prior thereto. Every notice of any special meeting called
pursuant to section 2.03 hereof shall state the purpose or purposes for which
the meeting has been called, and the business transacted at all special meetings
shall be confined to the purposes stated in the notice. The written notice of
any meeting at which a plan of merger or exchange is to be considered shall so
state such as a purpose of the meeting. A copy or short description of the plan
of merger or exchange shall be included in or enclosed with such notice.
Section 2.08. Waiver of Notice. Notice of any regular or special
----------------
meeting may be waived by any shareholder either before, at or after such meeting
orally or in writing signed by such
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September 19, 1994
shareholder or a representative entitled to vote the shares of such shareholder.
A shareholder, by his attendance at any meeting of shareholders, shall be deemed
to have waived notice of such meeting, except where the shareholder objects at
the beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened, or objects before a vote on an item of
business because the item may not lawfully be considered at that meeting and
does not participate in the consideration of the item at that meeting.
Section 2.09. Written Action. Any action which might be taken at a
--------------
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the
--------------
corporation shall be managed by or under the authority of the board of
directors, except as otherwise permitted by statute.
Section 3.02. Number, Qualification and Term of Office. Until the
----------------------------------------
organizational meeting of the board of directors, the number of directors shall
be the number named in the articles of incorporation. Thereafter, the number of
directors shall be increased or decreased from time to time by resolution of the
board of directors or the shareholders (subject to the authority of the board of
directors thereafter to increase or decrease the number of directors as
permitted by law). Directors need not be shareholders. Each of the directors
shall hold office until the regular meeting of shareholders next held after such
director's election and until such director's successor shall have been elected
and shall qualify, or until the earlier death, resignation, removal, or
disqualification of such director.
Section 3.03. Board Meetings. Meetings of the board of directors may
--------------
be held from time to time at such time and place within or without the state of
Minnesota as may be designated in the notice of such meeting.
Section 3.04. Calling Meetings: Notice. Meetings of the board of
------------------------
directors may be called by the chairman of the board by giving at least
twenty-four hours' notice, or by any other director by giving at least five
days' notice, of the date, time and place thereof to each director by mail,
telephone, telegram or in person. If the day or date, time and place of a
meeting of the board of directors has been announced at a previous meeting of
the board, no notice is required. Notice of an adjourned meeting of the board of
directors need not be given other than by announcement at the meeting at which
adjournment is taken.
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Section 3.05. Waiver of Notice. Notice of any meeting of the board of
----------------
directors may be waived by any director either before, at, or after such meeting
orally or in writing signed by such director. A director, by his attendance at
any meeting of the board of directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
------
immediately prior to a meeting of the board of directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written
----------------
consent or opposition to a proposal to be acted on at a meeting of the board of
directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
-------------------------
participate in any meeting of the board of directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this section 3.08 shall be deemed present in person at
the meeting; and the place of the meeting shall be the place of origination of
the conference telephone conversation or other comparable communication
technique.
Section 3.09. Vacancies: Newly Created Directorships. Vacancies on the
--------------------------------------
board of directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the board of directors as permitted by section
3.02 may be filled by a majority vote of the directors serving at the time of
such increase; and each director elected pursuant to this section 3.09 shall be
a director until such director's successor is elected by the shareholders at
their next regular or special meeting.
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Section 3.10. Removal. Any or all of the directors may be removed from
-------
office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors except, as otherwise provided by the Minnesota Business Corporation
Act, section 302A.223, as amended, if, for any reason, shareholders become
entitled to cumulate their votes for the election of directors. A director named
by the board of directors to fill a vacancy may be removed from office at any
time, with or without cause, by the affirmative vote of the remaining directors
if the shareholders have not elected directors in the interim between the time
of the appointment to fill such vacancy and the time of the removal. In the
event that the entire board or any one or more directors be so removed, new
directors may be elected at the same meeting.
Section 3.11. Committees. A resolution approved by the affirmative
----------
vote of a majority of the board of directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the board of
directors, except as provided by the Minnesota Business Corporation Act, section
302A.243. A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.12. Written Action. Any action which might be taken at a
--------------
meeting of the board of directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members, unless the articles provide otherwise and the
action need not be approved by the shareholders.
Section 3.13. Compensation. Directors who are not salaried officers of
------------
this corporation shall receive such fixed sum per meeting attended or such fixed
annual sum as shall be determined, from time to time, by resolution of the board
of directors. The board of directors may, by resolution, provide that all
directors shall receive their expenses, if any, of attendance at meetings of the
board of directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
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ARTICLE IV.
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of
------
a chairman of the board (if one is elected by the board), the president, one or
more vice presidents (if desired by the board), a treasurer, a secretary (if one
is elected by the board) and such other officers and agents as may, from time to
time, be elected by the board of directors. Any number of offices may be held by
the same person.
Section 4.02. Election, Term of Office and Qualifications. The board
-------------------------------------------
of directors shall elect or appoint, by resolution approved by the affirmative
vote of a majority of the directors present, from within or without their
number, the president, treasurer and such other officers as may be deemed
advisable, each of whom shall have the powers, rights, duties, responsibilities,
and terms in office provided for in these bylaws or a resolution of the board of
directors not inconsistent therewith. The president and all other officers who
may be directors shall continue to hold office until the election and
qualification of their successors, notwithstanding an earlier termination of
their directorship.
Section 4.03. Removal and Vacancies. Any officer may be removed from
---------------------
his office by the board of directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy in an office of the corporation by
reason of death, resignation or otherwise, such vacancy shall be filled for the
unexpired term by the board of directors.
Section 4.04. Chairman of the Board. The chairman of the board, if one
---------------------
is elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
board of directors.
Section 4.05. President. The president shall be the chief executive
---------
officer and shall have general active management of the business of the
corporation. In the absence of the chairman of the board, he shall preside at
all meetings of the shareholders and directors. He shall see that all orders and
resolutions of the board of directors are carried into effect. He shall execute
and deliver, in the name of the corporation, any deeds, mortgages, bonds,
contracts or other instruments pertaining to the business of the corporation
unless the authority to execute and deliver is required by law to be exercised
by another person or is expressly delegated by the articles or bylaws or by the
board of directors to some other officer or agent of the corporation. He shall
maintain records of and, whenever necessary, certify all
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proceedings of the board of directors and the shareholders, and in general,
shall perform all duties usually incident to the office of the president. He
shall have such other duties as may, from time to time, be prescribed by the
board of directors.
Section 4.06. Vice President. Each vice president, if one or more is
--------------
elected, shall have such powers and shall perform such duties as prescribed by
the board of directors or by the president. In the event of the absence or
disability of the president, the vice president(s) shall succeed to his power
and duties in the order designated by the board of directors.
Section 4.07. Secretary. The secretary, if one is elected, shall be
---------
secretary of and shall attend all meetings of the shareholders and board of
directors and shall record all proceedings of such meetings in the minute book
of the corporation. He shall give proper notice of meetings of shareholders and
directors. He shall perform such other duties as may, from time to time, be
prescribed by the board of directors or by the president.
Section 4.08. Treasurer. The treasurer shall be the chief financial
---------
officer and shall keep accurate financial records for the corporation. He shall
deposit all moneys, drafts and checks in the name of, and to the credit of, the
corporation in such banks and depositories as the board of directors shall, from
time to time, designate. He shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. He shall disburse the funds of
the corporation, as ordered by the board of directors, making proper vouchers
therefor. He shall render to the president and the directors, whenever
requested, an account of all his transactions as treasurer and of the financial
condition of the corporation, and shall perform such other duties as may, from
time to time, be prescribed by the board of directors or by the president.
Section 4.09. Compensation. The officers of the corporation shall
------------
receive such compensation for their services as may be determined, from time to
time, by resolution of the board of directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation
-----------------------
shall be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
board of directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered
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in the order in which they shall be issued and shall be signed, in the name of
the corporation, by the president and by the secretary or an assistant secretary
or by such officers as the board of directors may designate. If the certificate
is signed by a transfer agent or registrar, such signatures of the corporate
officers may be by facsimile if authorized by the board of directors. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in section 5.04.
Section 5.02. Issuance of Shares. The board of directors is authorized
------------------
to cause to be issued shares of the corporation up to the full amount authorized
by the articles of incorporation in such amounts as may be determined by the
board of directors and as may be permitted by law. Shares may be issued for any
consideration, including, without limitation, in consideration of cash or other
property, tangible or intangible, received or to be received by the corporation
under a written agreement, of services rendered or to be rendered to the
corporation under a written agreement, or of an amount transferred from surplus
to stated capital upon a share dividend. At the time of approval of the issuance
of shares, the board of directors shall state, by resolution, its determination
of the fair value to the corporation in monetary terms of any consideration
other than cash for which shares are to be issued.
Section 5.03. Transfer of Shares. Transfer of shares on the books of
------------------
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat as the absolute owner of
shares of the corporation, the person or persons in whose name shares are
registered on the books of the corporation.
Section 5.04. Loss of Certificates. Except as otherwise provided by
--------------------
the Minnesota Business Corporation Act, section 302A.419, any shareholder
claiming a certificate for shares to be lost, stolen, or destroyed shall make an
affidavit of that fact in such form as the board of directors shall require and
shall, if the board of directors so requires, give the corporation a bond of
indemnity in form, in an amount, and with one or more sureties satisfactory to
the board of directors, to indemnify the corporation against any claim which may
be made against it on account of the reissue of such certificate, whereupon a
new certificate may be issued in the same tenor and for the same number of
shares as the one alleged to have been lost, stolen or destroyed.
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ARTICLE VI.
DISTRIBUTIONS, RECORD DATE
Section 6.01. Distributions. Subject to the provisions of the articles
-------------
of incorporation, of these bylaws, and of law, the board of directors may
authorize and cause the corporation to make distributions whenever, and in such
amounts or forms as, in its opinion, are deemed advisable.
Section 6.02. Record Date. Subject to any provisions of the articles
-----------
of incorporation, the board of directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any distribution as the record date
for the determination of the shareholders entitled to receive payment of the
distribution and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such distribution notwithstanding any
transfer of shares on the books of the corporation after the record date.
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. Share Register. The board of directors of the
--------------
corporation shall cause to be kept at its principal executive office, or at
another place or places within the United States determined by the board:
(1) a share register not more than one year old,
containing the names and addresses of the
shareholders and the number and classes of
shares held by each shareholder; and
(2) a record of the dates on which certificates or
transaction statements representing shares
were issued.
Section 7.02. Other Books and Records. The board of directors shall
-----------------------
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its Minnesota
registered office within ten days after receipt by an officer of the corporation
of a written demand for them made by a shareholder or other person authorized by
the Minnesota Business Corporation Act, section 302A.461, originals or copies
of:
(1) records of all proceedings of shareholders for
the last three years;
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September 19, 1994
(2) records of all proceedings of the board for the last three
years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by the Minnesota
Business Corporation Act, section 302A.463 and
the financial statements for the most recent
interim period prepared in the course of the
operation of the corporation for distribution
to the shareholders or to a governmental agency
as a matter of public record;
(6) reports made to shareholders generally within the
last three years;
(7) a statement of the names and usual business
addresses of its directors and principal
officers; and
(8) any shareholder voting or control agreements
of which the corporation is aware.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall be
-----------
determined by the board of directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an
obligation of, become a surety for, or otherwise financially assist a person if
the transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present, and:
(1) is in the usual and regular course of business of the
corporation;
(2) is with, or for the benefit of, a related
corporation, an organization in which the
corporation has a financial interest, an
organization with which the corporation has a
business relationship, or an organization to which
the corporation has the power to make donations;
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Netco Communications Corporation
September 19, 1994
(3) is with, or for the benefit of, an officer or other employee of
the corporation or a subsidiary, including an officer or employee
who is a director of the corporation or a subsidiary, and may
reasonably be expected, in the judgment of the board, to benefit
the corporation; or
(4) has been approved by (a) the holders of two-thirds of the voting
power of the shares entitled to vote which are owned by persons
other than the interested person or persons, or (b) the unanimous
affirmative vote of the holders of all outstanding shares whether
or not entitled to vote.
Such loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors present approve, including, without limitation, a
pledge of or other security interest in shares of the corporation. Nothing in
this section shall be deemed to deny, limit or restrict the powers of guaranty,
surety or warranty of the corporation at common law or under a statute of the
state of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The corporation shall indemnify all officers and
directors of the corporation, for such expenses and liabilities, in such manner,
under such circumstances and to such extent as permitted by Minnesota Business
Corporation Act section 302A.521, as now enacted or hereafter amended. Unless
otherwise approved by the board of directors, the corporation shall not
indemnify any employee of the corporation who is not otherwise entitled to
indemnification pursuant to the prior sentence of this section 9.01.
ARTICLE X.
AMENDMENTS
Section 10.01. These bylaws may be amended or altered by a vote of the
majority of the whole board of directors at any meeting. Such authority of the
board of directors is subject to the power of the shareholders, exercisable in
the manner provided in the Minnesota Business Corporation Act, section 302A.181,
subd. 3, to adopt, amend, repeal bylaws adopted, amended, or repealed by the
board of directors. After the adoption of the initial bylaws, the board of
directors shall not make or alter any bylaws fixing a
12
<PAGE>
Bylaws
Netco Communications Corporation
September 19, 1994
quorum for meetings of shareholders, prescribing procedures for removing
directors or filling vacancies in the board of directors, or fixing the number
of directors or their classifications, qualifications, or terms of office,
except that the board of directors may adopt or amend any bylaw to increase
their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. Voting Securities Held by the Corporation. Unless
-----------------------------------------
otherwise ordered by the board of directors, the president shall have full power
and authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the President shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that the
corporation possesses. The board of directors may, from time to time, grant such
power and authority to one or more other persons and may remove such power and
authority from the president or any other person or persons.
Section 11.02. Purchase and Sale of Securities. Unless otherwise
-------------------------------
ordered by the board of directors, the president shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the corporation, and
may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The board of directors may, from time
to time, confer like powers upon any other person or persons.
AUTHENTICATION
The foregoing bylaws of Netco Communications Corporation were duly
adopted by the corporation on September 19, 1994.
/s/ George H. Frisch
-----------------------------
13
<PAGE>
================================================================================
Exhibit 4.1
WAM!NET INC., as Issuer,
and
FIRST TRUST NATIONAL ASSOCIATION, as Trustee
------------------------------------
INDENTURE
Dated as of March 5, 1998
------------------------------------
$208,530,000
13 1/4% Senior Discount Notes due 2005, Series A
13 1/4 Senior Discount Notes due 2005, Series B
================================================================================
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and Indenture, dated as of March 5, 1998
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- ---------
ss. 310 (a) (1) ...................................... 6.09
(a) (2) ...................................... 6.09
(a) (3) ...................................... Not Applicable
(a) (4) ...................................... 6.05
(b) ...................................... 6.05, 6.08
6.10
ss. 311 (a) ...................................... 6.07
(b) ...................................... 6.07
(c) ...................................... Not Applicable
ss. 312 (a) ...................................... 3.05, 7.01
(b) ...................................... 7.02
(c) ...................................... 7.02
ss. 313 (a) ...................................... 7.03
(b) ...................................... 7.03
(c) ...................................... 7.03
(d) ...................................... 7.03
ss. 314 (a) ...................................... 10.09
(b) ...................................... Not Applicable
(c) (1) ...................................... 1.04, 4.04(10), 10.21,
12.01, 13.03, 13.04
(c) (2) ...................................... 1.04, 4.04(10), 10.21,
12.01, 13.03, 13.04
(c) (3) ...................................... Not Applicable
(d) ...................................... Not Applicable
(e) ...................................... 1.04
ss. 315 (a) ...................................... 6.01(a)
(b) ...................................... 6.02
(c) ...................................... 6.01(b)
<PAGE>
(d) ...................................... 6.01(c)
(e) ...................................... 5.14
ss. 316 (a) (last sentence)........................... 3.14
(a) (1) (A).................................... 5.12
(a) (1) (B).................................... 5.13
(a) (2) ...................................... Not Applicable
(b) ...................................... 5.08
(c) ...................................... Not Applicable
ss. 317 (a) (1) ...................................... 5.03
(a) (2) ...................................... 5.04
(b) ...................................... 10.03
ss. 318 (a) ...................................... 1.08
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS .................................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions................................................... 1
Section 1.02. Other Definitions............................................. 25
Section 1.03. Rules of Construction......................................... 26
Section 1.04. Form of Documents Delivered to Trustee........................ 27
Section 1.05. Acts of Holders............................................... 27
Section 1.06. Notices, etc., to the Trustee, the Company and the Subsidiary
Guarantors.................................................. 28
Section 1.07. Notice to Holders; Waiver..................................... 28
Section 1.08. Conflict with Trust Indenture Act............................. 29
Section 1.09. Effect of Headings and Table of Contents...................... 29
Section 1.10. Successors and Assigns........................................ 29
Section 1.11. Separability Clause........................................... 29
Section 1.12. Benefits of Indenture......................................... 30
Section 1.13. GOVERNING LAW................................................. 30
Section 1.14. No Recourse Against Others.................................... 30
Section 1.15. Independence of Covenants..................................... 30
Section 1.16. Exhibits...................................................... 30
Section 1.17. Counterparts.................................................. 30
Section 1.18. Duplicate Originals........................................... 30
ARTICLE TWO
FORM OF NOTES; FORM OF NOTATION OF SUBSIDIARY GUARANTEES
Section 2.01. Form and Dating............................................... 31
ARTICLE THREE
THE NOTES AND THE SUBSIDIARY GUARANTEES
Section 3.01. Title and Terms............................................... 31
Section 3.02. Registrar and Paying Agent.................................... 32
Section 3.03. Execution and Authentication.................................. 32
Section 3.04. Temporary Notes............................................... 34
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Section 3.05. Transfer and Exchange......................................... 34
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes................... 35
Section 3.07. Payment of Interest; Interest Rights Preserved................ 36
Section 3.08. Persons Deemed Owners......................................... 37
Section 3.09. Cancellation.................................................. 37
Section 3.10. Computation of Interest....................................... 38
Section 3.11. Legal Holidays................................................ 38
Section 3.12. CUSIP and CINS Numbers........................................ 38
Section 3.13. Paying Agent To Hold Money in Trust........................... 38
Section 3.14. Treasury Notes................................................ 39
Section 3.15. Deposits of Monies............................................ 39
Section 3.16. Book-Entry Provisions for Global Notes........................ 39
Section 3.17. Special Transfer Provisions................................... 40
Section 3.18. Component of Unit............................................. 43
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant Defeasance.. 44
Section 4.02. Defeasance and Discharge...................................... 44
Section 4.03. Covenant Defeasance........................................... 44
Section 4.04. Conditions to Defeasance or Covenant Defeasance. ......... 45
Section 4.05. Deposited Money and U.S. Government Obligations To Be Held in
Trust; Other Miscellaneous Provisions....................... 47
Section 4.06. Reinstatement................................................. 47
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default............................................. 48
Section 5.02. Acceleration of Maturity Rescission and Annulment............. 50
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee.................................................. 50
Section 5.04. Trustee May File Proofs of Claims............................. 51
Section 5.05. Trustee May Enforce Claims Without Possession of Notes........ 52
Section 5.06. Application of Money Collected................................ 52
Section 5.07. Limitation on Suits........................................... 53
Section 5.08. Unconditional Right of Holders To Receive Principal, Premium
and Interest.................................................. 53
Section 5.09. Restoration of Rights and Remedies............................ 54
Section 5.10. Rights and Remedies Cumulative................................ 54
Section 5.11. Delay or Omission Not Waiver.................................. 54
Section 5.12. Control by Majority........................................... 54
Section 5.13. Waiver of Past Defaults....................................... 55
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<PAGE>
Section 5.14. Undertaking for Costs......................................... 55
Section 5.15. Waiver of Stay, Extension or Usury Laws....................... 55
Section 5.16. Unconditional Right of Holders To Receive Payment............. 56
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities........................... 56
Section 6.02. Notice of Defaults............................................ 57
Section 6.03. Certain Rights of Trustee..................................... 57
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes
or Application of Proceeds Thereof.......................... 58
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc........... 59
Section 6.06. Money Held in Trust........................................... 59
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim................................................. 59
Section 6.08. Conflicting Interests......................................... 60
Section 6.09. Corporate Trustee Required; Eligibility....................... 60
Section 6.10. Resignation and Removal; Appointment of Successor Trustee..... 60
Section 6.11. Acceptance of Appointment by Successor........................ 62
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business...................................... 62
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish Trustee Names
and Addresses of Holders.................................... 63
Section 7.02. Communications of Holders..................................... 63
Section 7.03. Reports by Trustee............................................ 64
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms.......... 64
Section 8.02. Successor Substituted......................................... 65
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers Without
Consent of Holders.......................................... 65
Section 9.02. Supplemental Indentures, Agreements and Waivers with Consent
of Holders. ................................................ 66
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<PAGE>
Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers.. 67
Section 9.04. Effect of Supplemental Indentures............................. 68
Section 9.05. Conformity with Trust Indenture Act........................... 68
Section 9.06. Reference in Notes to Supplemental Indentures................. 68
Section 9.07. Record Date................................................... 68
Section 9.08. Revocation and Effect of Consents.............................69
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest.................... 69
Section 10.02. Maintenance of Office or Agency............................... 69
Section 10.03. Money for Note Payments To Be Held in Trust................... 70
Section 10.04. Corporate Existence........................................... 71
Section 10.05. Payment of Taxes and Other Claims............................. 71
Section 10.06. Maintenance of Properties..................................... 72
Section 10.07. Insurance..................................................... 72
Section 10.08. Books and Records............................................. 72
Section 10.09. Provision of SEC Reports...................................... 72
Section 10.10. Change of Control............................................. 73
Section 10.11. Limitation on Additional Indebtedness......................... 75
Section 10.12. Statement by Officers as to Default........................... 76
Section 10.13. Limitation on Restricted Payments............................. 76
Section 10.14. Limitation on Transactions with Affiliates.................... 79
Section 10.15. Disposition of Proceeds of Asset Sales........................ 80
Section 10.16. Limitation on Liens Securing Certain Indebtedness............. 84
Section 10.17. Limitations on Status as Investment Company................... 84
Section 10.18. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries..................................... 84
Section 10.19. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries........................... 85
Section 10.20. Limitation on Designations of Unrestricted Subsidiaries....... 85
Section 10.21. Compliance Certificates and Opinions.......................... 86
Section 10.22. Issuance of Guarantees by Material Restricted Subsidiaries;
Limitation on Guarantees by Other Restricted Subsidiaries... 87
Section 10.23. Registration Rights........................................... 88
Section 10.24. Warrant Agreement............................................. 89
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture....................... 89
Section 11.02. Application of Trust Money.................................... 90
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<PAGE>
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee........................................ 91
Section 12.02. Selection of Notes To Be Redeemed............................. 91
Section 12.03. Notice of Redemption.......................................... 91
Section 12.04. Effect of Notice of Redemption................................ 92
Section 12.05. Deposit of Redemption Price................................... 92
Section 12.06. Notes Redeemed or Purchased in Part........................... 93
ARTICLE THIRTEEN
SUBSIDIARY GUARANTEES
Section 13.01. Unconditional Guarantee....................................... 93
Section 13.02. Limitation of Liability....................................... 95
Section 13.03. Subsidiary Guarantors May Consolidate, etc., on
Certain Terms............................................... 95
Section 13.04. Release of a Subsidiary Guarantor............................. 96
Section 13.05. Successor and Assigns......................................... 97
Section 13.06. No Waiver. ................................................... 97
Section 13.07. Modification. ................................................ 97
Section 13.08. Severability.................................................. 97
EXHIBIT A-1 - Form of WAM!NET Inc.13 1/4% Senior Discount Notes due 2005,
Series A
EXHIBIT A-2 - Form of WAM!NET Inc.13 1/4% Senior Discount Notes due 2005,
Series B
EXHIBIT B - Form of Notation on Notes Relating to Subsidiary Guarantees
EXHIBIT C - Form of Legend for Book-Entry Securities
EXHIBIT D - Form of Certificate To Be Delivered in Connection with Transfers
to Non-QIB Accredited Investors
EXHIBIT E - Form of Certificate To Be Delivered in Connection with Transfers
Pursuant to Regulation S
EXHIBIT F - Form of Supplemental Indenture
EXHIBIT G - Form of Registration Rights Agreement
EXHIBIT H - Form of Warrant Agreement
-v-
<PAGE>
INDENTURE
INDENTURE, dated as of March 5, 1998, between WAM!NET INC., a corporation
incorporated under the laws of the State of Minnesota, as issuer (the
"Company"), and FIRST TRUST NATIONAL ASSOCIATION, a national banking
corporation, as trustee (the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of (i) 13 1/4%
Senior Discount Notes due 2005, Series A, and (ii) 13 1/4% Senior Discount Notes
due 2005, Series B, to be issued in exchange for the 13 1/4% Senior Discount
Notes due 2005, Series A, pursuant to the Registration Rights Agreement (the
"Notes"; such term to include the Initial Notes, the Private Exchange Notes, if
any, and the Unrestricted Notes, if any, treated as a single class of securities
under this Indenture), 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.
All things necessary have been done to make the Notes, when executed by the
Company, and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of each of the Company and the Trustee in accordance with the terms
hereof.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders (as hereinafter defined) of the Notes, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. DEFINITIONS.
"Accreted Value" means, as of any date (the "Specified Date"), with respect
to each $1,000 principal face amount of Notes:
(i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accrual Date"), the amount set forth opposite such date below:
<PAGE>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- ------------ ------
Issue Date ............................................. $599.44
September 1, 1998 ............................................. 638.24
March 1, 1999 ............................................. 680.53
September 1, 1999 ............................................. 725.61
March 1, 2000 ............................................. 773.68
September 1, 2000 ............................................. 824.94
March 1, 2001 ............................................. 879.59
September 1, 2001 ............................................. 937.87
March 1, 2002 ............................................. 1,000.00
(ii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the Semi-Annual Accrual Date
immediately following the Specified Date less the Accreted Value for the
Semi-Annual Accrual Date immediately preceding the Specified Date and (y) a
fraction, the numerator of which is the number of days actually elapsed
from the immediately preceding Semi-Annual Accrual Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the denominator of
which is 180; and
(iii) if the Specified Date is after March 1, 2002, $1,000.
"Acquired Indebtedness" means Indebtedness of a person (i) assumed in
connection with an Asset Acquisition from such person or (ii) existing at the
time such person is merged or consolidated with or into the Company or any
Restricted Subsidiary or becomes a Restricted Subsidiary, in each case not
incurred in connection with, or in anticipation of, such Asset Acquisition or
merger or consolidation or such person becoming a Restricted Subsidiary;
provided that Indebtedness of such person which is redeemed, defeased, retired
or otherwise repaid at the time of or immediately upon consummation of such
Asset Acquisition or the transactions by which such person is merged or
consolidated with or into the Company or any Restricted Subsidiary or becomes a
Restricted Subsidiary shall not constitute Acquired Indebtedness.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified person. For the purposes of this definition,
"control" when used with respect to any person
-2-
<PAGE>
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others) by the Company or any Restricted
Subsidiary in any other person, or any acquisition or purchase of Capital Stock
of any other person by the Company or any Restricted Subsidiary, in either case
pursuant to which such person shall (a) become a Restricted Subsidiary or (b)
shall be merged or consolidated with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any person which constitute substantially all of an operating
unit or line of business of such person or which is otherwise outside of the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any person other than
the Company or a Wholly Owned Restricted Subsidiary, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Restricted
Subsidiary, (ii) any assets of the Company or any Restricted Subsidiary which
constitute substantially all of an operating unit or line of business of the
Company and the Restricted Subsidiaries or (iii) any other property or asset of
the Company or any Restricted Subsidiary outside of the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (i) any disposition of properties and assets of the Company that is
governed under Article Eight, (ii) sales of property or equipment that have
become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be, and (iii) for purposes of Section 10.15 hereof, sales, conveyances,
transfers, leases or other dispositions of property or assets, whether in one
transaction or a series of related transactions occurring within one year,
either (x) involving assets with a Fair Market Value not in excess of $1 million
in any 12 month period, or (y) which constitutes the incurrence of a Capitalized
Lease Obligation.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in the terms of the lease included in such Sale/Leaseback Transaction)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the amount
of each such principal payment by (ii) the sum of all such principal payments;
-3-
<PAGE>
provided that, in the case of any Capitalized Lease Obligation, all calculations
hereunder shall give effect to any applicable options to renew in favor of the
Company or any Restricted Subsidiary.
"Bankruptcy Law" means Title 11, United States Code or any similar federal
or state law relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or the law of any other
jurisdiction relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"Bankruptcy Order" means any court order made in a proceeding pursuant to
or within the meaning of any Bankruptcy Law, containing an adjudication of
bankruptcy or insolvency, or providing for liquidation, receivership,
winding-up, dissolution or reorganization, or appointing a Custodian of a debtor
or of all or any substantial part of a debtor's property, or providing for the
staying, arrangement, adjustment or composition of indebtedness or other relief
of a debtor.
"Board" means the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York, New
York or Minneapolis, Minnesota are authorized or obligated by law, regulation or
executive order to close.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and/or non-voting) of, such person's capital stock, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights (other than any evidence of Indebtedness), warrants or options
exchangeable for or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed, immovable or movable) that is
required to be classified and accounted for as a capitalized lease obligation
under GAAP, and for the purpose of this Indenture, the amount of such obligation
at any date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 365 days or less issued or directly and fully guaranteed or insured by the
United States or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof or such
Indebtedness constitutes a general obligation of such country); (ii) deposits,
certificates of deposit or acceptances with a maturity of 365 days or less of
any financial institution
-4-
<PAGE>
that is a member of the Federal Reserve System, in each case having combined
capital and surplus and undivided profits (or any similar capital concept) of
not less than $500.0 million and whose senior unsecured debt is rated at least
"A-l" by S&P or "P-l" by Moody's; (iii) commercial paper with a maturity of 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-l" by S&P or "P-1" by Moody's; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States
Government maturing within 365 days from the date of acquisition; (v) money
market funds in the United States which invest substantially all of their assets
in securities of the type described in any of the preceding clauses (i) through
(iv); and (vi) any evidence of Indebtedness with a maturity of 365 days or less
issued by WorldCom and rated at least "BBB-" or "A2" by S&P and at least "Baa3"
or "P2" by Moody's.
"Cedel" means Cedel Bank, Societe Anonyme.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) or 14(d)
of the Exchange Act), excluding Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 or 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has or acquires the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of all Voting Stock of
the Company (unless the Permitted Holders "beneficially own" (as so defined),
directly or indirectly, in the aggregate a greater percentage of the voting
power of the Voting Stock of the Company) or has, directly or indirectly, the
right to elect or designate a majority of the Board or (b) the Company
consolidates with, or merges with or into, another person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any person, or any person consolidates with, or mergers with or
into, the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where (i) the
outstanding Voting Stock of the Company is converted into or exchanged for (1)
Voting Stock (other than Disqualified Stock) of the surviving or transferee
corporation or its parent corporation and/or (2) cash, securities and other
property in any amount which could be paid by the Company as a Restricted
Payment under this Indenture, (ii) the "beneficial owners" (as so defined) of
the Voting Stock of the Company immediately before such transaction own,
directly or indirectly, immediately after such transaction, at least a majority
of the voting power of all Voting Stock of the surviving or transferee
corporation or its parent corporation immediately after such transaction, as
applicable, or (iii) no "person" or "group" (as such terms are used in Sections
13(d) or 14(d) of the Exchange Act), excluding the Permitted Holders, is the
"beneficial owner" (as so defined), directly or indirectly, of more than 35% of
the Voting Stock or such surviving or transferee corporation or its parent
corporation, as applicable (unless the Permitted Holders "beneficially own" (as
so defined), directly or indirectly, in the aggregate a greater percentage of
the voting power of the Voting Stock of such surviving or transferee corporation
or its parent corporation (as the case may be)), or has, directly or
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indirectly, the right to elect or designate a majority of the board of directors
of the surviving or transferee corporation or its parent corporation, as
applicable, or (c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board (together with any new
directors whose election by the Board 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) cease for any reason to constitute a majority of the Board then in
office. The good faith determination by the Board, based upon advice of outside
counsel, of the beneficial ownership of securities of the Company within the
meaning of Rules 13d-3 or 13d-5 under the Exchange Act shall be conclusive,
absent contrary controlling precedent or contrary written interpretation
published by the SEC. No inference shall be created that officers or employees
of the Company are acting as a "person" or "group" (as such terms are used in
Sections 13(d) or 14(d) of the Exchange Act) with the power to designate a
majority of the members of the Board solely because such officers or employees
constitute a majority of the members of the Board.
"Closing Time" has the meaning specified in the Purchase Agreement.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of such person's common stock and includes,
without limitation, all series and classes of such common stock.
"Company" means the person named as the "Company" in the first paragraph of
this Indenture, until a successor person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Vice-Chairman, its Chief Executive Officer, its President or a Vice President,
and by its Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and delivered to the Trustee.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for federal, state, local, foreign and other income taxes of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of the Company and the
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Obligations and Currency
Hedge Obligations (including any amortization of discounts), (c) the interest
portion of any deferred payment obligation, (d) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and similar transactions and (e) all capitalized interest
and accrued interest, (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or
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scheduled to be paid or accrued by the Company and the Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iii) the amount of dividends and distributions in respect of Disqualified
Stock paid by the Company and the Restricted Subsidiaries during such period.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, adjusted, to the
extent included in calculating such consolidated net income (or loss), by
excluding, without duplication, (i) all extraordinary, unusual or nonrecurring
gains or losses and all gains or losses from sales or other dispositions of
assets (including Asset Sales) out of the ordinary course of business (net of
taxes, fees and expenses relating to the transaction giving rise thereto) for
such period, (ii) that portion of such net income (or loss) derived from or in
respect of Investments in persons other than Restricted Subsidiaries, except to
the extent of any cash dividends actually received by the Company or any
Restricted Subsidiary (subject, in the case of any Restricted Subsidiary, to the
provisions of clause (vi) of this definition); (iii) any gain or loss, net of
taxes, realized upon the termination of any employee pension benefit plan during
such period, (iv) that portion of such net income (or loss) allocable to
minority interests in any Restricted Subsidiary for such period, (v) net income
(or loss) of any other person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination and (vi) the net income of any Restricted Subsidiary for
such period to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Worth" means, with respect to any person, the
consolidated stockholders' or partners' equity of such person reflected on the
most recent balance sheet of such person, determined in accordance with GAAP,
less any amounts attributable to redeemable capital stock (as determined under
applicable accounting standards promulgated by the SEC) of such person.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period (a) increased (without duplication), to
the extent deducted in arriving at such Consolidated Net Income, by the sum of
(i) Consolidated Income Tax Expense for such period; (ii) Consolidated Interest
Expense for such period; and (iii) depreciation, amortization and any other
non-cash items for such period of the Company and the Restricted Subsidiaries
(other than any non-cash item which requires the accrual of, or a reserve for,
cash charges for any future period), including, without limitation, amortization
of capitalized debt issuance costs for such period, all determined on a
consolidated basis in accordance with GAAP, and (b) decreased by any non-cash
items (including non-recurring gains and non-recurring items of income) to the
extent they increased Consolidated Net Income for such period (including any
partial or complete reversal of reserves taken in a prior period).
"consolidation" means, with respect to the Company, the consolidation of
the accounts of the Restricted Subsidiaries with those of the Company, all in
accordance with GAAP; provided that
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"consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary with the accounts of the Company or any Restricted
Subsidiary. The term "consolidated" has a correlative meaning to the foregoing.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located at 180 East
5th Street, St. Paul, Minnesota 55101, Attention: Corporate Trust
Administration, except for purposes of Sections 3.02 and 10.02 hereof. For
purposes of such Sections, such office is located at 100 Wall Street, Suite
2000, New York, New York 10005.
"Currency Hedge Obligation" means the obligations of a person, incurred in
the ordinary course of business, pursuant to a foreign currency exchange
agreement, option or futures contract or other similar agreement or arrangement
designed to protect against or manage such person's or its subsidiaries'
exposure to fluctuations in foreign currency exchange rates.
"Custodian" means any receiver, interim receiver, receiver and manager,
receiver-manager, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law or any other law respecting secured creditors
and the enforcement of their security or any other person with like powers
whether appointed judicially or out of court and whether pursuant to an interim
or final appointment.
"Debt Securities" means any debt securities issued by the Company in a
public offering or in a private placement to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act).
"Deeply Subordinated Indebtedness" means Indebtedness of the Company 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 Notes to at least the following extent: (i) no
payments of principal of (or premium on) or interest on or otherwise in respect
of such Indebtedness may be made prior to the date that is 180 days following
the Stated Maturity of the principal of the Notes; except that such Indebtedness
may be redeemed or retired by the Company with, or converted at the option of
the holder into, Capital Stock (other than Disqualified Stock) of the Company or
options, warrants or other rights to purchase any such Capital Stock (other than
Disqualified Stock) ; and (ii) the payment of the principal of and interest on
such Indebtedness may be accelerated only in the event of the acceleration of
the payment of the principal amount of the Notes following an Event of Default;
provided, that any payment in respect of such Indebtedness following the
acceleration thereof shall be subordinated to the prior payment in full of all
amounts due in respect of the Notes and under the Indenture; and provided,
further, in the event of the recision of any such acceleration of the Notes, the
acceleration of such Indebtedness shall be deemed rescinded upon notice to such
effect to the holder(s) of such Indebtedness from the Trustee.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
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"Default Amount" means (i) as of any date prior to March 1, 2002, the
Accreted Value of the Notes (and any applicable premium thereon) as of such date
and (ii) as of any date on and after March 1, 2002, the principal face amount of
the Notes (and any applicable premium thereon) and any accrued and unpaid
interest thereon.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Digital Network Business" means the business of developing, implementing,
operating, managing or maintaining networks or systems for the transportation or
management of data and any related, ancillary or complementary business;
provided, that the determination of what constitutes a Digital Network Business
shall be made in good faith by the Board, which determination shall be
conclusive.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the Board other than a director who (i) has
any material direct or indirect financial interest in or with respect to such
transaction or series of related transactions or (ii) is an employee or officer
of the Company or an Affiliate that is itself a party to such transaction or
series of transactions or an Affiliate of a party to such transaction or series
of related transactions.
"Disqualified Stock" means, with respect to any person, 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, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or becomes exchangeable for Indebtedness at the option
of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
Notes.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Exchange Notes" means the 13 1/4% Senior Discount Notes due 2005, Series
B, to be issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement.
"Exchange Offer" shall have the meaning specified in the Registration
Rights Agreement.
"Fair Market Value" means, with respect to any asset or property, the price
(after taking into account any liabilities relating to such asset or property)
that could be negotiated in an arms-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Unless otherwise specified in the
Indenture,
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Fair Market Value shall be determined by the Board acting in good faith and
shall be evidenced by a Board Resolution.
"Foreign Subsidiary" means any Subsidiary of the Company that is organized
or incorporated under the laws of any jurisdiction other than the laws of the
United States or any State or territory thereof.
"4-Sight" means 4-Sight Limited, a private limited company organized under
the laws of England and Wales.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States and which are applicable as of the
date of determination and which are consistently applied for all applicable
periods.
"Global Notes" means one or more Regulation S Global Notes and 144A Global
Notes.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, any
obligation (A) to pay amounts drawn down by letters of credit, (B) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
obligation (whether arising by virtue of partnership arrangement, agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (C) entered into for
purposes of assuring in any other manner the obligee of such obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" or "Noteholder" means a person in whose name a Note is registered
in the Note Register.
"Indebtedness" means, with respect to any person, without duplication
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), and whether or not contingent, (i) every
liability of such person (A) for borrowed money, (B) evidenced by notes, bonds,
debenture or other similar instruments (whether or not negotiable), (c) for
reimbursement of amounts expended under letters of credit, bankers' acceptances
or similar facilities issued for the account of such person, (D) issued or
assumed as the deferred purchase price of property or services, (E) relating to
a Capitalized Lease Obligation and all Attributable Debt in respect of
Sale/Leaseback Transactions of such person and (F) in respect of an Interest
Rate Obligation or Currency Hedge Obligation; (ii) every liability of others of
the kind described in the preceding clause
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(i) which such person has guaranteed or which is otherwise its legal liability;
or (iii) every obligation secured by a Lien (other than (x) Permitted Liens of
the types described in clauses (b), (d) or (e) of the definition of Permitted
Liens; provided that the obligations secured would not constitute Indebtedness
under clauses (i) or (ii) or (iii) of this definition, and (y) Liens on Capital
Stock or Indebtedness of any Unrestricted Subsidiary) to which the property or
assets of such person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such person's legal
liability (the amount of such obligation being deemed to be the lesser of the
Fair Market Value of such property or asset or the amount of the obligation so
secured); (iv) all Disqualified Stock of such person, valued at the greater of
its voluntary or involuntary maximum fixed repurchase or redemption price (plus
accrued and unpaid dividends to the date of determination); and (v) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (i), (ii), (iii) or (iv). In no event shall "Indebtedness" include trade
payables and accrued liabilities that are current liabilities incurred in the
ordinary course of business, excluding the current maturity of any obligation
which would otherwise constitute Indebtedness. For purposes of Section 10.11 and
Section 10.13 hereof and in the definition of "Events of Default," in
determining the principal amount of any Indebtedness to be incurred by the
Company or a Restricted Subsidiary or which is outstanding at any date, (i) the
principal amount of any Indebtedness which provides that an amount less than the
principal amount at maturity thereof shall be due upon any declaration of
acceleration thereof shall be the accreted value thereof at the date of
determination; (ii) the principal amount of any Indebtedness shall be reduced by
any amount of cash or Cash Equivalent collateral securing on a perfected basis,
and dedicated for disbursement exclusively to the payment of principal of and
interest on, such Indebtedness and (iii) 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 that are included in any clause above, the maximum liability upon
the occurrence of the contingency giving rise to the obligation.
"Indebtedness to EBITDA Ratio" means, as at any date of determination (the
"Transaction Date"), the ratio of (i) Total Consolidated Indebtedness (including
all Permitted Indebtedness) as at the Transaction Date to (ii) Consolidated
Operating Cash Flow for the four full fiscal quarters immediately preceding the
Transaction Date for which financial information has been distributed to the
holders of the Notes in accordance with Section 10.09 (such four full fiscal
quarter period being referred to herein as the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the relevant
Measurement Period prior to a Transaction Date, (A) any person that is a
Restricted Subsidiary on the Transaction Date (or would become a Restricted
Subsidiary on such Transaction Date in connection with the transaction that
requires the calculation of such Consolidated Operating Cash Flow) shall be
deemed to have been a Restricted Subsidiary at all times during the Measurement
Period, (B) any person that is not a Restricted Subsidiary on such Transaction
Date (or would cease to be a Restricted Subsidiary on such Transaction Date in
connection with the transaction that requires the calculation of Consolidated
Operating Cash Flow) will be deemed not to have been a Restricted Subsidiary at
any time during the Measurement Period, (c) if the Company or any Restricted
Subsidiary shall have in any manner (x) acquired through an Asset Acquisition or
(y) disposed of (including by way of an Asset Sale or the termination or
discontinuance of activities constituting such operating business) any operating
business during such Measurement
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Period or after the end of such period and on or prior to the Transaction Date,
such calculation will be made on a pro forma basis in accordance with GAAP as
if, in the case of an Asset Acquisition, such transaction had been consummated
on the first day of the Measurement Period and, in the case of a Asset Sale or
other disposition, termination or discontinuance of activities constituting such
an operating business, such transaction had been consummated prior to the first
day of the Measurement Period; provided, however that such pro forma adjustment
shall not give effect to the operating cash flow of any person that would become
a Restricted Subsidiary on the Transaction Date in connection with the
transaction that requires the calculation of Consolidated Operating Cash Flow to
the extent that such person's net income would be excluded from the calculation
of Consolidated Net Income pursuant to clause (vi) of the definition of
Consolidated Net Income.
"Indenture" means this instrument as originally executed (including all
exhibits and schedules hereto) and as it may from time to time be supplemented
or amended by one or more indentures supplemental hereto entered into pursuant
to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any other
obligor under this Indenture or under the Notes, to pay principal of, premium,
if any, and interest on the Notes when due and payable, whether at maturity, by
acceleration, call for redemption or repurchase or otherwise, and all other
amounts due or to become due under or in connection with this Indenture or the
Notes and the performance of all other obligations to the Trustee (including,
but not limited to, payment of all amounts due the Trustee under Section 6.07
hereof) and the Holders of the Notes under this Indenture and the Notes,
according to the terms thereof.
"Independent Financial Advisor" means a United States investment banking
firm of national or regional standing in the United States (i) which does not,
and whose directors, officers and employees or Affiliates do not have, a direct
or indirect financial interest in the Company and (ii) which, in the judgment of
the Board, is otherwise independent and qualified to perform the task for which
it is to be engaged.
"Initial Notes" means the 13 1/4% Senior Discount Notes due 2005, Series A,
of the Company.
"Initial Public Equity Offering" means an underwritten primary public
offering of Capital Stock (other than Disqualified Stock) of the Company for
cash pursuant to an effective registration statement filed under the Securities
Act.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation and First Chicago Capital
Markets, Inc.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
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"interest" means, when used with respect to any Note, the amount of all
interest accruing on such Note, including all additional interest payable on the
Notes pursuant to the Registration Rights Agreement and all interest accruing
subsequent to the occurrence of any events specified in Sections 5.01(ix), (x)
and (xi) hereof or which would have accrued but for any such event, whether or
not such claims are allowable under applicable law.
"Interest Payment Date" means, when used with respect to any Note, the
Stated Maturity of an installment of cash interest on such Note, as set forth in
such Note.
"Interest Rate Obligations" means the obligations of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount and shall include without limitation, interest rate swaps, caps, floors,
collars, forward interest rate agreements and similar agreements.
"Investment" means, with respect to any person, any direct or indirect
advance, loan, account receivable (other than an account receivable arising in
the ordinary course of business), or other extension of credit (including,
without limitation, by means of any guarantee) or any capital contribution to
(by means of transfers of cash or other property or assets to others, payments
for property or services for the account or use of others, or otherwise), or any
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness of any other person. 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
or assets other than cash, such property shall be valued at its Fair Market
Value at the time of transfer.
"Issue Date" means the original date of issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). A
person shall be deemed to own subject to a Lien any property which such person
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Market Capitalization" of any person means, as of any day of
determination, the product of (i) the average Closing Price of a share of such
person's Common Stock over the 20 consecutive trading days immediately preceding
such date and (ii) the number of shares of such
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Common Stock issued and outstanding on such date. "Closing Price" on any trading
day with respect to the per share price of any shares of Common Stock means the
last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in either case on the New York Stock Exchange or, if such shares of
Common Stock are not listed or admitted to trading on such exchange, on the
principal national securities exchange on which such shares are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq National Market or, if such shares are not
listed or admitted to trading on any national securities exchange or quoted on
The Nasdaq National Market but such person is a "foreign issuer" (as defined
Rule 3b-4(b) under the Exchange Act) and the principal securities exchange on
which such shares are listed or admitted to trading is a "designated offshore
securities market" (as defined in Rule 902(a) under the Securities Act), the
average of the reported closing bid and asked prices regular way on such
principal exchange or, if such shares are not listed or admitted to trading on
any national securities exchange or quoted on the Nasdaq National Market and
such person and any securities markets in which such person's Common Stock
trades does not meet any of the foregoing such requirements, the average of the
closing bid and asked prices in the over-the-counter marked as furnished by any
New York Stock Exchange member firm that is selected from time to time by the
Company for the purpose and is reasonably acceptable to the Trustee.
"Material Restricted Subsidiary" means any Restricted Subsidiary, together
with its Subsidiaries that are themselves Restricted Subsidiaries, of the
Company which, at any date of determination, (i) is a "Significant Subsidiary"
under the definition of that term set forth in Regulation S-X promulgated under
the Securities Act, as in effect on the Issue Date (but substituting "5 percent"
for each occurrence of "10 percent" in such definition), (ii) contributed 5% or
more of the Consolidated Operating Cash Flow of the Company on a pro forma basis
in the immediately preceding fiscal quarter for which financial information is
available, (iii) when aggregated with all other Restricted Subsidiaries that are
not otherwise Material Restricted Subsidiaries and as to which any event
described in clauses (vi), (vii) or (viii) of Section 5.01 hereof has occurred,
would constitute a Material Restricted Subsidiary under clause (i) or (ii) of
this definition.
"Maturity Date" means, with respect to any Note, the date specified in such
Note as the fixed date on which the principal of such Note is due and payable.
"Moody's" means Moody's Investors Service, Inc. (and any successor).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof received by the Company or any Restricted Subsidiary in the form of cash
(including assumed Indebtedness (other than Subordinated Indebtedness) and other
items deemed to be cash under the proviso to the first sentence of Section 10.15
hereof) or Cash Equivalents including payments in respect of deferred payment
obligations when received in the form of cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary) net of (i) brokerage commissions and other fees,
costs and expenses (including fees and expenses of legal counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes paid or
payable as a result of such Asset Sale, (iii) amounts required to be paid to any
person
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(other than the Company or any Restricted Subsidiary) owning a beneficial
interest in or having a Lien on the assets subject to the Asset Sale, (iv) with
respect to Asset Sales by Restricted Subsidiaries, the portion of such cash and
Cash Equivalents attributable to any persons holding a minority interest in such
Restricted Subsidiary and (v) appropriate amounts to be provided by the Company
or any Restricted Subsidiary, as the case may be, as a reserve required in
accordance with GAAP against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee.
"Non-U.S. Person" has the meaning assigned to such term in Regulation S.
"Notes" shall have the meaning specified in the recitals of this Indenture.
"Offering Memorandum" means the Offering Memorandum of the Company, dated
February 26, 1998, pursuant to which the Notes were offered, and any supplement
thereto.
"Officer" means, with respect to the Company and each Subsidiary Guarantor,
as applicable, the Chairman of the Board, a Vice Chairman, the President, a Vice
President, the Secretary, an Assistant Secretary or the Treasurer.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman, the President or a Vice President, and by the Secretary,
an Assistant Secretary or the Treasurer, of the Company or any Subsidiary
Guarantor, as applicable, and delivered to the Trustee.
"144A Global Note" means a permanent global note in registered form
representing the aggregate principal amount of Notes sold in reliance on Rule
144A under the Securities Act.
"Opinion of Counsel" means a written opinion of counsel who may be counsel
for the Company, the Trustee or any Subsidiary Guarantor, as applicable, and who
shall be reasonably acceptable to the Trustee.
"Outstanding" means, as of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to the Trustee
for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption money in
the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company or any Affiliate thereof) in trust or set
aside and segregated in trust by the Company or any Affiliate thereof (if the
Company or such Affiliate shall act as Paying Agent) for the Holders of such
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Notes; provided, however, that if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Notes with respect to which the Company has effected defeasance or
covenant defeasance as provided in Article Four, to the extent provided in
Sections 4.02 and 4.03 hereof; and
(iv) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any such
Notes in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in whose
hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company, any Subsidiary Guarantor any other obligor upon the Notes or any
Affiliate of the Company, such Subsidiary Guarantor or such other obligor shall
be disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that a
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
The Company shall notify the Trustee, in writing, when it or any Subsidiary
Guarantor purchases or otherwise acquires Notes, of the aggregate principal
amount of such Notes so repurchased or otherwise acquired. Notes so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company, a Subsidiary
Guarantor or any other obligor upon the Notes or any Affiliate of the Company,
such Subsidiary Guarantor or such other obligor. If the Paying Agent holds, in
its capacity as such, on any Maturity Date or on any optional redemption date
money sufficient to pay all accrued interest and principal with respect to such
Notes payable on that date and is not prohibited from paying such money to the
Holders thereof pursuant to the terms of this Indenture, then on and after that
date such Notes cease to be Outstanding and interest on them ceases to accrue.
Notes may also cease to be outstanding to the extent expressly provided in
Article Four.
"Permitted Credit Facility" means any senior secured or unsecured
commercial term loan and/or revolving credit facility (including any letter of
credit subfacility) entered into principally with commercial banks and/or other
financial institutions.
"Permitted Equipment Financing" means any credit facility (including a
Permitted Credit Facility) or other financing arrangement entered into with any
vendor, supplier or third party (or any financial institution for the purposes
of financing purchases from any vendor, supplier or third party) to the extent
the Indebtedness thereunder is incurred for the purpose of financing the cost
(including the cost of design, development, construction, improvement,
enhancement, upgrade, replacement, integration, manufacture or acquisition) of
real or personal property (tangible or intangible) used, or to be used, in the
Digital Network Business of the Company or any of its Restricted Subsidiaries.
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"Permitted Holders" means (i) WorldCom and each of its Affiliates and (ii)
Edward J. Driscoll III (the Chairman of the Board and Chief Executive Officer of
the Company as of the date of this Indenture) and his family members, any trust
for the benefit of any of the foregoing persons and their respective estates and
heirs. As used herein, "family member" means the spouse, siblings and lineal
descendants of Mr. Driscoll.
"Permitted Indebtedness" means the following Indebtedness (each of which
shall be given independent effect):
(a) Indebtedness under the Notes, the Subsidiary Guarantees and the
Indenture;
(b) Indebtedness (including Disqualified Stock) of the Company and/or
any Restricted Subsidiary outstanding on the Issue Date and identified on a
schedule to the Indenture; provided, that Indebtedness that may be borrowed
under credit facilities in place on the Issue Date shall be deemed
outstanding for purposes of this clause (b);
(c) (i) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or a Restricted Subsidiary and (ii) Indebtedness of the
Company, which is not secured by any Lien and is subordinated to the
Company's obligations with respect to the Notes, owed to and held by any
Restricted Subsidiary; provided that an incurrence of Indebtedness shall be
deemed to have occurred upon (x) any sale or other disposition of any
Indebtedness of the Company or a Restricted Subsidiary referred to in this
clause (c) to a person other than the Company or a Restricted Subsidiary,
(y) any sale or other disposition of Capital Stock of a Restricted
Subsidiary which holds Indebtedness of the Company or another Restricted
Subsidiary such that such Restricted Subsidiary ceases to be a Restricted
Subsidiary or (z) the Designation of a Restricted Subsidiary which holds
Indebtedness of the Company or another Restricted Subsidiary as an
Unrestricted Subsidiary;
(d) Interest Rate Obligations of the Company and/or any Restricted
Subsidiary relating to Indebtedness of the Company and/or such Restricted
Subsidiary, as the case may be (which Indebtedness (x) bears interest at
fluctuating interest rates and (y) is otherwise permitted to be incurred
under Section 10.11 hereof), but only to the extent that the notional
amount of such Interest Rate Obligations does not exceed the principal
amount of the Indebtedness (and/or Indebtedness subject to commitments) to
which such Interest Rate Obligations relate;
(e) Indebtedness of the Company and/or any Restricted Subsidiary in
respect of performance bonds of the Company or any Restricted Subsidiary or
surety bonds provided by the Company or any Restricted Subsidiary, in each
case incurred in the ordinary course of business;
(f) Indebtedness of the Company and/or any Restricted Subsidiary to
the extent it represents a replacement, renewal, refinancing or extension
(a "refinancing") of outstanding
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Indebtedness of the Company and/or of any Restricted Subsidiary incurred or
outstanding pursuant to clause (a), (b), (g), (h) or (i) of this definition
or the proviso in the first paragraph of Section 10.11 hereof; provided
that (1) no Restricted Subsidiary may incur Indebtedness to refinance
Indebtedness of the Company, (2) any such refinancing shall not (x) result
in a lower Average Life to Stated Maturity of such Indebtedness as compared
with the Indebtedness being refinanced or (y) exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount to
be due and payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being refinanced, plus
the amount of accrued and unpaid interest thereon, plus the amount of any
reasonably determined prepayment premium necessary to accomplish such
refinancing and such reasonable fees and expenses incurred in connection
therewith; (3) Indebtedness that ranks pari passu with the Notes may be
refinanced only with Indebtedness that is made pari passu with or
subordinate in right of payment to the Notes, and Subordinated Indebtedness
may only be refinanced with Subordinated Indebtedness; and (4) the
refinancing Indebtedness shall be incurred by the obligor on the
Indebtedness being refinanced or by the Company;
(g) Indebtedness of the Company such that, after giving effect to the
incurrence thereof, the total aggregate principal amount of Indebtedness
incurred under this clause (g) and any refinancings thereof otherwise
incurred in compliance with this Indenture would not exceed 175% of Total
Incremental Equity;
(h) Indebtedness of the Company incurred under one or more Permitted
Credit Facilities and/or Indebtedness of the Company represented by Debt
Securities, and any refinancings of the foregoing otherwise incurred in
compliance with this Indenture, in an aggregate principal amount not to
exceed $50 million at any time outstanding; and Guarantees by any
Restricted Subsidiary that is a Subsidiary Guarantor of Indebtedness of the
Company incurred under any Permitted Credit Facility in compliance with
Section 10.11 hereof;
(i) Indebtedness of the Company incurred under any Permitted Equipment
Financing and Guarantees by any Restricted Subsidiary that is a Foreign
Subsidiary of Indebtedness incurred in respect of property acquired by such
Restricted Subsidiary under such Permitted Equipment Financing; provided
any Restricted Subsidiary that issues such a Guaranty is a Subsidiary
Guarantor or complies with Section 10.22 in connection with its issuance of
such Guarantee;
(j) Indebtedness in respect of any Currency Hedge Obligations of the
Company and/or any Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under Section 10.11 hereof), but only to the
extent that the notional amount of such Currency Hedge Obligations do not
exceed the principal amount of the Indebtedness (and/or Indebted ness
subject to commitments) to which such Currency Hedge Obligations relate;
(k) in addition to any Indebtedness of the Company referred to in
clause (b) above, Deeply Subordinated Indebtedness of the Company owed to
and held by WorldCom or any
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other Strategic Equity Investor in an aggregate principal amount not to
exceed $50 million at any time outstanding; provided, at the time of
incurrence of such Indebtedness by the Company, the payee is the
"beneficial owner" (as defined in Rules 13d-3 or 13d-5 under the Exchange
Act (except that WorldCom shall be deemed to have "beneficial ownership" of
all Voting Stock of the Company that it, directly or indirectly, has or
acquires the right to acquire, whether such right is exercisable
immediately or only after the passage of time) of at least 10% of the total
voting power of all Voting Stock of the Company;
(l) Indebtedness of 4-Sight and each of its Subsidiaries existing at
the time 4-Sight and such Subsidiaries become Restricted Subsidiaries; and
(m) in addition to the items referred to in clauses (a) through (l)
above, Indebtedness of the Company having an aggregate principal amount not
to exceed $15 million at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) Interest
Rate Obligations and Currency Hedge Obligations incurred in compliance with
Section 10.11 hereof; (d) loans and advances to employees made in the ordinary
course of business not to exceed $750,000 in the aggregate at any one time
outstanding; (e) bonds, notes, debentures or other securities received as a
result of Asset Sales permitted under Section 10.15 hereof not to exceed 20% of
the total consideration for such Asset Sales; (f) any Investment to the extent
that the consideration therefor consists of Capital Stock (other than
Disqualified Stock) of the Company; and (g) the extension by the Company of (i)
trade credit to Subsidiaries of the Company represented by accounts receivable,
extended on usual and customary terms in the ordinary course of business or (ii)
guarantees of commitments for the purchase of goods or services incurred in the
ordinary course of business so long as such guarantees, to the extent
constituting Indebtedness, are permitted to be incurred under Section 10.11
hereof.
"Permitted Liens" means (a) Liens on property of a person existing at the
time such person is merged into or consolidated with the Company or any
Restricted Subsidiary or becomes a Restricted Subsidiary; provided that such
Liens were in existence prior to the contemplation of such merger, consolidation
or acquisition and do not secure any property or assets of the Company or any
Restricted Subsidiary other than the property or assets subject to the Liens
prior to such merger or consolidation or acquisition; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens and other similar Liens
arising in the ordinary course of business that secure payment of obligations
not more than 60 days past due or that are being contested in good faith and by
appropriate proceedings; (c) Liens existing on the Issue Date (including Liens
securing Indebtedness permitted under the proviso of clause (b) of the
definition of Permitted Indebtedness); (d) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted; provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (e)
easements, rights of way, restrictions and other similar
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easements, licenses, restrictions on the use of properties, or minor
imperfections of title that, in the aggregate, are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company or the
Restricted Subsidiaries; (f) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (g) Liens securing Indebtedness
incurred under a Permitted Equipment Financing; provided, that (I) such Liens
attach within 180 days of the incurrence of such Indebtedness and (II) if such
Liens include a pledge of Capital Stock of any Restricted Subsidiary, such Liens
were created in connection with financing the cost of property or assets
acquired or used by such Restricted Subsidiary, directly or indirectly, with
Indebtedness incurred pursuant to such Permitted Equipment Financing; (h) Liens
securing Indebtedness incurred under a Permitted Credit Facility; provided that
(I) the incurrence of such Indebtedness is permitted by Section 10.11 hereof and
(II) such Liens attach within 180 days of the incurrence of such Indebtedness;
(i) Liens to secure any refinancing of any Indebtedness secured by Liens
referred to in the clauses above; (j) Liens to secure the Notes; (k) Liens on
real property incurred in connection with the financing of the purchase of such
real property (or incurred within 60 days of purchase) by the Company or any
Restricted Subsidiary; and (l) Liens on and pledges of Capital Stock of any
Unrestricted Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary.
"person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.06 hereof in exchange for a
mutilated Note or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such person.
"Private Exchange Notes" shall have the meaning specified in the
Registration Rights Agreement.
"Private Placement Legend" shall mean the first paragraph of the legend
initially set forth in the Notes in the form set forth on Exhibit A-1.
"Purchase Agreement" means the Purchase Agreement, dated as of February 26,
1998, by and among the Company and the Initial Purchasers, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.
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"Qualified Institutional Buyer" or "QIB" shall have the meaning specified
in Rule 144A under the Securities Act.
"Redemption Date" means, with respect to any Note to be redeemed, the date
fixed by the Company for such redemption pursuant to this Indenture and the
Notes.
"Redemption Price" means, with respect to any Note to be redeemed, the
price fixed for such redemption pursuant to the terms of this Indenture and the
Notes.
"refinancing" has the meaning set forth in clause (f) of the definition of
"Permitted Indebtedness."
"Registrable Securities" has the meaning specified in the Registration
Rights Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of March 5, 1998, between the Company and the Initial Purchasers, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.
"Regular Record Date" means the Regular Record Date specified in the Notes.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Note" means a permanent global note in registered form
representing the aggregate principal amount of Notes sold in reliance on
Regulation S under the Securities Act.
"Responsible Officer" means, with respect to the Trustee, the chairman or
vice chairman of the board of directors, the chairman or vice chairman of the
executive committee of the board of directors, the president, any vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller and any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom any
corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Note" means a Note that constitutes a "restricted security"
within the meaning of Rule 144(a)(3) under the Securities Act; provided,
however, that the Trustee shall be entitled to request and conclusively rely on
an Opinion of Counsel with respect to whether any Note constitutes a Restricted
Note.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on any Capital Stock of the
Company or any Restricted Subsidiary
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or any other payment made to the direct or indirect holders (in their capacities
as such) of Capital Stock of the Company or any Restricted Subsidiary (other
than any dividends, distributions or payments made to the Company or any
Restricted Subsidiary and dividends or distributions payable solely in Capital
Stock (other than Disqualified Stock) of the Company or in options, warrants or
other rights to purchase Capital Stock (other than Disqualified Stock) of the
Company); (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any Restricted Subsidiary (other
than any such Capital Stock owned by the Company or a Restricted Subsidiary);
(iii) the purchase, redemption, defeasance or other acquisition or retirement
for value, or the making of any principal payment on, prior to any scheduled
repayment, scheduled sinking fund payment or scheduled maturity, of any
Subordinated Indebtedness (other than any Subordinated Indebtedness held by a
Wholly Owned Restricted Subsidiary); or (iv) the making by the Company or any
Restricted Subsidiary of any Investment (other than a Permitted Investment) in
any person (other than in the Company, any Restricted Subsidiary or a person
that becomes a Restricted Subsidiary, or is merged with or into or consolidated
with the Company or a Restricted Subsidiary (provided the Company or a
Restricted Subsidiary is the survivor) as a result of or in connection with such
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board, by a Board Resolution delivered to the Trustee, as
an Unrestricted Subsidiary pursuant to and in compliance with Section 10.20
hereof. Any such designation may be revoked by a Board Resolution delivered to
the Trustee, subject to the provisions of such covenant.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies (and any successor).
"Sale/Leaseback Transaction" of any person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such person of any property or assets of such person which has
been or is being sold or transferred by such person after its acquisition
thereof or the completion of construction or commencement of operations thereof
to such lender or investor or to any other person to whom funds have been or are
to be advanced by such lender or investor on the security of such property or
asset.
"SEC" means the Securities and Exchange Commission, as from time to time
constituted, or if at any time after the execution of this Indenture such agency
is not existing and performing the applicable duties now assigned to it, then
the body or bodies performing such duties at such time.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
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"Shelf Registration Statement" shall have the meaning specified in the
Registration Rights Agreement.
"Special Record Date" means, with respect to the payment of any Defaulted
Interest, a date fixed by the Trustee pursuant to Section 3.07 hereof.
"Stated Maturity" means, with respect to any Note or any installment of
interest thereon, the dates specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable
and, when used with respect to any other Indebtedness, means the date specified
in the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness, or any installment of interest, is due and
payable.
"Strategic Equity Investor" means any person that, as of the date of
determination, has a Market Capitalization or Consolidated Net Worth of at least
$2.0 billion and that is principally engaged in the communications,
entertainment or electronics business or any other business related to the
Digital Network Business.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Subsidiary Guarantor which is expressly subordinated in right of payment to any
other Indebtedness of the Company or such Subsidiary Guarantor.
"Subsidiary" means, with respect to any person, (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such person, or (ii) any other person of which at
least a majority of voting interest is at the time, directly or indirectly,
owned by such person.
"Subsidiary Guarantor" means each Restricted Subsidiary that becomes a
guarantor of the Notes pursuant to the provisions of Section 10.22 and Article
Thirteen hereof, in each case until it is released from its Subsidiary Guarantee
pursuant to the provisions of Section 13.04 hereof.
"Subsidiary Guarantor Board Resolution" means, with respect to any
Subsidiary Guarantor, a copy of a resolution certified by the Secretary or an
Assistant Secretary of such Subsidiary Guarantor to have been duly adopted by
the Board of Directors of such Subsidiary Guarantor and to be in full force and
effect on the date of such certification and delivered to the Trustee.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Company and the
Restricted Subsidiaries outstanding as of such date of determination.
"Total Incremental Equity" means, at any time of determination, the sum of,
without duplication, (i) the aggregate cash proceeds received by the Company
from capital contributions in respect of existing Capital Stock (other than
Disqualified Stock) or the issuance and sale of Capital
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Stock (other than Disqualified Stock 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
aggregate cash proceeds received by the Company or any Restricted Subsidiary
from the sale, disposition or repayment (in whole or in part) of any Investment
that is made after the Issue Date and that constitutes a Restricted Payment that
has been deducted from Total Incremental Equity pursuant to clause (iii) below
in 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 (iii) the 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 other person
(other than a Subsidiary or an Affiliate of the Company or any Subsidiary)
engaged in the Digital Network Business; provided, the issuance of the first
2,500,000 shares of Common Stock of the Company (as adjusted for subdivisions,
combinations or reclassifications of such stock subsequent to the Issue Date) to
the stockholders of 4-Sight in connection with the Company's acquisition of
4-Sight shall be excluded from this clause (iii); minus (iv) the aggregate
amount of all Restricted Payments declared or made (including by way of a
Designation) on and after the Issue Date.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended.
"Trustee" means the person named as the "Trustee" in the first paragraph of
this Indenture, until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Unit Agent" means First Trust National Association, a national banking
association, as unit agent for the Units, and any successor unit agent.
"Unrestricted Notes" means one or more Notes that do not and are not
required to bear the Private Placement Legend in the form set forth in Exhibit
A, including, without limitation, the Exchange Notes.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with Section 10.20 hereof. Any such
designation may be revoked by a Board Resolution delivered to the Trustee,
subject to the provisions of such covenant.
"U.S. Government Securities" means securities that are direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged.
"Voting Stock" means, with respect to any person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors
or other members of the governing body of such person.
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"voting power" means, with respect to the Capital Stock of any person, the
relative voting power in any general election of directors or other members of
the governing body of such person.
"Warrant Agreement" means the Warrant Agreement, dated as of March 5, 1998,
between the Company and First Trust National Association, as warrant agent, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Warrant Change of Control" has the meaning set forth in the Warrant
Agreement.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company or another
Wholly Owned Restricted Subsidiary. For the purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a Restricted
Subsidiary.
"WorldCom" means WorldCom Inc., a Georgia corporation.
Section 1.02. OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
---- --------
"Act" 1.05
"Additional Interest" 10.23
"Additional Interest Payment Date" 10.23
"Affiliate Transaction" 10.14
"Agent Members" 3.16
"Asset Sale Offer" 10.15
"Asset Sale Offer Purchase Date" 10.15
"assumed liabilities" 10.15
"Change of Control Date" 10.10
"Change of Control Offer" 10.11
"Change of Control Payment Date" 10.11
"covenant defeasance" 4.03
"Defaulted Interest" 3.07
"defeasance" 4.02
"Defeased Notes" 4.01
"Designation" 10.20
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DEFINED IN
TERM SECTION
---- --------
"Designation Amount" 10.20
"Event of Default" 5.01
"incur" 10.11
"insolvent person" 4.04
"Note Pro Rate Share of Unutilized
Net Cash Proceeds" 10.15
"Note Register" 3.05
"Other Indebtedness" 10.15
"Paying Agent" or "Agent" 3.02
"Physical Notes" 3.03
"Registrar" 3.02
"Replacement Assets" 10.15
"Restricted Period" 3.17
"Revocation" 10.20
"Subsidiary Guarantee" 10.22
"surviving entity" 8.01
"Unit" 3.18
"Unutilized Net Cash Proceeds" 10.15
Section 1.03. RULES OF CONSTRUCTION.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
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(d) the words "herein" "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(e) all references to "$" or "dollars" refer to the lawful currency of the
United States of America; and
(f) the words "include," "included" and "including" as used herein are
deemed in each case to be followed by the phrase "without limitation."
Section 1.04. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
person, or that they be so certified or covered by only one document, but one
such person may certify or give an opinion with respect to some matters and one
or more other persons as to other matters, and any such person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or a Subsidiary
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or a
Subsidiary Guarantor, as applicable, stating that the information with respect
to such factual matters is in the possession of the Company or the Subsidiary
Guarantor, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated, with
proper identification of each matter covered therein, and form one instrument.
Section 1.05. ACTS OF HOLDERS.
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 delivered to the Trustee and,
where it is hereby expressly required, to the Company and the Subsidiary
Guarantors. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act"
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of the Holders signing such instrument or instruments. Proof of execution (as
provided below in this Section 1.05) 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 6.01 hereof) conclusive in favor of the Trustee, the
Company and the Subsidiary Guarantors, if made in the manner provided in this
Section.
The fact and date of the execution by any person of any such instrument or
writing may be proved in any reasonable manner which the Trustee deems
sufficient.
The ownership of Notes shall be proved by the Note Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other action by the Holder of any Note shall bind every future Holder of the
same Note or the Holder of every Note issued upon the transfer thereof or in
exchange therefor or in lieu thereof to the same extent as the original Holder,
in respect of anything done, suffered or omitted to be done by the Trustee, any
Paying Agent, the Company or any Subsidiary Guarantor in reliance thereon,
whether or not notation of such action is made upon such Note.
Section 1.06. NOTICES, ETC., TO THE TRUSTEE, THE COMPANY AND THE SUBSIDIARY
GUARANTORS
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any Subsidiary Guarantor
shall be sufficient for every purpose hereunder if made, given, furnished or
filed, in writing, to or with the Trustee at: First Trust National Association,
180 East Fifth Street, St. Paul, MN 55101, Attention: Corporate Trust
Department, or at any other address previously furnished in writing to the
Holders and the Company by the Trustee; or
(b) the Company or any Subsidiary Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose (except as otherwise expressly provided
herein) hereunder if in writing and mailed, first-class postage prepaid, to the
Company or such Subsidiary Guarantor addressed to it at (or in the case of any
Subsidiary Guarantor in care of) WAM!NET Inc., 6100 West 110 Street,
Minneapolis, Minnesota, 55438, Attention: Chief Executive Officer, or at any
other address previously furnished in writing to the Trustee by the Company.
Section 1.07. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise expressly provided herein)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Note Register,
not later than the latest date, and not earlier than the earliest date,
prescribed for the
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giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice when mailed to a Holder in the aforesaid
manner shall be conclusively deemed to have been received by such Holder whether
or not actually received by such Holder. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause, it shall be impracticable to mail notice of any event as
required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.08. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with any provision
of the Trust Indenture Act or another provision which is required or deemed to
be included in this Indenture by any of the provisions of the Trust Indenture
Act, such provision or requirement of the Trust Indenture Act shall control.
If any provision of this Indenture modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
Section 1.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.10. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company or the
Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not.
Section 1.11. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes issued pursuant
hereto 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.
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Section 1.12. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes issued pursuant hereto, express
or implied, shall give to any person (other than the parties hereto and their
successors hereunder, any Paying Agent and the Holders) any benefit or any legal
or equitable right, remedy or claim under this Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE, THE NOTES AND EACH SUBSIDIARY GUARANTEE SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the Company or
any Subsidiary Guarantor shall not have any liability for any obligations of the
Company or such Subsidiary Guarantor under the Notes, any Subsidiary Guarantee
or this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation.
Section 1.15. INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default if such action is taken or condition exists.
Section 1.16. EXHIBITS.
All exhibits attached hereto are by this reference made a part hereof with
the same effect as if herein set forth in full.
Section 1.17. COUNTERPARTS.
This Indenture may be executed in any number of counterparts and by
telecopier, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
Section 1.18. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
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ARTICLE TWO
FORM OF NOTES; FORM OF NOTATION OF SUBSIDIARY GUARANTEES
Section 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication with respect
thereto shall be in substantially the forms set forth, or referenced, in EXHIBIT
A-1 and EXHIBIT A-2, respectively, annexed hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with any applicable law or with the rules of the Depository,
any clearing agency or any securities exchange or as may, consistently herewith,
be determined by the officers executing such Notes, as evidenced by their
execution thereof.
The definitive Notes shall be printed, typewritten, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its issuance and shall show the date
of its authentication. The terms and provisions contained in the Notes
constitute, and are expressly made, a part of this Indenture.
The Notes shall have notated thereon evidence of each Subsidiary Guarantee,
if any, in the form set forth in EXHIBIT B; provided, however, that the failure
of any Note to include such notation shall not affect the validity or
enforceability of such Subsidiary Guarantee or such Note against any Subsidiary
Guarantor.
ARTICLE THREE
THE NOTES AND THE SUBSIDIARY GUARANTEES
Section 3.01. TITLE AND TERMS.
The aggregate principal face amount of Notes which may be authenticated and
delivered under this Indenture is limited to $208,530,000 in aggregate principal
face amount of Notes, except for Notes authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Section 3.03, 3.04, 3.05, 3.06, 9.06, 10.10 or 10.15 hereof or the
optional redemption provisions of the Notes.
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The Stated Maturity of the principal of the Notes shall be March 1, 2005.
Interest on the Notes will not accrue prior to March 1, 2002. The Notes shall
bear interest at the rate of 13 1/4% per annum from March 1, 2002 or from the
most recent Interest Payment Date to which interest has been paid, payable
semi-annually on March 1 and September 1, in each year, commencing on September
1, 2002, to the registered Holders at the close of business on the February 15
or August 15, respectively, immediately preceding such Interest Payment Dates,
until the principal thereof is paid or duly provided for.
At the election of the Company, the entire Indebtedness on the Notes or
certain of the Company's obligations and covenants and certain Events of Default
thereunder may be defeased as provided in Article Four.
Section 3.02. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (which shall be located in
the Borough of Manhattan in The City of New York, State of New York) where Notes
may be presented for registration of transfer or for exchange (the "Registrar"),
an office or agency (which shall be located in the Borough of Manhattan in The
City of New York, State of New York) where Notes may be presented for payment
(the "Paying Agent" or "Agent") 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 Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" or "Agent" includes any
additional paying agent. The Company may act as its own Paying Agent, except for
the purposes of payments on account of principal on the Notes pursuant to
Sections 10.10 and 10.15 hereof.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture, which shall incorporate the provisions of the
Trust Indenture Act. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 6.07 hereof.
The Company initially appoints the Trustee as the Registrar and Paying
Agent and agent for service of notices and demands in connection with the Notes.
Section 3.03. EXECUTION AND AUTHENTICATION.
The Initial Notes and the Trustee's certificate of authentication shall be
substantially in the form of EXHIBIT A-1 hereto. The Exchange Notes and the
Trustee's certificate of authentication relating thereto shall be substantially
in the form of EXHIBIT A-2 hereto. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company shall
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approve the form of the Notes and any notation, legend or endorsement thereon.
Each Note shall be dated the date of issuance and shall show the date of its
authentication.
The terms and provisions contained in the Notes annexed hereto as EXHIBIT
A-1 and EXHIBIT A-2 shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes offered and sold
in reliance on Regulation S shall be issued initially in the form of one or more
Global Notes, substantially in the form set forth in EXHIBIT A-1, deposited with
the Trustee, as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided and shall bear the legend
set forth in EXHIBIT C. The aggregate principal amount of the Global Notes may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depository, as hereinafter provided.
Notes issued in exchange for interests in a Global Note pursuant to Section
3.17 hereof may be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in EXHIBIT A-1 (the
"Physical Notes").
Two Officers, or an Officer and an Assistant Secretary, of the Company
shall sign, or one Officer of the Company shall sign, and one Officer or an
Assistant Secretary of the Company (each of whom shall, in each case, have been
duly authorized by all requisite corporate actions) shall attest to, the Notes
for the Company by manual or facsimile signature.
An Officer of a Subsidiary Guarantor (who shall have been duly authorized
by all requisite corporate actions) shall sign by manual or facsimile signature
a notation, in the form of EXHIBIT B, in respect of the Subsidiary Guarantee of
such Subsidiary Guarantor, on the Notes transferred and exchanged subsequent to
the issuance of such Subsidiary Guarantee for so long as it remains outstanding.
If an Officer or Assistant Secretary of the Company or an Officer of a
Subsidiary Guarantor whose signature is on a Note or a notation, as the case may
be, was an Officer or (in the case of the Company) Assistant Secretary at the
time of such execution but no longer holds that office or position at the time
the Trustee authenticates the Note, the Note and any notation thereon shall
nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for original issue in an
aggregate principal face amount not to exceed $208,530,000, (ii) Private
Exchange Notes from time to time only in exchange for a like principal face
amount of Initial Notes and (iii) Unrestricted Notes from time to time only in
exchange for (A) a like principal face amount of Initial Notes or (B) a like
principal face amount of Private Exchange Notes, in each case upon a written
order of the Company in the form of an Officers' Certificate of the Company.
Each such written order shall specify the amount of Notes
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to be authenticated and the date on which the Notes are to be authenticated,
whether the Notes are to be Initial Notes, Private Exchange Notes or
Unrestricted Notes and whether (subject to this Section 3.03) the Notes are to
be issued as Physical Notes or Global Notes and such other information as the
Trustee may reasonably request. The aggregate principal face amount of Notes
outstanding at any time may not exceed $208,530,000, except as provided in
Section 3.06 hereof.
Notwithstanding the foregoing, all Notes issued under this Indenture shall
vote and consent together on all matters (as to which any of such Notes may vote
or consent) as one class and no series of Notes will have the right to vote or
consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate Notes. Unless otherwise provided in the 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. An authenticating agent has the same rights as an
Agent to deal with the Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only, without coupons,
in denominations of $1,000 and any integral multiple thereof.
Section 3.04. TEMPORARY NOTES.
Until definitive Notes are prepared and ready for delivery, the Company may
execute and upon a Company Order the Trustee shall authenticate and deliver
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes, in any authorized denominations, but may have variations that
the Company reasonably considers appropriate for temporary Notes as conclusively
evidenced by the Company's execution of such temporary Notes.
If temporary Notes are issued, the Company will cause definitive Notes to
be prepared without unreasonable delay but in no event later than the date that
the Exchange Offer is consummated. After the preparation of definitive Notes,
the temporary Notes shall be exchangeable for definitive Notes upon surrender of
the temporary Notes at the office or agency of the Company designated for such
purpose pursuant to Section 10.02 hereof, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Notes of like tenor and of authorized
denominations. Until so exchanged the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
Section 3.05. TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 10.02 hereof being sometimes
referred to herein as the "Note Register") in which, subject to such reasonable
regulations as the Registrar may prescribe, the Company shall provide for the
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registration of Notes and of transfers and exchanges of Notes. The Trustee is
hereby initially appointed Registrar for the purpose of registering Notes and
transfers of Notes as herein provided.
When Notes are presented to the Registrar or a co-Registrar with a request
from the Holder of such Notes to register the transfer or exchange for an equal
principal amount of Notes of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested; provided, however, that
every Note presented or surrendered for registration of transfer or exchange
shall be duly endorsed or be accompanied by a written instrument of transfer or
exchange in form satisfactory to the Company and the Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. Whenever any
Notes are so presented 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, and each Subsidiary Guarantor, if any, shall execute a
notation on such Notes with respect to its Subsidiary Guarantee. No service
charge shall be made to the Noteholder for any registration of transfer or
exchange. The Company may require from the Noteholder payment of a sum
sufficient to cover any transfer taxes or other governmental charge that may be
imposed in relation to a transfer or exchange, but this provision shall not
apply to any exchange pursuant to Section 10.10, 10.15 or 9.06 hereof (in which
events the Company will be responsible for the payment of all such taxes which
arise solely as a result of the transfer or exchange and do not depend on the
tax status of the Holder). The Trustee shall not be required to exchange or
register the transfer of any Note for a period of 15 days immediately preceding
the first mailing of notice of redemption of Notes to be redeemed or of any Note
selected, called or being called for redemption except, in the case of any Note
where public notice has been given that such Note is to be redeemed in part, the
portion thereof not to be redeemed.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company and each Subsidiary Guarantor, if
any, evidencing the same Indebtedness, and entitled to the same benefits under
this Indenture, as the Notes surrendered upon such registration of transfer or
exchange.
Any Holder of a beneficial interest in a Global Note shall, by acceptance
of such Global Note, agree that transfers of beneficial interests in such Global
Notes may be effected only through a book-entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Note shall be required to be reflected in a book-entry system.
Section 3.06. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If a mutilated Note is surrendered to the Trustee or if the Holder of a
Note of any series claims that the Note has been lost, destroyed or wrongfully
taken, the Company and each Subsidiary Guarantor, if any, shall execute and upon
a Company Order, the Trustee shall authenticate and deliver a replacement Note
of like tenor and principal amount, bearing a number not contemporaneously
outstanding if the Holder of such Note furnishes to the Company, each Subsidiary
Guarantor, if any, and to the Trustee evidence reasonably acceptable to them of
the ownership and the destruction, loss or theft of such Note and an indemnity
bond shall be posted by such Holder, sufficient in the judgment
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of the Company or the Trustee, as the case may be, to protect the Company, each
Subsidiary Guarantor, the Trustee or any Agent from any loss that any of them
may suffer if such Note is replaced. The Company may charge such Holder for the
Company's expenses in replacing such Note (including (i) expenses of the Trustee
charged to the Company and (ii) any tax or other governmental charge that may be
imposed) and the Trustee may charge the Company for the Trustee's expenses in
replacing such Note.
Every replacement Note issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company and each Subsidiary Guarantor, if any,
whether or not the destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 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 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the person in whose
name that Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful (such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
Regular Record Date; and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to the
persons in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Note and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the persons entitled to such Defaulted Interest as
provided in this subsection (a). Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company in writing of
such Special Record
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Date. In the name and at the expense of the Company, the Trustee shall cause
notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first-class postage prepaid, to each Holder at its
address as it appears in the Note Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the persons in whose names the Notes (or their
respective Predecessor Notes) are registered on such Special Record Date and
shall no longer be payable pursuant to the following subsection (b).
(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange, if, after written notice given by the Company to the Trustee of
the proposed payment pursuant to this subsection (b), such payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, 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 3.08. PERSONS DEEMED OWNERS.
Prior to and at the time of due presentment for registration of transfer,
the Company, the Subsidiary Guarantors, if any, the Trustee and any agent of the
Company or the Trustee may treat the person in whose name any Note is registered
in the Note Register as the owner of such Note for the purpose of receiving
payment of principal of, premium, if any, and (subject to Section 3.07 hereof)
interest on such Note and for all other purposes whatsoever, whether or not such
Note shall be overdue, and none of the Company, the Subsidiary Guarantors, the
Trustee or any agent of the Company or the Trustee shall be affected by notice
to the contrary.
Section 3.09. CANCELLATION.
All Notes surrendered for payment, redemption, registration of transfer or
exchange shall be delivered to the Trustee and, if not already canceled, shall
be promptly canceled by it. The Company may at any time deliver to the Trustee
for cancellation any Notes previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Trustee. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
registration of transfer or exchange, redemption or payment. The Trustee and no
one else shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation. No Notes shall be authenticated
in lieu of or in exchange for any Notes canceled as provided in this Section
3.09 hereof, except as expressly permitted by this Indenture. All canceled Notes
held by the Trustee shall be destroyed and certification of their destruction
delivered to the Company unless by a Company Order the Company shall direct that
the canceled Notes be returned to it. The Trustee shall provide the Company a
list of all Notes that have been canceled from time to time as requested by the
Company.
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Section 3.10. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months and, in the case of a partial month, the actual number of
days elapsed.
Section 3.11. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, date
established for the payment of Defaulted Interest or Stated Maturity of any Note
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) payment of principal, premium, if any, or interest
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the Interest Payment Date,
Redemption Date, date established for the payment of Defaulted Interest or at
the Stated Maturity, as the case may be. In such event, no interest shall accrue
with respect to such payment for the period from and after such Interest Payment
Date, Redemption Date, date established for the payment of Defaulted Interest or
Stated Maturity, as the case may be, to the next succeeding Business Day and,
with respect to any Interest Payment Date, interest for the period from and
after such Interest Payment Date shall accrue with respect to the next
succeeding Interest Payment Date.
Section 3.12. CUSIP AND CINS NUMBERS.
The Company in issuing the Notes may use "CUSIP" and "CINS" numbers (if
then generally in use), and if so, the Trustee shall use the CUSIP or CINS
numbers, as the case may be, in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP or CINS
number, as the case may be, 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 in writing of any change in
the CUSIP or CINS number of any series of Notes.
Section 3.13. PAYING AGENT TO HOLD MONEY IN TRUST.
Each Paying Agent shall hold in trust for the benefit of the Noteholders or
the Trustee all money held by the Paying Agent for the payment of principal of,
premium, if any, or interest on the Notes, and shall notify the Trustee of any
default by the Company in making any such payment. Money held in trust by the
Paying Agent need not be segregated except as required by law and in no event
shall the Paying Agent be liable for any interest on any money received by it
hereunder. The Company at any time may require the Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed and the Trustee
may at any time during the continuance of any Event of Default, upon a Company
Order to the Paying Agent, require such Paying Agent to pay forthwith all money
so held by it to the Trustee and to account for any funds disbursed. Upon making
such payment, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
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Section 3.14. TREASURY NOTES.
In determining whether the Holders of the required aggregate principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or an Affiliate of the Company shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which the Trustee actually knows are so owned shall be so
considered. The Company shall notify the Trustee, in writing, when it or any of
its Affiliates repurchases or otherwise acquires Notes, of the aggregate
principal amount of such Notes so repurchased or otherwise acquired.
Section 3.15. DEPOSITS OF MONIES.
Prior to 11:00 a.m. New York City time on each Interest Payment Date,
maturity date, Redemption Date, Change of Control Payment Date and Asset Sale
Offer Purchase Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date, maturity date, Redemption Date, Change of Control
Payment Date or Asset Sale Offer Purchase Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date, maturity date, Redemption Date, Change of Control Payment
Date or Asset Sale Offer Purchase Date, as the case may be.
Section 3.16. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES.
(a) The Global Notes initially shall (i) be registered in the name of the
Depository or the nominee of such Depository, (ii) be delivered to the Trustee
as custodian for such Depository and (iii) bear legends as set forth in EXHIBIT
C.
Members of, or participants in, the Depository ("Agent Members") shall have
no rights under this Indenture with respect to any Global Note held on their
behalf by the Depository, or the Trustee as its custodian, or under the Global
Note, and the Depository may be treated by the Company, each Subsidiary
Guarantor, the Trustee and any agent of the Company or the Trustee as the
absolute owner of the Global Note for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, any Subsidiary
Guarantor, 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 Depository or impair, as between the Depository and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
Holder of any Note.
(b) Transfers of Global Notes shall be limited to transfers in whole, but
not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in the Global Notes may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Sections 3.03 and 3.17 hereof. In addition,
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests
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in Global Notes if (i) the Depository notifies the Company that it is unwilling
or unable to continue as Depository for any Global Note, or that it will cease
to be a "Clearing Agency" under the Exchange Act, and in either case a successor
Depository is not appointed by the Company within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a written request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and principal amount of authorized denominations,
and each Subsidiary Guarantor, if any, shall execute a notation thereon in
respect of its Subsidiary Guarantee.
(d) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Notes, an equal aggregate principal amount at maturity of Physical Notes
of like tenor of authorized denominations, and each Subsidiary Guarantor, if
any, shall execute a notation thereon in respect of its Subsidiary Guarantee.
(e) Any Physical Note constituting a Restricted Note delivered in exchange
for an interest in a Global Note pursuant to subparagraph (b), (c) or (d) of
this Section 3.16 shall, except as otherwise provided by Section 3.17 hereof,
bear the Private Placement Legend.
(f) The Holder of any Global Note may grant proxies and otherwise authorize
any person, including Agent Members and persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.
Section 3.17. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The following
additional provisions shall apply with respect to the registration of any
proposed transfer of an Initial Note to any Institutional Accredited Investor
which is not a QIB:
(i) the Registrar shall register the transfer of any Initial Note, whether
or not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the second anniversary of the Issue Date; provided, however,
that neither the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time on or prior to
the second anniversary of the Issue Date and such transfer can otherwise be
lawfully made under the Securities Act without registering such Initial Notes
thereunder or (y) the proposed transferee has delivered to
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the Registrar a certificate substantially in the form of EXHIBIT D hereto and
any legal opinions and certifications required thereby;
(ii) if the proposed transferor is an Agent Member seeking to transfer an
interest in a Global Note, upon receipt by the Registrar of (x) written
instructions given in accordance with the Depository's and the Registrar's
procedures and (y) the appropriate certificate, if any, required by clause (y)
of paragraph (i) above, together with any required legal opinions and
certifications, the Registrar shall register the transfer and reflect on its
books and records the date and a decrease in the principal amount of the Global
Note from which such interests are to be transferred in an amount equal to the
principal amount of the Notes to be transferred and the Company shall execute,
each Subsidiary Guarantor, if any, shall execute a notation on and, upon a
Company Order, the Trustee shall authenticate Physical Notes in a principal
amount equal to the principal amount of the Global Note to be transferred.
(b) TRANSFERS TO NON-U.S. PERSONS. The following additional provisions
shall apply with respect to the registration of any proposed transfer of an
Initial Note to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Initial Note, whether
or not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the second anniversary of the Issue Date; provided, however,
that neither the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time on or prior to
the second anniversary of the Issue Date and such transfer can otherwise be
lawfully made under the Securities Act without registering such Initial Notes
thereunder or (y) the proposed transferor has delivered to the Registrar a
certificate substantially in the form of EXHIBIT E hereto;
(ii) if the proposed transferee is an Agent Member and the Notes to be
transferred consist of Physical Notes which after transfer are to be evidenced
by an interest in the Regulation S Global Note, upon receipt by the Registrar of
(x) written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any, required by
clause (y) of paragraph (i) above, together with any required legal opinions and
certifications, the Registrar shall register the transfer and reflect on its
books and records the date and an increase in the principal amount of the
Regulation S Global Note in an amount equal to the principal amount of Physical
Notes to be transferred, and the Trustee shall cancel the Physical Notes so
transferred;
(iii) if the proposed transferor is an Agent Member seeking to transfer an
interest in the 144A Global Note, upon receipt by the Registrar of (x) written
instructions given in accordance with the Depository's and the Registrar's
procedures and (y) the appropriate certificate, if any, required by clause (y)
of paragraph (i) above, together with any required legal opinions and
certifications, the Registrar shall register the transfer and reflect on its
books and records the date and (A) a decrease in the principal amount of the
144A Global Note from which such interests are to be transferred in an amount
equal to the principal amount of the Notes to be transferred and (B) an increase
in the principal amount of the Regulation S Global Note in an amount equal to
the principal amount of the 144A Global Note to be transferred; and
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(iv) until the 41st day after the Issue Date (the "Restricted Period"), an
owner of a beneficial interest in the Regulation S Global Note may not transfer
such interest to a transferee that is a U.S. person or for the account or
benefit of a U.S. person within the meaning of Rule 902(o) of the Securities
Act. During the Restricted Period, all beneficial interests in the Regulation S
Global Note shall be transferred only through Cedel or Euroclear, either
directly if the transferor and transferee are participants in such systems, or
indirectly through organizations that are participants.
(c) TRANSFERS TO QIBS. The following provisions shall apply with respect to
the registration of any proposed transfer of an Initial Note to a QIB (excluding
Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Initial Note, whether
or not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the second anniversary of the Issue Date; provided, however,
that neither the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time on or prior to
the second anniversary of the Issue Date and such transfer can otherwise be
lawfully made under the Securities Act without registering such Initial Note
thereunder or (y) such transfer is being made by a proposed transferor who has
checked the box provided for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has otherwise advised
the Company and the Registrar in writing, that it is purchasing the Note for its
own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning of Rule
144A, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from registration
provided by Rule 144A;
(ii) if the proposed transferee is an Agent Member and the Notes to be
transferred consist of Physical Notes which after transfer are to be evidenced
by an interest in the 144A Global Note, upon receipt by the Registrar of written
instructions given in accordance with the Depository's and the Registrar's
procedures, the Registrar shall register the transfer and reflect on its book
and records the date and an increase in the principal amount of the 144A Global
Note in an amount equal to the principal amount of Physical Notes to be
transferred, and the Trustee shall cancel the Physical Note so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to transfer an
interest in the Regulation S Global Note, upon receipt by the Registrar of
written instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall register the transfer and reflect on
its books and records the date and (A) a decrease in the principal amount of the
Regulation S Global Note in an amount equal to the principal amount of the Notes
to be transferred and (B) an increase in the principal amount of the 144A Global
Note in an amount equal to the principal amount of the Regulation S Global Note
to be transferred.
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(d) PRIVATE PLACEMENT LEGEND. Upon the registration of transfer, exchange
or replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
registration of transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Registrar shall deliver only Notes that bear the Private
Placement Legend unless (i) the circumstances contemplated by paragraph
(a)(i)(x) of this Section 3.17 exist, (ii) there is delivered to the Registrar
an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to
the effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act or (iii) such Note has been sold pursuant to an effective registration
statement under the Securities Act.
(e) OTHER TRANSFERS. If a Holder proposes to transfer a Note constituting a
Restricted Note pursuant to any exemption from the registration requirements of
the Securities Act other than as provided for by Section 3.17(a), (b) and (c)
hereof, the Registrar shall only register such transfer or exchange if such
transferor delivers an Opinion of Counsel satisfactory to the Company and the
Registrar that such transfer is in compliance with the Securities Act and the
terms of this Indenture; provided, however, that the Company may, based upon the
opinion of its counsel, instruct the Registrar by a Company Order not to
register such transfer in any case where the proposed transferee is not a QIB,
Non-U.S. Person or Institutional Accredited Investor.
(f) GENERAL. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 3.16 hereof or this Section 3.17.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable prior written notice to the Registrar.
Section 3.18. COMPONENT OF UNIT.
The Notes shall initially be issued as part of a unit ("Unit"), each Unit
consisting of $1,000 principal face amount of Notes and three Warrants. The
Notes and the Warrants comprising a Unit shall not be separately transferable
until the "Separability Date," which means the earliest to occur of: (i)
September 1, 1998, (ii) the occurrence of an Exercise Event (as defined in the
Warrant Agreement), (iii) the occurrence of an Event of Default, (iv) the date
on which a registration statement under the Securities Act of 1933 with respect
to the Exchange Offer or covering the sale by holders of the Notes is declared
effective under the Securities Act, (v) immediately prior to any optional
redemption of Notes by the Company from the net proceeds of an Initial Public
Equity Offering, (vi) immediately prior to the occurrence of a Warrant Change of
Control or (vii) such earlier date as determined by Merrill Lynch & Co. in its
sole discretion. Transfers of the Units shall be made by the Unit Agent in
accordance with the restrictions set forth in Section 3.17 hereof. The Unit
Agent shall be entitled to the same benefits and privileges as those accorded to
theTrustee under this Indenture.
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ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 4.02 or Section 4.03 hereof
be applied to all of the Outstanding Notes (the "Defeased Notes"), upon
compliance with the conditions set forth below in this Article Four.
Section 4.02. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 4.01 hereof of the option
applicable to this Section 4.02, the Company shall be deemed to have been
discharged from its obligations with respect to the Defeased Notes on the date
the conditions set forth below are satisfied (hereinafter, "defeasance"). For
this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the Defeased Notes,
which shall thereafter be deemed to be "Outstanding" only for the purposes of
Section 4.05 and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all its other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the expense
of the Company and upon Company Request, shall execute proper instruments
acknowledging the same), except for the following, which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
Defeased Notes to receive, solely from the trust fund described in Section 4.04
hereof and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (b) the Company's obligations with respect to such Defeased Notes under
Sections 3.04, 3.05, 3.06, 10.02 and 10.03 hereof, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, including, without
limitation, the Trustee's rights under Section 6.07 hereof, and (d) this Article
Four. Subject to compliance with this Article Four, the Company may exercise its
option applicable to this Section 4.02 notwithstanding the prior exercise of its
option applicable to Section 4.03 hereof with respect to the Notes.
Section 4.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 4.01 hereof of the option
applicable to this Section 4.03, the Company shall be released from its
obligations under any covenant or provision contained in Sections 10.06 through
10.22 hereof and the provisions of Articles Eight shall not apply, with respect
to the Defeased Notes, on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Defeased Notes shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means
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that, with respect to the Defeased 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 Sections or Article, whether directly or indirectly, by reason
of any reference elsewhere herein to any such Section or Article or by reason of
any reference in any such Section or Article to any other provision herein or in
any other document and such omission to comply shall not constitute a Default or
an Event of Default under Section 5.01(iii), (iv) or (v) hereof, but, except as
specified above, the remainder of this Indenture and such Defeased Notes shall
be unaffected thereby.
Section 4.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section 4.02
or Section 4.03 hereof to the Defeased Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.09 hereof who shall agree to comply with the provisions of
this Article Four applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (a) cash (in
United States dollars) in an amount, or (b) U.S. Government Securities
which through the scheduled payment of principal, premium, if any, and
interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money in an
amount, or (c) a combination thereof, in any such case, sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge, the principal of, premium, if
any, and interest on the Defeased Notes at the Stated Maturity of such
principal or installment of principal, premium, if any, or interest;
provided, however, that the Trustee shall have been irrevocably instructed
to apply such cash or the proceeds of such U.S. Government Securities to
said payments with respect to the Notes;
(2) No Default shall have occurred and be continuing on the date of
such deposit or, insofar as Section 5.01(ix), (x) or (xi) hereof is
concerned, at any time during the period ending on the ninety-first day
after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period);
(3) Neither the Company nor any Subsidiary of the Company is an
"insolvent person" within the meaning of any applicable Bankruptcy Law on
the date of such deposit or at any time during the period ending on the
ninety-first day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period);
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(4) Such defeasance or covenant defeasance shall not cause the Trustee
for the Notes to have a conflicting interest in violation of Section 6.08
hereof and for purposes of the Trust Indenture Act with respect to any
securities of the Company;
(5) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound;
(6) In the case of an election under Section 4.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (x)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the date hereof, there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred;
(7) In the case of an election under Section 4.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
(8) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, immediately following the ninety-first day
after the deposit, the trust funds established pursuant to this Article
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. Federal or state law;
(9) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election applicable to Section 4.02 or 4.03 hereof was not made by the
Company with the intent of preferring the Holders over the other creditors
of the Company or with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others;
(10) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that (i) all conditions
precedent (other than conditions requiring the passage of time) provided
for relating to either the defeasance under Section 4.02 or the covenant
defeasance under Section 4.03 (as the case may be) have been complied with
as contemplated by this Section 4.04 and (ii) if any other Indebtedness of
the Company shall then be outstanding or committed, such defeasance or
covenant defeasance will not violate the provisions of the agreements or
instruments evidencing such Indebtedness; and
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(11) Such defeasance or covenant defeasance shall not result in a
trust arising from such deposit constituting an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
Opinions required to be delivered under this Section may have such
qualifications as are customary for opinions of the type required and reasonably
acceptable to the Trustee.
Section 4.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the proviso of the last paragraph of Section 10.03, all money
and U.S. Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 4.05, the "Trustee") pursuant to Section 4.04 in respect of the Defeased
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 (other than the Company) as the Trustee may determine,
to the Holders of such Notes of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee and hold it harmless
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Securities deposited pursuant to Section 4.04 or the principal,
premium, if any, 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 the
Defeased Notes.
Anything in this Article Four to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Securities held by it as provided in Section 4.04
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 thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance.
Section 4.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Securities in accordance with Section 4.02 or 4.03 hereof, as the
case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the obligations of the Company under this Indenture and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section
4.02 or 4.03 hereof, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money and U.S. Government Securities
in accordance with Section 4.02 or 4.03 hereof, as the case may be; provided,
however, that if the Company makes any payment of principal, premium, if any, or
interest on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the
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rights of the Holders of such Notes to receive such payment from the money and
U.S. Government Securities held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 5.01. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) default in the payment of interest on the Notes when it becomes
due and payable and continuance of such default for a period of 30 days or
more; or
(ii) default in the payment of the principal of, or premium, if any,
on the Notes when due at maturity, upon redemption or otherwise; or
(iii) default in the payment of the Accreted Value of, and any accrued
and unpaid interest on, any Notes required to be purchased pursuant to a
Change of Control Offer or Asset Sale Offer when due and payable; or
(iv) default in the performance, or breach, of any covenant described
under Section 10.10, Section 10.15 or Article Eight; or
(v) default in the performance, or breach, of any term, covenant or
agreement in the Notes, this Indenture (other than defaults specified in
clause (i), (ii), (iii) or (iv) above), and continuance of such default or
breach for a period of 30 days or more after written notice to the Company
and the Subsidiary Guarantors by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate principal face amount
of the outstanding Notes (in each case, when such notice is deemed received
in accordance with this Indenture); or
(vi) (a) failure to pay, following any applicable grace period, any
installment of principal due (whether at maturity or otherwise) under one
or more classes or issues of Indebtedness in an aggregate principal amount
of $5 million or more under which the Company or any Material Restricted
Subsidiary is obligated or (b) failure by the Company or any Material
Restricted Subsidiary to perform any other term, covenant, condition or
provision of one or more classes or issues of Indebtedness in an aggregate
principal amount of $5 million or more under which the Company or such
Material Restricted Subsidiary is obligated
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and, in the case of this clause (b), such failure results in an
acceleration of the maturity thereof; or
(vii) any holder of Indebtedness in an aggregate principal amount of
$5 million or more of the Company or any Material Restricted Subsidiary
shall commence judicial proceedings or take any other action to foreclose
upon, or dispose of assets of the Company or any Material Restricted
Subsidiary having an aggregate Fair Market Value, individually or in the
aggregate, of $5 million or more or shall have exercised any right under
applicable law or applicable security documents to take ownership of any
such assets in lieu of foreclosure; provided that, in any such case, the
Company or any Material Restricted Subsidiary shall not have obtained,
prior to any such foreclosure or disposition of assets, a stay of all such
actions that remains in effect; or
(viii) one or more judgments, orders or decrees for the payment of
money of $5 million or more, either individually or in the aggregate, shall
be entered into against the Company or any Material Restricted Subsidiary
or any of their respective properties and shall not be discharged and there
shall have been a period of 60 days or more during which a stay of
enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(ix) the Company, any Material Restricted Subsidiary any Subsidiary
Guarantor of the Company pursuant to or under or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the making of a Bankruptcy Order in an
involuntary case or proceeding or the commencement of any case against
it;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors;
(E) files an answer or consent seeking reorganization or relief;
(F) shall admit in writing its inability to pay its debts
generally; or
(G) consents to the filing of a petition in bankruptcy; or
(x) a court of competent jurisdiction in any involuntary case or
proceeding enters a Bankruptcy Order against the Company, any Material
Restricted Subsidiary or any Subsidiary Guarantor, and such Bankruptcy
Order remains unstayed and in effect for 60 consecutive days; or
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(xi) a Custodian shall be appointed out of court with respect to the
Company, any Material Restricted Subsidiary or any Subsidiary Guarantor
with respect to all or any substantial part of the assets or properties of
the Company, any Material Restricted Subsidiary or any Subsidiary
Guarantor; or
(xii) this Indenture or the Registration Rights Agreement ceases to be
in full force and effect or is declared null and void or the Company denies
that it has any further obligation or liability thereunder or gives notice
to that effect (other than by reason of termination or release in
accordance with the terms thereof); or
(xiii) any Subsidiary Guarantee or any provision thereof shall at any
time cease to be the legal, valid and binding obligation of the Subsidiary
Guarantor party thereto such that the Holders of the Notes could not
reasonably be expected to realize the material benefits intended to be
provided by such Subsidiary Guarantor under its Subsidiary Guarantee or any
Subsidiary Guarantor shall assert that its Subsidiary Guarantee is not a
legal, valid and binding obligation or shall purport to revoke its
obligations thereunder.
Section 5.02. ACCELERATION OF MATURITY RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in clause
(viii), (ix) or (x) of Section 5.01 hereof with respect to the Company) occurs
and is continuing, then the Trustee or the holders of at least 25% in principal
face amount of the outstanding Notes may, by written notice, and the Trustee
upon the request of the holders of not less than 25% in principal face amount of
the outstanding Notes shall, declare the Default Amount of all outstanding Notes
to be immediately due and payable and upon any such declaration such amount
shall become immediately due and payable. If an Event of Default specified in
clause (viii), (ix) or (x) above with respect to the Company occurs and is
continuing, then the Default Amount of all outstanding Notes 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.
After a declaration of acceleration, the holders of a majority in aggregate
principal face amount of outstanding Notes may, by notice to the Trustee,
rescind such declaration of acceleration if all existing Events of Default,
other than nonpayment of the principal of, premium (if any) on, and any accrued
and unpaid interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if an Event of Default specified in Section
5.01(i) or 5.01(ii) shall have occurred and be continuing, the Company will,
upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders
of such Notes, the whole amount then due and payable on such Notes for
principal, premium, if any, and interest, with interest upon the overdue
principal,
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premium, if any, and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest, at the rate then
borne by the Notes; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may, but is not
obligated under this paragraph to, institute a judicial proceeding for the
collection of the sums so due and unpaid and may, but is not obligated under
this paragraph to, prosecute such proceeding to judgment or final decree, and
may, but is not obligated under this paragraph to, enforce the same against the
Company, any Subsidiary Guarantor or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company, any Subsidiary Guarantor or any other
obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion, but is not obligated under this paragraph to, (i) proceed to protect
and enforce its rights and the rights of the Holders under this Indenture by
such appropriate private or judicial proceedings as the Trustee shall deem most
effectual to protect and enforce such rights, whether for the specific
enforcement of any covenant or agreement contained in this Indenture or in aid
of the exercise of any power granted herein or (ii) proceed to protect and
enforce any other proper remedy. No recovery of any such judgment upon any
property of the Company shall affect or impair any rights, powers or remedies of
the Trustee or the Holders.
Section 5.04. TRUSTEE MAY FILE PROOFS OF CLAIMS.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, any Subsidiary Guarantor or any
other obligor upon the Notes or the property of the Company, any Subsidiary
Guarantor or of such other obligor or their creditors, the Trustee (irrespective
of whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company or any Subsidiary Guarantor 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, premium,
if any, and interest owing and unpaid in respect of the Notes and to file such
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
fees, expenses, disbursements and advances of the Trustee, its agents and
counsel) 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 Custodian, in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the
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Trustee shall consent to the making of such payments directly to the Holders, to
pay the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
Section 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, fees, expenses, disbursements
and advances of the Trustee, its agents and counsel, be for the ratable benefit
of the Holders of the Notes in respect of which such judgment has been
recovered.
Section 5.06. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal, premium, if
any, or interest, upon presentation of the Notes and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.07;
Second: to Holders for interest accrued on the Notes, ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Notes for interest;
Third: to Holders for principal and premium, if any, amounts owing under
the Notes, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal and premium, if any; and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Noteholders pursuant to this Section
5.06.
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Section 5.07. LIMITATION ON SUITS.
No Holder of any 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;
(b) the Holders of not less than 25% in principal face 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 to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(d) the Trustee for 60 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 60-day period by the Holders of a majority in aggregate
principal face amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Note or any Subsidiary Guarantee to affect, disturb or
prejudice the rights of any other Holders, or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right under this
Indenture, any Note or any Subsidiary Guarantee, except in the manner provided
in this Indenture and for the equal and ratable benefit of all the Holders.
Section 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive cash
payment of the principal of, premium, if any, and (subject to Section 3.07
hereof) interest on such Note on the respective Stated Maturities expressed in
such Note (or, in the case of redemption, on the respective Redemption Date) and
to institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
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Section 5.09. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture or any Note 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, each
Subsidiary Guarantor, 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 5.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as provided in Section 3.06, 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 5.11. 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 Five or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 5.12. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal face amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided, however, that:
(a) such direction shall not be in conflict with any rule of law or with
this Indenture or any Note or expose 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.
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Section 5.13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal face amount
of the Outstanding Notes may on behalf of the Holders of all the Notes waive any
past Default hereunder and its consequences, except a Default
(a) in the payment of the principal of, premium, if any, or interest on any
Note,
(b) arising from failure to purchase any Notes tendered pursuant to an
offer to purchase required to be made by any provision of this Indenture, or
(c) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected thereby.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any right consequent thereon.
Section 5.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by his
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 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 5.14 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 face amount of the Outstanding Notes,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on or after the respective Redemption Dates).
Section 5.15. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company and each Subsidiary Guarantor covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or such
Subsidiary Guarantor from paying all or any portion of the principal of,
premium, if any, or interest on the Notes contemplated herein or in the Notes or
which may affect the covenants or the performance of this Indenture; and the
Company and each Subsidiary Guarantor (to the extent that it
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may lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.16. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision in this Indenture and any provision of
any Note, the right of any Holder of any Note to receive payment of the
principal of, premium, if any, and interest on such Note on or after the
respective Stated Maturities (or the respective Redemption Dates, in the case of
redemption) expressed in such Note, or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
ARTICLE SIX
THE TRUSTEE
Section 6.01. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) 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
(2) 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; but in
the case of any such certificates or opinions which by provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform
to the requirements of this Indenture.
(a) During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under this Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that 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
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exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(c) Whether or not therein expressly so provided, 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 Section
6.01.
Section 6.02. NOTICE OF DEFAULTS.
Within 45 days after the occurrence of any Default, 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, however, that, except in the
case of a Default in the payment of the principal of, premium, if any, or
interest on any Note or in respect of Article 8 hereof, the Trustee shall be
protected in withholding such notice if and so long as a trust committee of
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders.
Section 6.03. CERTAIN RIGHTS OF TRUSTEE.
Subject to Section 6.01 hereof and the provisions of Section 315 of the
Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board may be sufficiently evidenced by a Board Resolution thereof;
(c) the Trustee may consult with counsel and any 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 in accordance with such advice or Opinion
of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by the Trustee in compliance with such
request or direction;
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(e) the Trustee shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture other than any liabilities
arising out of its own negligence;
(f) 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, approval,
appraisal, bond, debenture, note, coupon, security, other evidence of
indebtedness or other paper or document unless requested in writing so to do by
the Holders of not less than a majority in aggregate principal amount of the
Notes then Outstanding; provided, however, that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to it by
the terms of this Indenture, the Trustee may require reasonable indemnity
against such expenses or liabilities as a condition to proceeding; the
reasonable expenses of every such investigation shall be paid by the Company or,
if paid by the Trustee or any predecessor Trustee, shall be repaid by the
Company upon demand; provided, further, the Trustee in its discretion may make
such further inquiry or investigation into such facts or matters as it may deem
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;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) except with respect to Section 10.01, the Trustee shall have no duty to
inquire as to the performance of the Company's covenants in Article Ten. In
addition, the Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) any Event of Default occurring pursuant to Sections
5.01(i), 5.01(ii) and 10.01 or (ii) any Default or Event of Default of which the
Trustee shall have received written notification or obtained actual knowledge.
Section 6.04. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF NOTES
OR APPLICATION OF PROCEEDS THEREOF.
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder and that the statements to be made by it in any Statement
of Eligibility and Qualification on Form T-1 supplied to the Company will be
true and accurate subject to the qualifications set forth therein. The Trustee
shall not be accountable for the use or application by the Company of Notes or
the proceeds thereof.
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Section 6.05. TRUSTEE AND AGENTS MAY HOLD NOTES; COLLECTIONS; ETC.
The Trustee, any Paying Agent, Registrar or any other agent of the Company,
in its individual or any other capacity, may become the owner or pledgee of
Notes, with the same rights it would have if it were not the Trustee, Paying
Agent, Registrar or such other agent and, subject to Section 6.08 hereof and
Sections 310 and 311 of the Trust Indenture Act, may otherwise deal with the
Company and receive, collect, hold and retain collections from the Company with
the same rights it would have if it were not the Trustee, Paying Agent,
Registrar or such other agent.
Section 6.06. MONEY HELD IN TRUST.
All moneys received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated from other funds except to the extent required herein or
by law. The Trustee shall not be under any liability for interest on any moneys
received by it hereunder.
Section 6.07. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR
CLAIM.
The Company covenants and agrees: (a) to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation for all
services rendered by it hereunder (which shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust); (b) to
reimburse the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, fees, disbursements and advances incurred or made by or on
behalf of it in accordance with any of the provisions of this Indenture
(including the reasonable compensation, fees, and the expenses and disbursements
of its counsel and of all agents and other persons not regularly in its employ),
except any such expense, disbursement or advance as may arise from its
negligence or bad faith; and (c) to indemnify the Trustee and each predecessor
Trustee for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including enforcement of this Section 6.07.
The obligations of the Company under this Section to compensate and indemnify
the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and
each predecessor Trustee for expenses, fees, disbursements and advances shall
constitute an additional obligation hereunder and shall survive the satisfaction
and discharge of this Indenture. To secure the obligations of the Company to the
Trustee under this Section 6.07, the Trustee shall have a prior Lien upon all
property and funds held or collected by the Trustee as such, except funds and
property paid by the Company and held in trust for the benefit of the Holders of
particular Notes.
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Section 6.08. CONFLICTING INTERESTS.
The Trustee shall be subject to and comply with the provisions of Section
310(b) of the Trust Indenture Act.
Section 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be eligible to
act as Trustee under Trust Indenture Act Sections 310(a)(1) and (2) and which
shall have a combined capital and surplus of at least $25,000,000 and a
Corporate Trust Office in the Borough of Manhattan in The City of New York,
State of New York. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of any Federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Trustee shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee, or any trustee or trustees hereinafter appointed, may at
any time resign by giving written notice thereof to the Company at least 20
Business Days prior to the date of such proposed resignation. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
trustee by written instrument executed by authority of the Board, a copy of
which shall be delivered to the resigning Trustee and a copy to the successor
Trustee. If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 20 Business Days after the giving of such
notice of resignation, the resigning Trustee may, or (if an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 30 Business Days after the giving of such notice of resignation) any
Holder who has been a bona fide Holder of a Note for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper, appoint a
successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company.
(d) If at any time:
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(1) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act in accordance with Section 6.08 hereof
after written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09 hereof
and shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose or
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 5.14, the Holder of any Note who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Notes delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of the Notes
and accepted appointment in the manner hereinafter provided, the Holder of any
Note who has been a bona fide Holder for at least six months may, subject to
Section 5.14, 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 event by first-class mail, postage prepaid, to the Holders of
Notes as their names and addresses appear in the Note Register. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
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Section 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee as if originally named as Trustee hereunder; but,
nevertheless, on the written request of the Company or the successor Trustee,
upon payment of amounts due it pursuant to Section 6.07, such retiring Trustee
shall duly assign, transfer and deliver to the successor Trustee all moneys and
property at the time held by it hereunder and shall execute and deliver an
instrument transferring to such successor Trustee all the rights, powers, duties
and obligations of the retiring Trustee. 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
and powers. Any Trustee ceasing to act shall, nevertheless, retain a prior claim
upon all property or funds held or collected by such Trustee to secure any
amounts then due it pursuant to the provisions of Section 6.07.
No successor Trustee with respect to the Notes shall accept appointment as
provided in this Section 6.11 unless at the time of such acceptance such
successor Trustee shall be eligible to act as Trustee under this Article.
Upon acceptance of appointment by any successor Trustee as provided in this
Section 6.11, the successor shall give notice thereof to the Holders of the
Notes, by mailing such notice to such Holders at their addresses as they shall
appear on the Note Register. If the acceptance of appointment is substantially
contemporaneous with the resignation, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 6.10.
If the Company fails to give such notice within 10 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be given at the expense of the Company.
Section 6.12. MERGER, CONVERSION, AMALGAMATION, CONSOLIDATION OR SUCCESSION
TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or amalgamated, or any corporation resulting from
any merger, conversion, amalgamation 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 without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided such corporation shall be eligible
under this Article Six to serve as Trustee hereunder.
In case at the time such successor to the Trustee under this Section 6.12
shall succeed to the trusts created by this Indenture any of the Notes shall
have been authenticated but not delivered,
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any such successor to the Trustee may adopt the certificate of authentication of
any predecessor Trustee and deliver such Notes so authenticated; and, in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee under this Section 6.12 may authenticate such Notes either in the
name of any predecessor hereunder or in the name of the successor Trustee; and
in all such cases such certificate shall have the full force which it is
anywhere in the Notes or in this Indenture provided that the certificate of the
Trustee shall have been authenticated.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. PRESERVATION OF INFORMATION; COMPANY TO FURNISH TRUSTEE NAMES
AND ADDRESSES OF HOLDERS.
(a) The Trustee shall preserve the names and addresses of the Noteholders
and otherwise comply with TIA Section 312(a). If the Trustee is not the
Registrar, the Company shall furnish or cause the Registrar to furnish to the
Trustee before each Interest Payment 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 the Noteholders.
Neither the Company nor the Trustee shall be under any responsibility with
regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to the Trustee
(i) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(ii) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior
to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Registrar, no
such list need be furnished pursuant to this Subsection 7.01(b).
Section 7.02. COMMUNICATIONS OF HOLDERS.
Holders may communicate with other Holders with respect to their rights
under this Indenture or under the Notes pursuant to Section 312(b) of the Trust
Indenture Act. The Company and the Trustee and any and all other persons
benefited by this Indenture shall have the protection afforded by Section 312(c)
of the Trust Indenture Act.
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Section 7.03. REPORTS BY TRUSTEE.
Within 60 days after May 15th of each year commencing with the first May
15th following the date of this Indenture, the Trustee shall mail to all
Holders, as their names and addresses appear in the Note Register, a brief
report dated as of such May 15th, in accordance with and to the extent required
under Section 313 of the Trust Indenture Act. At the time of its mailing to
Holders, a copy of each such report shall be filed by the Trustee with the
Company, the SEC and with each stock exchange on which the Notes are listed. The
Company shall notify the Trustee when the Notes are listed on any stock
exchange.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company will not (i) consolidate or combine with or merge with or into
or, directly or indirectly, sell, assign, convey, lease, transfer or otherwise
dispose of all or substantially all of its properties and assets to any person
or persons in a single transaction or through a series of transactions, or (ii)
permit any of the Restricted Subsidiaries to enter into any such transaction or
series of transactions if it would result in the disposition of all or
substantially all of the properties or assets of the Company and the Restricted
Subsidiaries on a consolidated basis, unless, in the case of either (i) or (ii),
(a) the Company shall be the continuing person or, if the Company is not the
continuing person, the resulting, surviving or transferee person (the "surviving
entity") shall be a company organized and existing under the laws of the United
States or any State or territory thereof; (b) if the Company is not the
continuing person, the surviving entity shall expressly assume all of the
obligations of the Company under the Notes and this Indenture, and shall execute
a supplemental indenture to effect such assumption which supplemental indenture
shall be delivered to the Trustee and shall be in form and substance reasonably
satisfactory to the Trustee; (c) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
the Company or the surviving entity (assuming such surviving entity's assumption
of the Company's obligations under the Notes and this Indenture), as the case
may be, would be able to incur $1.00 of Indebtedness under the proviso of
Section 10.11; (d) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default shall have
occurred and be continuing; and (e) the Company or the surviving entity, as the
case may be, shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel stating that such transaction or series of transactions, and,
if a supplemental indenture is required in connection with such transaction or
series of transactions to effectuate such assumption, such supplemental
indenture, complies with this covenant and that all conditions precedent in this
Indenture relating to the transaction or series of transactions have been
satisfied.
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Section 8.02. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger or any sale, assignment, conveyance,
lease, transfer or other disposition of all or substantially all of the
properties and assets of the Company in accordance with the foregoing in which
the Company or the Restricted Subsidiary, as the case may be, is not the
continuing corporation, the successor corporation formed by such a consolidation
or into which the Company or such Restricted Subsidiary is merged or to which
such transfer is made will succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Restricted Subsidiary, as the case
may be, under this Indenture and the Notes with the same effect as if such
successor corporation had been named as the Company or such Restricted
Subsidiary therein; and thereafter, except in the case of (i) any lease or (ii)
any sale, assignment, conveyance, transfer, lease or other disposition to a
Restricted Subsidiary of the Company, the Company shall be discharged from all
obligations and covenants under this Indenture and the Notes.
For all purposes of this Indenture (including the provisions of this
Article Eight and Sections 10.11, Section 10.13 and Section 10.16) and the
Notes, Subsidiaries of any surviving entity will, upon such transaction or
series of related transactions, become Restricted Subsidiaries or Unrestricted
Subsidiaries as provided pursuant to Section 10.20, and all Indebtedness, and
all Liens on property or assets, of the surviving entity and the Restricted
Subsidiaries (except Indebtedness, or Liens on property or assets, of the
Company and the Restricted Subsidiaries in existence immediately prior to such
transaction or series of related transactions) shall be deemed to have been
incurred upon such transaction or series of related transactions.
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. SUPPLEMENTAL INDENTURES, AGREEMENTS AND WAIVERS WITHOUT
CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, each Subsidiary Guarantor, if any, when authorized by a Subsidiary
Guarantor Board Resolution, and the Trustee, at any time and from time to time,
may amend, waive, modify or supplement this Indenture or the Notes for any of
the following purposes:
(a) to evidence the succession of another person to the Company, and the
assumption by any such successor of the covenants of the Company in the Notes
and this Indenture;
(b) to add to the covenants of the Company for the benefit of the Holders,
or to surrender any right or power herein conferred upon the Company in the
Notes or this Indenture;
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(c) to cure any ambiguity, or to correct or supplement any provision in
this Indenture or in the Notes which may be defective or inconsistent with any
other provision herein or to make any other provisions with respect to matters
or questions arising under this Indenture or the Notes; provided, however, that,
in each case, such provisions shall not adversely affect the legal rights of the
Holders;
(d) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act, as
contemplated by Section 9.05 hereof or otherwise;
(e) to evidence and provide the acceptance of the appointment of a
successor Trustee hereunder;
(f) to mortgage, pledge, hypothecate or grant a security interest in any
property or assets in favor of the Trustee for the benefit of the Holders as
security for the payment and performance of the Indenture Obligations;
(g) to provide for assumption of a Subsidiary Guarantor's obligations under
its Subsidiary Guarantee upon a merger, consolidation, sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the property and assets of such Subsidiary Guarantor, in compliance with Section
13.03;
(h) to add or release a Subsidiary Guarantor in compliance with the
provisions of Article Thirteen hereof; or
(i) to make any other change that does not adversely affect the legal
rights of any Holder;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change, agreement or waiver does not adversely affect
the legal rights of any Holder.
Section 9.02. SUPPLEMENTAL INDENTURES, AGREEMENTS AND WAIVERS WITH CONSENT
OF HOLDERS.
With the written consent of the Holders of not less than a majority in
aggregate principal face amount of the Outstanding Notes delivered to the
Company, each of the Subsidiary Guarantors, if any, and the Trustee, the
Company, when authorized by a Board Resolution, each Subsidiary Guarantor, if
any, when authorized by a Subsidiary Guarantor Board Resolution, together with
the Trustee, may amend, waive, modify or supplement any other provision of this
Indenture or the Notes; provided, however, that no such amendment, waiver,
modification or supplement may, without the written consent of the Holder of
each Outstanding Note affected thereby:
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(i) reduce the principal amount of, change the fixed maturity of, or
alter the redemption provisions of, the Notes,
(ii) change the currency in which any Notes or amounts owing thereon
is payable,
(iii) reduce the percentage of the aggregate principal face amount
outstanding of Notes which must consent to an amendment, supplement or
waiver or consent to take any action under this Indenture or the Notes,
(iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes,
(v) waive a default in payment with respect to the Notes, other than a
waiver consisting of the rescission of any declaration of acceleration with
respect to the Notes effected in compliance with Section 5.02,
(vi) reduce the rate or change the time for payment of interest on the
Notes,
(vii) following the occurrence of a Change of Control or an Asset
Sale, alter the Company's obligation to purchase the Notes in accordance
with this Indenture or waive any default in the performance thereof,
(viii) affect the ranking of the Notes in a manner adverse to the
Holders of the Notes, or
(ix) release any Subsidiary Guarantee except in compliance with
Article Thirteen hereof.
Upon the written request of the Company accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture or other agreement,
instrument or waiver, and upon the filing with the Trustee of evidence of the
consent of Holders as aforesaid, the Trustee and each Subsidiary Guarantor, if
any, shall join with the Company in the execution of such supplemental indenture
or other agreement, instrument or waiver.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture or other
agreement, instrument or waiver, but it shall be sufficient if such Act shall
approve the substance thereof.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES, AGREEMENTS AND WAIVERS.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
6.01
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hereof) shall be fully protected in relying upon, an Opinion of Counsel and an
Officers' Certificate from each obligor under the Notes entering into such
supplemental indenture, agreement, instrument or waiver, each stating that the
execution of such supplemental indenture, agreement, instrument or waiver (a) is
authorized or permitted by this Indenture and (b) does not violate the
provisions of any agreement or instrument evidencing any other Indebtedness of
the Company or any other Subsidiary of the Company. The Trustee may, but shall
not be obligated to, enter into any such supplemental indenture, agreement,
instrument or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture, the Notes or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article Nine,
this Indenture and/or the Notes, if applicable, shall be modified in accordance
therewith, and such supplemental indenture shall form a part of this Indenture
and/or the Notes, if applicable, as the case may be, for all purposes; and every
Holder of Notes theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article Nine shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article, may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Board, to any such
supplemental indenture may be prepared and executed by the Company and the
Subsidiary Guarantors, if any, and authenticated and delivered by the Trustee
upon a Company Order in exchange for Outstanding Notes.
In addition, Notes authenticated and delivered after the execution of any
supplemental indenture in compliance with Section 10.22 and this Article shall,
if required by the Trustee, bear a notation substantially in the form annexed
hereto as EXHIBIT B, and new Notes bearing such notation shall be prepared and
executed by the Company, with such notation executed by the Subsidiary
Guarantors. The Trustee, upon a Company Order, shall thereafter authenticate and
deliver such Notes in exchange for Outstanding Notes.
Section 9.07. RECORD DATE.
The Company may, but shall not be obligated to, fix, a record date for the
purpose of determining the Holders entitled to consent to any supplemental
indenture, agreement or instrument
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or any waiver, and shall promptly notify the Trustee of any such record date. If
a record date is fixed those persons who were Holders at such record date (or
their duly designated proxies), and only those persons, shall be entitled to
consent to such supplemental indenture, agreement or instrument or waiver or to
revoke any consent previously given, whether or not such persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 90 days after such record date.
Section 9.08. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if a notation of the consent is not made on any Note.
However, any such Holder, or subsequent Holder, may revoke the consent as to his
Note or portion of a Note if the Trustee receives the notice of revocation
before the date the amendment or waiver becomes effective. An amendment or
waiver shall become effective in accordance with its terms and thereafter bind
every Holder.
ARTICLE TEN
COVENANTS
Section 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of, premium, if any,
and interest on the Notes in accordance with the terms of the Notes, this
Indenture and the Registration Rights Agreement.
Section 10.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan in The City of New
York, State of New York, an office 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 office of the Trustee
at its Corporate Trust Office will be such office or agency of the Company,
unless the Company shall designate and maintain some other office or agency for
one or more of such purposes. The Company will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
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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, State of New York) where the
Notes may be presented or surrendered for any or all such purposes, and may from
time to time rescind such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York, State of New
York for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and any change in the location of
any such other office or agency.
Section 10.03. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of, premium, if any, or interest on any
of the Notes, segregate and hold in trust for the benefit of the Holders
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company will, on or
before each due date of the principal of, premium, if any, or interest on, any
Notes, deposit with a Paying Agent a sum in same day funds sufficient to pay the
principal, premium, if any, or interest so becoming due, such sum to be held in
trust for the benefit of the Holders entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will cause each
Paying Agent other than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent will agree with the Trustee, subject to
the provisions of this Section 10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of, premium,
if any, or interest on Notes in trust for the benefit of the Holders entitled
thereto until such sums shall be paid to such Holders or otherwise disposed of
as herein provided;
(b) give the Trustee notice of any Default by the Company (or any
Subsidiary Guarantor or other obligor upon the Notes) in the making of any
payment of principal of, premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and liabilities of
such Paying Agent.
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The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent will be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Note and remaining unclaimed for two years after such principal,
premium, if any, or interest has become due and payable shall be paid to the
Company upon receipt of a Company Request therefor, or (if then held by the
Company) will be discharged from such trust; and the Holder of such Note will
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, will thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, at the option of the Company
in the New York Times or the Wall Street Journal (national edition), notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.
Section 10.04. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of the Restricted Subsidiaries; provided, however, that the
Company will not be required to preserve any such right, license or franchise if
the Board shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and the Restricted Subsidiaries as
a whole and that the loss thereof is not adverse in any material respect to the
Holders; provided, further, that the foregoing will not prohibit a sale,
transfer or conveyance of a Restricted Subsidiary of the Company or any of its
assets in compliance with the terms of this Indenture.
Section 10.05. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed (i) upon the Company or any of the
Restricted Subsidiaries or (ii) upon the income, profits or property of the
Company or any of the Restricted Subsidiaries and (b) all material lawful claims
for labor, materials and supplies, which, if unpaid, could reasonably be
expected to become a Lien upon the property of the Company or any of the
Restricted Subsidiaries; provided, however, that the Company will not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim (x) whose amount, applicability or validity is being
contested in good faith
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by appropriate proceedings properly instituted and diligently conducted or (y)
if the failure to so pay, discharge or cause to be paid or discharged could not
reasonably be expected to have a Material Adverse Effect (as such term is
defined in the Purchase Agreement).
Section 10.06. MAINTENANCE OF PROPERTIES.
The Company will cause all material properties owned by the Company or any
of the Restricted Subsidiaries or used or held for use in the conduct of their
respective businesses to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 10.06
will prevent the Company from discontinuing the maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any of the Restricted
Subsidiaries and is not disadvantageous in any material respect to the Holders.
Section 10.07. INSURANCE.
The Company will at all times keep all of its and the Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound and responsible,
against loss or damage to the extent that property of similar character is
usually and customarily so insured by corporations similarly situated and owning
like properties.
Section 10.08. BOOKS AND RECORDS.
The Company will keep proper books of record and account, in which full and
correct entries will be made of all financial transactions and the assets and
business of the Company and each Restricted Subsidiary of the Company in
compliance with GAAP.
Section 10.09. PROVISION OF SEC REPORTS.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act or any successor provision of law, the Company shall furnish
without cost to each Holder, and file with the Trustee, (i) within 135 days
after the end of each fiscal year of the Company (commencing with its 1998
fiscal year end), financial information with respect to the Company that would
be required to be contained in an Annual Report on Form 10-K for such year filed
by the Company with the SEC (whether or not the Company is then required to file
such Form with the SEC), including (x) audited financial statements of the
Company, including the report of the Company's independent auditors thereon, and
(y) a discussion of the Company's financial condition and results of operations
that complies with Item 303 of Regulation S-K of the SEC, (ii) within 60 days
after the end of each of the first three fiscal quarters of each fiscal year of
the Company, financial information with respect
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to the Company that would be required to be contained in a Quarterly Report on
Form 10-Q filed by the Company with the SEC (whether or not the Company is then
required to file such Form with the SEC), including a discussion of the
Company's financial condition and results of operations that complies with Item
303 of Regulation S-K of the SEC and (iii) on a timely basis, any information
concerning the Company or any Restricted Subsidiary required to be contained in
a Current Report on Form 8-K (whether or not the Company is then required to
file such Form with the SEC). Until such time as the Company is otherwise
required to file periodic reports with the SEC under the Exchange Act (or any
successor provision of law), the Company shall file with the SEC (if permitted
by SEC practice and applicable law and regulations), for public availability, a
copy of the annual and quarterly financial information and other information
prepared by it for distribution to Holders and filing with the Trustee.
For so long as any Notes remain outstanding, the Company shall furnish to
securities analysts and prospective investors, upon their request, information
of the type required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial holder of Notes, if not obtainable from
the SEC, information of the type that would be filed with the SEC pursuant to
the foregoing provisions, upon the request of any such holder.
Delivery of the foregoing reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of the Trustee of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
The Company will also comply with the other provisions of Section 314(a) of
the Trust Indenture Act.
Section 10.10. CHANGE OF CONTROL.
Upon the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall make an offer to purchase
(the "Change of Control Offer"), on a Business Day (the "Change of Control
Payment Date") not later than 60 days following the Change of Control Date, all
Notes then outstanding at a purchase price equal to 101% of the Accreted Value
thereof as of, plus accrued and unpaid interest, if any, to, such Change of
Control Payment Date. Notice of a Change of Control Offer shall be mailed to
holders of Notes not less than 25 days nor more than 45 days before the Change
of Control Payment Date.
Notice of a Change of Control Offer shall be mailed by the Company to the
Holders at their last registered addresses with a copy to the Trustee and the
Paying Agent. The Change of Control Offer shall remain open from the time of
mailing for at least 20 Business Days and until 5:00 p.m., New York City time,
on the Change of Control Payment Date. The notice, which shall govern the terms
of the Change of Control Offer, shall include such disclosures as are required
by law and shall state:
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(a) that the Change of Control Offer is being made pursuant to this Section
10.10 and that all Notes validly tendered into the Change of Control Offer and
not withdrawn will be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if any)
for each Note, the Change of Control Payment Date and the date on which the
Change of Control Offer expires;
(c) that any Note not tendered for payment will continue to accrue Accreted
Value (if the Change of Control Offer occurs prior to March 1, 2002) and,
subsequent to March 1, 2002, will accrue interest in accordance with the terms
thereof;
(d) that, unless the Company shall default in the payment of the purchase
price, any Note accepted for payment pursuant to the Change of Control Offer
shall cease to accrete Accreted Value or, if the Change of Control Payment Date
is after March 1, 2002, shall cease to accrue interest, in either case after the
Change of Control Payment Date;
(e) that Holders electing to have Notes purchased pursuant to a Change of
Control Offer will be required to surrender their Notes to the Paying Agent at
the address specified in the notice prior to 5:00 p.m., New York City time, on
the Change of Control Payment Date and must complete any form letter of
transmittal proposed by the Company and acceptable to the Trustee and the Paying
Agent;
(f) that a Holder that tenders a Note pursuant to a Change of Control Offer
will be entitled to withdraw such Note if the Paying Agent receives, not later
than 5:00 p.m., New York City time, on the Change of Control Payment Date, a
facsimile transmission or letter setting forth the name of such Holder, the
principal face amount of Note the Holder tendered for purchase, the Note
certificate number (if any) and a statement that such Holder is withdrawing his
election to have such Note purchased;
(g) that a Holder may tender all or any portion of a Note owned by such
Holder pursuant to the Change of Control Offer, subject to the requirement that
any portion of a Note tendered must be tendered in an integral multiple of
$1,000 in principal face amount, and that any Holder that tenders a portion of a
Note will be issued a Note of like tenor equal in principal face amount to the
portion of the Note not tendered;
(h) the instructions that Holders must follow in order to tender their
Notes; and
(i) information concerning the business of the Company, the most recent
annual and quarterly reports of the Company filed with the SEC pursuant to the
Exchange Act (or, if the Company is not required to file any such reports with
the SEC at that time, the comparable information prepared pursuant to Section
10.09), a description of material developments in the Company's business and
such other information concerning the circumstances and relevant facts regarding
such
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Change of Control and Change of Control Offer (including, without
limitation, pro forma financial information giving effect to such Change of
Control) as would, in the good faith judgment of the Company, be material to a
Holder in connection with the decision of such Holder as to whether or not it
should tender Notes pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Company shall (i) accept for
payment all Notes, or portions thereof, validly tendered and not withdrawn
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent
money, in immediately available funds, sufficient to pay the purchase price of
all Notes, or portions thereof, so tendered and accepted and (iii) deliver to
the Trustee the Notes so accepted together with an Officers' Certificate setting
forth the registered numbers of such Notes. The Paying Agent shall, with the
funds so deposited with it by the Company, promptly mail or deliver to each
Holder that validly tendered and did not withdraw Notes, or any portion thereof,
an amount equal to the purchase price for the portion so tendered, and the
Trustee shall promptly authenticate and mail or deliver to such Holder a new
Note of like tenor equal in principal face amount to that portion, if any, of
any Note surrendered by such Holder but not tendered pursuant to the Change of
Control Offer. The Company will publicly announce the results of the Change of
Control Offer as soon as practicable following the Change of Control Payment
Date. The Company shall not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer otherwise required to be made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
If the Company is required to make a Change of Control Offer, the Company
(or any such third party) shall comply with all applicable tender offer laws and
regulations, including, to the extent applicable, Section 14(e) and Rule 14e-1
under the Exchange Act, and any other applicable securities laws and
regulations. To the extent that the provisions of any such securities laws or
regulations conflict with the provisions of this Section 10.10, the Company will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 10.10 solely by
virtue of such compliance.
Section 10.11. LIMITATION ON ADDITIONAL INDEBTEDNESS.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume, issue, guarantee or in any manner
become directly or indirectly liable for or with respect to, contingently or
otherwise, the payment of (collectively to "incur") any Indebtedness (including
any Acquired Indebtedness), except for Permitted Indebtedness (including
Acquired Indebtedness to the extent it would constitute Permitted Indebtedness);
provided, that (i) the Company will be permitted to incur Indebtedness
(including Acquired Indebtedness) and (ii) a Restricted Subsidiary will be
permitted to incur Acquired Indebtedness, if, in either case, after giving pro
forma effect to such incurrence (including the application of the net proceeds
therefrom), the Indebtedness to EBITDA Ratio would be less than or equal to 5 to
1.
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Indebtedness of any person existing at the time such person becomes a
Restricted Subsidiary (or is merged into or consolidated with the Company or any
Restricted Subsidiary), whether or not such Indebtedness was incurred in
connection with, or in contemplation of, such person becoming a Restricted
Subsidiary (or being merged into or consolidated with the Company or any
Restricted Subsidiary) shall be deemed incurred at the time such person becomes
a Restricted Subsidiary or merges into or consolidates with the Company or any
Restricted Subsidiary.
For purposes of determining compliance with this Section 10.11, in the
event that an item of Indebtedness may be incurred by meeting the criteria of
one or more items of Permitted Indebtedness, the Company may, in its sole
discretion, classify and divide such item of Indebtedness among more than one of
such items of Permitted Indebtedness.
Section 10.12. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, a written
statement signed by the chairman or the chief executive officer and by the
principal financial officer or principal accounting officer of the Company,
stating (i) that a review of the activities of the Company during the preceding
fiscal year has been made under the supervision of the signing officers with a
view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture and, if in effect during any
portion of such fiscal year, the Escrow Agreement, and (ii) that, to the
knowledge of each officer signing such certificate, the Company has kept,
observed, performed and fulfilled each and every covenant and condition
contained in this Indenture and, if applicable, the Escrow Agreement and is not
in default in the performance or observance of any of the terms, provisions,
conditions and covenants hereof or thereof (or, if a Default shall have
occurred, describing all such Defaults of which such officers have knowledge,
their status and what action the Company is taking or proposes to take with
respect thereto). When any Default under this Indenture or a default under the
Escrow Agreement has occurred and is continuing, or if the Trustee or any Holder
or the trustee for or the holder of any other evidence of Indebtedness of the
Company or any Material Restricted Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness (other than Indebtedness evidenced by the Notes) in the principal
amount of less than $5 million), the Company will promptly notify the Trustee of
such Default, notice or action and will deliver to the Trustee by registered or
certified mail or by telegram, or facsimile transmission followed by hard copy
by registered or certified mail an Officers' Certificate specifying such event,
notice or other action within five Business Days after the Company becomes aware
of such occurrence and what action the Company is taking or proposes to take
with respect thereto.
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Section 10.13. LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, make, directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
upon giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, the
Company would be able to incur $1.00 of Indebtedness under the proviso of
Section 10.11 hereof; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of, without
duplication, (a) 50% of Consolidated Net Income accrued on a cumulative
basis during the period beginning on the first day of the first fiscal
quarter immediately following the Issue Date and ending on the last day of
the fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment (or, if such cumulative Consolidated Net Income
of the Company for such period is a deficit, minus 100% of such deficit)
for which financial statements have been provided pursuant to Section
10.09, in any event determined by excluding income resulting from transfers
of assets by the Company or a Restricted Subsidiary to an Unrestricted
Subsidiary, plus (b) the aggregate net cash proceeds received by the
Company either (x) as capital contributions to the Company after the Issue
Date or (y) from the issuance and sale of its Capital Stock (other than
Disqualified Stock) or options, warrants or other rights to acquire its
Capital Stock (other than Disqualified Stock) (exclusive of any convertible
Indebtedness or any options, warrants or other rights that are redeemable
at the option of the holder, or are required to be redeemed, prior to the
Stated Maturity of the principal of the Notes), in each case on or after
the Issue Date to a person who is not a Subsidiary of the Company, plus (c)
the aggregate net proceeds received by the Company from the issuance (other
than to a Subsidiary of the Company) on or after the Issue Date of its
Capital Stock (other than Disqualified Stock) upon the conversion of, or in
exchange for, Indebtedness of the Company or upon the exercise of options,
warrants or other rights of the Company, plus (d) in the case of the
disposition or repayment (in whole or in part) of any Investment
constituting a Restricted Payment made after the Issue Date, an amount
equal to the lesser of the return of capital with respect to the applicable
portion of such Investment and the cost of the applicable portion of such
Investment, in either case, less the cost of the disposition of such
Investment, plus (e) in the case of any Revocation with respect to a
Subsidiary of the Company that was made subject to a Designation after the
Issue Date, an amount equal to the lesser of the Designation Amount with
respect to such Subsidiary or the Fair Market Value of the Investment of
the Company and the Restricted Subsidiaries in such Subsidiary at the time
of Revocation, minus (f) 50% of the principal amount of any Indebtedness
incurred pursuant to clause (g) of the definition of "Permitted
Indebtedness," minus the greater of (x) $0 and (y) the Designation Amount
(measured as of the date of Designation) with respect to any Subsidiary
that has been designated as an Unrestricted
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Subsidiary in accordance with Section 10.20. For purposes of the preceding
clauses (b) (y) and (c), as applicable, (A) the value of the aggregate net
proceeds received by the Company upon the issuance of Capital Stock either
upon the conversion of convertible Indebtedness or in exchange for
outstanding Indebtedness or upon the exercise of options, warrants or
rights will be the net cash proceeds received upon the issuance of such
Indebtedness, options, warrants or rights plus the incremental amount
received, if any, by the Company upon the conversion, exchange or exercise
thereof, (B) there shall be excluded in all cases any issuance and sale of
Capital Stock financed, directly or indirectly, using funds (I) borrowed
from the Company or any Subsidiary until and to the extent such borrowing
is repaid or (II) contributed, extended, guaranteed or advanced by the
Company or any Subsidiary (including, without limitation, in respect of any
employee stock ownership or benefit plan) and (C) there shall be excluded
in all cases any issuance and sale of Capital Stock in an Initial Public
Equity Offering to the extent the net cash proceeds are used, prior to
March 1, 2001, to redeem Notes as permitted under the optional redemption
provisions of the Notes. The Company may not redeem Notes pursuant to the
optional redemption provisions of the Notes referred to in the immediately
preceding sentence from net cash proceeds received by the Company from the
issuance on or after the Issue Date of its Capital Stock if such net cash
proceeds have ever been included in a determination of the amount of
Restricted Payments that may be made by the Company pursuant to this
Section 10.13
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
The provisions of this Section 10.13 shall not prohibit the following (each
of which shall be given independent effect):
(i) the payment of any dividend or other distribution within 60 days after
the date of declaration thereof if at such date of declaration such payment
would be permitted by the provisions of this Indenture;
(ii) the purchase, redemption, retirement or other acquisition of any
shares of Capital Stock of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Subsidiary of the Company) of, shares of Capital Stock of the Company (other
than Disqualified Stock); provided that any such net cash proceeds are excluded
from clause (iii)(b) of the second preceding paragraph;
(iii) so long as no Default shall have occurred and be continuing, the
purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness made by exchange for, or out of the net cash proceeds
of, a substantially concurrent issue and sale (other than to a Subsidiary of the
Company) of (x) Capital Stock (other than Disqualified Stock) of the Company or
(y) other Subordinated Indebtedness to the extent that its stated maturity for
the payment of
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principal thereof is not prior to the 180th day after the final Stated Maturity
of the Notes; provided that any such net cash proceeds are excluded from clause
(iii)(b) of the second preceding paragraph;
(iv) so long as no Default shall have occurred and be continuing, purchases
or redemptions of Capital Stock (including cash settlements of stock options)
held by employees, officers or directors upon or following termination of their
employment with the Company or one of its Subsidiaries; provided that payments
shall not exceed $750,000 in any fiscal year in the aggregate or $3.0 million in
the aggregate during the term of the Notes;
(v) so long as no Default shall have occurred and be continuing,
Investments in Unrestricted Subsidiaries to the extent reasonably promptly made
with the proceeds of (x) a capital contribution to the Company or (y) an issue
or sale of Capital Stock (other than Disqualified Stock) of the Company (other
than to a Subsidiary); provided that any net cash proceeds received by the
Company are excluded from clause (iii)(b) of the second preceding paragraph;
(vi) so long as no Default shall have occurred and be continuing,
Investments in (x) joint ventures formed to engage in the Digital Network
Business and (y) other persons principally engaged in the Digital Network
Business; provided that no more than $12.5 million of Investments made pursuant
to this clause (vi) shall be outstanding at any time; and
(vii) cash payments in lieu of fractional shares pursuant to any warrant,
option or other similar agreement.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (iv), (vi) and (vii) above
shall be included, without duplication, as Restricted Payments.
Section 10.14. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit, cause or suffer any Restricted
Subsidiary to, directly or indirectly, conduct any business, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into any contract, agreement, loan,
advance or Guarantee or engage in any other transaction (or series of related
transactions which are similar or part of a common plan) with or for the benefit
of any of, their respective Affiliates or any beneficial owner of 10% or more of
the Common Stock of the Company or any officer or director of the Company or any
Subsidiary (each, an "Affiliate Transaction"), unless the terms of the Affiliate
Transaction are set forth in writing and are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction with an unaffiliated third party. Each Affiliate
Transaction (or series of related Affiliate Transactions) involving aggregate
payments and/or other consideration having Fair Market Value (i) in excess of $1
million shall be approved by a majority of the Board, such approval to be
evidenced by a Board Resolution stating that the Board has determined that such
transaction or transactions comply with the foregoing provisions, (ii) in excess
of $5 million shall further require the approval of a majority of the
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Disinterested Directors and (iii) in excess of $10 million shall require that
the Company obtain a written opinion from an Independent Financial Advisor
stating that the terms of such Affiliate Transaction (or series of related
Affiliate Transactions) to the Company or the Restricted Subsidiary, as the case
may be, are fair from a financial point of view; provided, however, that the
dollar thresholds set forth in clauses (i), (ii) and (iii) above shall be
increased to $2.5 million, $10 million and $25 million, respectively, in the
case of any Affiliate Transaction with WorldCom or any of its Affiliates. For
purposes of this Section 10.14, any Affiliate Transaction approved by a majority
of the Disinterested Directors or as to which a written opinion has been
obtained from an Independent Financial Advisor, on the basis set forth in the
preceding sentence, shall be deemed to be on terms that are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction with an unaffiliated third party and,
therefore, shall be permitted under this Section 10.14.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among, or solely for the benefit of,
the Company and/or any of the Restricted Subsidiaries, provided that in any such
case, no officer, director or beneficial owner of 10% or more of any class of
Capital Stock of the Company shall beneficially own any Capital Stock of any
such Restricted Subsidiary, (ii) transactions pursuant to agreements and
arrangements existing on the Issue Date and specified on a schedule to the
Indenture, (iii) any Restricted Payment made in compliance with Section 10.13,
(iv) customary directors' fees, indemnification and similar arrangements,
consulting fees, legal fees, employee salaries, bonuses and employment
agreements, compensation or employee benefit arrangements and incentive
arrangements with any officer, director or employee of the Company or any
Restricted Subsidiary entered into in the ordinary course of business and
payments under indemnification arrangements permitted by applicable law, (v)
loans and advances to officers, directors and employees of the Company or any
Restricted Subsidiary for travel, entertainment, moving and other relocation
expenses, in each case made in the ordinary course of business and consistent
with past business practices, (vi) any contract or arrangement entered into in
the ordinary course of business by the Company or any Restricted Subsidiary with
WorldCom or any of its Affiliates with respect to communications or
communications related products and services, and (vii) any Permitted
Investment.
Section 10.15. DISPOSITION OF PROCEEDS OF ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 80% of such consideration consists of cash or Cash
Equivalents; provided that the following shall be treated as cash for purposes
of this Section 10.15: (x) the amount of Indebtedness (other than Subordinated
Indebtedness and Deeply Subordinated Indebtedness) of the Company or any
Restricted Subsidiary that is actually assumed by the transferee of assets
disposed of in such Asset Sale pursuant to an agreement that fully and
unconditionally releases the Company or such Restricted Subsidiary from further
liability ("Assumed Indebtedness") and (y) the amount of any notes or other
obligations that within 30 days of receipt are converted into
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cash (to the extent of the cash (after payment of any costs of disposition) so
received). The Company or the applicable Restricted Subsidiary, as the case may
be, may (i) apply the Net Cash Proceeds from such Asset Sale, within 365 days of
the receipt thereof, to repay secured Indebtedness incurred pursuant to a
Permitted Credit Facility, (ii) apply such Net Cash Proceeds within 365 days of
the receipt thereof to repay Indebtedness of any Restricted Subsidiary (other
than Indebtedness of any Subsidiary Guarantor), provided any commitments
thereunder are permanently reduced by the amount of the Indebtedness so repaid
and/or (iii) apply the Net Cash Proceeds, within 365 days of the receipt
thereof, to an investment in properties and assets that will be used in a
Digital Network Business (or in Capital Stock of any person that will become a
Restricted Subsidiary as a result of such investment if all or substantially all
of the properties and assets of such person are used in a Digital Network
Business) of the Company or any Restricted Subsidiary ("Replacement Assets").
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied within 365 days of such Asset Sale as described in clause (i) or
(ii) of the preceding paragraph (such Net Cash Proceeds, the "Unutilized Net
Cash Proceeds"), the Company shall, within 20 Business Days after such 365th
day, make an offer to purchase (an "Asset Sale Offer") all outstanding Notes up
to a maximum Accreted Value (expressed as a multiple of $1,000) equal to the
Note Pro Rata Share of Unutilized Net Cash Proceeds, at a purchase price in cash
equal to 100% of the Accreted Value thereof on any purchase date, plus accrued
and unpaid interest, if any, to such purchase date; provided, however, that an
Asset Sale Offer may be deferred by the Company until there are Unutilized Net
Cash Proceeds equal to at least $5.0 million, at which time the entire amount of
such Unutilized Net Cash Proceeds (and not just the amount in excess of $5.0
million) shall be applied as required pursuant to this paragraph and the next
following paragraph.
If any other Indebtedness of the Company which ranks pari passu with the
Notes (the "Other Indebtedness") requires that an offer to repurchase such
Indebtedness be made upon the consummation of an Asset Sale, the Company may
apply the Unutilized Net Cash Proceeds otherwise required to be applied to an
Asset Sale Offer to offer to purchase such Other Indebtedness and to an Asset
Sale Offer so long as the amount of such Unutilized Net Cash Proceeds applied to
repurchase the Notes is not less than the Note Pro Rata Share of Unutilized Net
Cash Proceeds. Any offer to purchase such Other Indebtedness shall be made at
the same time as the Asset Sale Offer, and the purchase date in respect of any
such offer to purchase and the Asset Sale Offer shall occur on the same day.
For purposes of this Section 10.15, "Note Pro Rata Share of Unutilized Net
Cash Proceeds" means the amount of the Unutilized Net Cash Proceeds equal to the
product of (x) the Unutilized Net Cash Proceeds and (y) a fraction, the
numerator of which is the aggregate Accreted Value of, and all accrued interest
thereon to the purchase date on, all Notes (or portions thereof) validly
tendered and not withdrawn pursuant to an Asset Sale Offer related to such
Unutilized Net Cash Proceeds (the "Note Amount") and the denominator of which is
the sum of the Note Amount and the lesser of (i) the aggregate principal face
amount, and all accrued interest thereon to the purchase date, or (ii) the
accreted value as of the purchase date of all Other Indebtedness (or portions
thereof) validly tendered and not withdrawn pursuant to a concurrent offer to
purchase such Other Indebtedness made at the time of such Asset Sale Offer.
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Each Asset Sale Offer shall remain open for a period of 20 Business Days or
such longer period as may be required by law. To the extent that the Accreted
Value of, plus accrued interest thereon, if any, to the payment date, of Notes
validly tendered and not withdrawan pursuant to an Asset Sale Offer is less than
the Note Pro Rata Share of Unutilized Net Cash Proceeds, the Company or any
Restricted Subsidiary may use such excess for general corporate purposes. If the
Accreted Value of, plus accrued interest thereon, if any, to the payment date,
of Notes validly tendered and not withdrawn by holders thereof exceeds the
amount of Notes which can be purchased with the Note Pro Rata Share of
Unutilized Net Cash Proceeds, Notes to be purchased will be selected on a pro
rata basis. Upon completion of such Asset Sale Offer and offer for any Other
Indebtedness, the amount of Unutilized Net Cash Proceeds shall be reset to zero.
Notice of an Asset Sale Offer shall be mailed by the Company not more than
20 Business Days after the obligation to make such Asset Sale Offer arises to
the Holders of Notes at their last registered addresses with a copy to the
Trustee and the Paying Agent. The Asset Sale Offer shall remain open from the
time of mailing for at least 20 Business Days and until 5:00 p.m., New York City
time, on the date fixed for purchase of Notes validly tendered and not
withdrawn, which date shall be not later than the 30th Business Day following
the mailing of such Asset Sale Offer (the "Asset Sale Offer Purchase Date"). The
notice, which shall govern the terms of the Asset Sale Offer, shall include such
disclosures as are required by law and shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
10.15 and that all Notes validly tendered into the Asset Sale Offer and not
withdrawn will be accepted for payment; provided, however, that if the
aggregate Accreted Value of Notes tendered in an Asset Sale Offer, plus
accrued interest, if any, thereon to the Asset Sale Offer Purchase Date of
such offer exceeds the aggregate amount of the Note Pro Rata Share of
Unutilized Net Cash Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Trustee so that only Notes in denominations of $1,000 or
multiples thereof shall be purchased);
(b) the purchase price (including the amount of accrued interest, if
any) for each Note and the Asset Sale Offer Purchase Date;
(c) that any Note not tendered for payment will remain outstanding and
continue to accrete Accreted Value (if the Asset Sale Offer occurs prior to
March 1, 2002) and, subsequent to March 1, 2002, will accrue interest in
accordance with the terms thereof ;
(d) that, unless the Company shall default in the payment of the
purchase price, any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrete Accreted Value or, if the Change of Control
Payment Date is after March 1, 2002, shall cease to accrue interest, in
either case after the Asset Sale Offer Purchase Date;
(e) that Holders electing to have Notes purchased pursuant to the
Asset Sale Offer will be required to surrender their Notes to the Paying
Agent at the address specified in the notice prior to 5:00 p.m., New York
City time, on the Asset Sale Offer Purchase Date and must
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complete any form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;
(f) that a Holder of Notes will be entitled to withdraw its Notes from
the Asset Sale Offer if the Paying Agent receives, not later than 5:00
p.m., New York City time, on the Asset Sale Offer Purchase Date, a
facsimile transmission or letter setting forth the name of such Holder, the
principal face amount of each Note such Holder delivered for purchase that
such Holder elects to withdraw, the Note certificate number (if any) and a
statement that such Holder is withdrawing his election to have such Notes
(or a specified portion thereof) purchased;
(g) that Holders whose Notes are purchased only in part will be issued
Notes of like tenor equal in principal face amount to the unpurchased
portion of the Notes surrendered;
(h) the instructions that Holders must follow in order to validly
tender their Notes; and
(i) information concerning the business of the Company, the most
recent annual and quarterly reports of the Company filed with the
Commission pursuant to the Exchange Act (or, if the Company is not required
to file any such reports with the SEC at that time, the comparable
information prepared pursuant to Section 10.09), a description of material
developments in the Company's business, and such other information
concerning the circumstances and relevant facts regarding such Asset Sale
(including, without limitation, pro forma financial information giving
effect to such Asset Sale) and Asset Sale Offer as would, in the good faith
judgment of the Company, be material to a Holder of Notes in connection
with the decision of such Holder as to whether or not it should tender
Notes pursuant to the Asset Sale Offer.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment Notes or portions thereof validly tendered and not withdrawn pursuant to
the Asset Sale Offer, subject to pro ration under the circumstances and in the
manner described in clause (a) of the preceding paragraph, (ii) deposit with the
Paying Agent money, in immediately available funds, sufficient to pay the
purchase price of all Notes or portions thereof so accepted by the Company and
(iii) deliver to the Trustee the Notes so accepted (in whole or in part)
together with an Officers' Certificate setting forth the registered numbers of
such Notes. The Paying Agent shall, with the funds so deposited with it by the
Company, promptly mail or deliver to the Holders of Notes so accepted payment in
an amount equal to the purchase price therefor, and the Trustee shall promptly
authenticate and mail or deliver to such Holders new Notes of like tenor equal
in principal face amount to the unpurchased portion of the Notes surrendered in
the Asset Sale Offer and not purchased by the Company. The Company will publicly
announce the results of the Asset Sale Offer as promptly as practicable
following the Asset Sale Offer Purchase Date.
If the Company is required to make an Asset Sale Offer, the Company shall
comply with all applicable tender offer rules, including to the extent
applicable, Section 14(e) and Rule 14e-1
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under the Exchange Act, and any other applicable securities laws and
regulations. To the extent that the provisions of any such securities laws or
regulations conflict with the provisions of this Section 10.15, the Company will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the Section 10.15 solely by virtue
of such compliance.
Section 10.16. LIMITATION ON LIENS SECURING CERTAIN INDEBTEDNESS.
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Liens of any kind against or upon
any of the property or assets of the Company or any Restricted Subsidiary,
whether now owned or hereafter acquired, or any proceeds therefrom, which secure
either (x) Subordinated Indebtedness, unless the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to the Liens
securing such Subordinated Indebtedness or (y) Indebtedness of (A) the Company
or any Subsidiary Guarantor that is not Subordinated Indebtedness, or (B) any
Restricted Subsidiary (other than a Subsidiary Guarantor), unless in each case
the Notes are equally and ratably secured with the Liens securing such other
Indebtedness, except, in the case of this clause (y), Permitted Liens.
Section 10.17. LIMITATIONS ON STATUS AS INVESTMENT COMPANY.
The Company will not and will not permit any of its Subsidiaries or
controlled Affiliates to, conduct its business in a fashion that would cause the
Company to be required to register as an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act")), or otherwise become subject to regulation under the Investment
Company Act. For purposes of establishing the Company's compliance with this
provision, any exemption which is or would become available under Section
3(c)(1) or Section 3(c)(7) of the Investment Company Act will be disregarded.
Section 10.18. LIMITATION ON ISSUANCES AND SALES 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 (or any
options, warrants or other rights to purchase such Capital Stock) of a
Restricted Subsidiary, except (i) to the Company or a Wholly Owned Restricted
Subsidiary, (ii) to directors as director qualifying shares, but only to the
extent required under applicable law, (iii) the Company or a Restricted
Subsidiary may pledge Capital Stock of a Restricted Subsidiary that is a Foreign
Subsidiary to the extent and in the manner permitted under clause (g) of the
definition of "Permitted Liens," (iv) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer be a
Restricted Subsidiary or (v) if Section 10.15 hereof is complied with.
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Section 10.19. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise enter into or cause to become
effective any consensual encumbrance or consensual restriction of any kind on
the ability of any Restricted Subsidiary to pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits to the extent owned by the Company
or any Restricted Subsidiary, except for (i) any encumbrance or restriction in
existence on the Issue Date, (ii) customary non-assignment provisions, (iii) any
encumbrances or restriction pertaining to an asset subject to a Lien to the
extent set forth in the security documentation governing such Lien, (iv) any
encumbrance or restriction applicable to a Restricted Subsidiary at the time
that it becomes a Restricted Subsidiary that is not created in contemplation
thereof, (v) any encumbrance or restriction existing under any agreement that
refinances or replaces an agreement containing a restriction permitted by clause
(iv) above; provided that the terms and conditions of any such encumbrance or
restriction are not materially less favorable to the holders of Notes than those
under or pursuant to the agreement being replaced or the agreement evidencing
the Indebtedness refinanced, (vi) any encumbrance or restriction imposed upon a
Restricted Subsidiary 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 or any Asset Sale to the extent limited to
the Capital Stock or assets in question, (vii) any customary encumbrance or
restriction applicable to a Restricted Subsidiary that is contained in an
agreement or instrument governing or relating to Indebtedness contained in any
Debt Securities; provided that the terms and conditions of any such encumbrance
or restriction are no more restrictive than those contained in this Indenture;
and provided, further, that the provisions of such agreement or instrument
permit the payment of interest and principal and mandatory repurchases pursuant
to the terms of this Indenture and the Notes and other Indebtedness (other than
Subordinated Indebtedness) that is solely an obligation of the Company and
(viii) any customary encumbrance or restriction contained in (x) a Permitted
Credit Facility or (y) a pledge agreement applicable to Capital Stock of a
Restricted Subsidiary that is a Foreign Subsidiary pledged to secure
Indebtedness pursuant to a Permitted Equipment Financing; provided that the
provisions of such agreement do not restrict the payment of cash dividends or
distributions to the Company or any Restricted Subsidiary prior to the
occurrence of a default or an event of default under such Permitted Equipment
Financing.
Section 10.20. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES.
The Company will not designate any Subsidiary of the Company (other than a
newly created Subsidiary in which the Company has made an Investment of $1,000
or less) as an "Unrestricted Subsidiary" under this Indenture (a "Designation")
unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) except in the case of Permitted Investments and Investments made
pursuant to clause (v) of the third paragraph of Section 10.13 hereof, at
the time of and after giving effect
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to such Designation, the Company would be able to incur $1.00 of
Indebtedness (other than Permitted Indebtedness) under Section 10.11
hereof; and
(c) the Company would be permitted under this Indenture to make an
Investment at the time of such Designation (assuming the effectiveness of
such Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the interest of the Company and its Restricted Subsidiaries
in such Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to Section 10.13
hereof for all purposes of this Indenture in an amount equal to the Designation
Amount. Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide a Guarantee of, or similar credit support for, or subject any of its
properties or assets (other than the Capital Stock of any Unrestricted
Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for any other
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness that is
Indebtedness of an Unrestricted Subsidiary (including any corresponding right to
take enforcement action against such Unrestricted Subsidiary), except in the
case of clause (x) or (y) to the extent otherwise permitted under this
Indenture, including without limitation under Section 10.13 hereof.
The Company will not revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of this
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions and
Officers' Certificates delivered to the Trustee certifying compliance with the
foregoing provisions.
The Company shall designate 4-Sight and each of its Subsidiaries as
Restricted Subsidiaries at such time as 4-Sight and its Subsidiaries become
Subsidiaries of the Company.
Section 10.21. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company, each Subsidiary
Guarantor and any other obligor on the Notes will furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any,
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provided for in this Indenture (including any covenants compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with, and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents, certificates and/or opinions is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture will include:
(i) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) 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;
(iii) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether such covenant or condition has
been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 10.22. ISSUANCE OF GUARANTEES BY MATERIAL RESTRICTED
SUBSIDIARIES; LIMITATION ON GUARANTEES BY OTHER
RESTRICTED SUBSIDIARIES.
The Company shall cause each Material Restricted Subsidiary to execute and
deliver to the Trustee a supplemental indenture, in the form of EXHIBIT F
hereto, pursuant to which such Subsidiary shall guarantee (a "Subsidiary
Guarantee") the full and punctual payment of all Indenture Obligations of the
Company to the extent set forth in Article Thirteen hereof; provided, that a
Material Restricted Subsidiary that is a Foreign Subsidiary shall not become a
Subsidiary Guarantor if by doing so it would violate applicable law of its
jurisdiction of organization or incorporation. The Company shall determine
whether a Restricted Subsidiary is a Material Restricted Subsidiary (i) upon
such Subsidiary's designation as a Restricted Subsidiary by the Company, (iii)
upon the consummation of any consolidation, share exchange or merger involving
such Subsidiary in which such Subsidiary is the continuing corporation, (iv)
upon the purchase by such Subsidiary, other than in the ordinary course of
business, of assets and properties or capital stock of any person and (v) upon
the filing with the SEC or the Trustee, whichever is earlier, and on the basis,
of the financial information prepared by the Company pursuant to Section 10.09.
hereof. In addition, the Company shall determine whether a Subsidiary is a
Material Restricted Subsidiary upon the Revocation of such Subsidiary's
designation as an Unrestricted Subsidiary in accordance with Section 10.20
hereof.
The Company will not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to Guarantee any Indebtedness of
any person unless, in each case,
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such Restricted Subsidiary simultaneously executes and delivers to the Trustee a
supplemental indenture, in the form of EXHIBIT F hereto, pursuant to which such
Restricted Subsidiary shall guarantee the full and punctual payment of all
Indenture Obligations of the Company on the same terms and conditions as the
Subsidiary Guarantees by the Subsidiary Guarantors.
At the time of the delivery to the Trustee of a supplemental indenture by a
Restricted Subsidiary pursuant to this Section 10.22, such Restricted Subsidiary
shall also deliver to the Trustee an Opinion of Counsel and Officers'
Certificate to the effect that such supplemental indenture and separate
Guarantee have been duly authorized and executed by such Restricted Subsidiary
and constitute the legal, valid, binding and enforceable obligations of such
Restricted Subsidiary (subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally).
Section 10.23. REGISTRATION RIGHTS
(a) Simultaneously with the execution and delivery of this Indenture, the
Company shall enter into the Registration Rights Agreement, the form of which is
attached hereto as EXHIBIT G hereto, and shall deliver to the Trustee an Opinion
of Counsel stating that the Registration Rights Agreement has been duly
authorized, executed and delivered by the Company, and constitutes a legal,
valid and binding agreement enforceable against the Company in accordance with
its terms (subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally).
(b) In the event that (a) the Exchange Offer Registration Statement is not
filed with the SEC on or prior to the 90th calendar day following the Closing
Time, (b) the Exchange Offer Registration Statement has not been declared
effective on or prior to the 150th calendar day following the Closing Time, (c)
the Exchange Offer is not consummated on or prior to the 180th calendar day
following the Closing Time or a Shelf Registration Statement is not declared
effective with the period prescribed by the Registration Rights Agreement (each
such event referred to in clauses (a) through (c) above, a "Registration
Default"), the Restricted Notes shall, with respect to each Registration
Default, accrue interest, as liquidated damages ("Additional Interest"), at a
rate of one-half of one percent per annum of the Accreted Value of the
Restricted Notes commencing upon the occurrence of such Registration Default,
which rate will increase by one-half of one percent at the end of each 90- day
period in which such Registration Default is not cured, provided that the
maximum aggregate interest rate that accrues on the Accreted Value of the
Restricted Notes as a result of all Registration Defaults will in no event
exceed one and one-half percent (1.5%) per annum. Upon the cure of a
Registration Default the accrual of Additional Interest on the Restricted Notes
with respect to such Registration Default will cease.
If a Shelf Registration Statement is declared effective but becomes
unusable by the Holders of Notes covered by such Shelf Registration Statement
("Shelf Registered Notes") for any reason, and the aggregate number of days in
any consecutive twelve-month period for which the Shelf Registration Statement
shall not be usable exceeds 30 days in the aggregate, then commencing upon such
30th day the Shelf Registered Notes shall accrue Additional Interest (in
addition to any interest
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then accruing in accordance with the immediately preceding paragraph), as
liquidated damages, at a rate of one-half of one percent per annum of the
Accreted Value of the Shelf Restricted Notes, which rate will increase by
one-half of one percent at the end of each 90-day period in which such Shelf
Registration Statement is not usable, provided that the maximum aggregate
interest rate that accrues on the Accreted Value of the Shelf Registered Notes
as a result of a Shelf Registration Statement being unusable (inclusive of any
interest that accrues on such Notes pursuant to the first paragraph of this
Section 10.23(b)) will in no event exceed one and one-half percent (1.5%) per
annum. Upon the Shelf Registration Statement once again becoming usable, the
accrual of Additional Interest on the Shelf Registered Notes due to such Shelf
Registration Statement not being usable will cease.
Additional Interest shall be computed based on the actual number of days
elapsed in each 90-day period in which Additional Interest accrues on the Notes.
The Company shall notify the Trustee within three Business Days after each
date on which an event occurs as a result of which Additional Interest begins to
accrue on any Notes (an "Event Date"). Additional Interest payable with respect
to any Note shall be due and payable on each March 1 and September 1 (each an
"Additional Interest Payment Date") if Additional Interest has accrued on such
Note during the semi-annual period immediately preceding such Additional
Interest Payment Date, to the person in whose name such Note (or one or more
Predecessor Notes) is registered at the close of business on the February 15 or
August 15, whether or not a Business Day, next preceding such Additional
Interest Payment Date. Each obligation to pay Additional Interest shall be
deemed to accrue from and including the day following the applicable Event Date.
Additional Interest shall be paid by depositing with the Trustee, in trust for
the benefit of the Holders of Notes, prior to 11:00 a.m. New York City time on
the applicable Additional Interest Payment Date, immediately available funds
sufficient to pay the Additional Interest then due.
Section 10.24. WARRANT AGREEMENT.
Simultaneously with the execution and delivery of this Indenture, the
Company shall enter into the Warrant Agreement, the form of which is attached
hereto as EXHIBIT H hereto (the "Warrant Agreement"), and shall deliver to the
Trustee an Opinion of Counsel stating that the Warrant Agreement has been duly
authorized, executed and delivered by the Company, and constitutes a legal,
valid and binding agreement enforceable against the Company in accordance with
its terms (subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally).
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ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes
herein expressly provided for) as to all outstanding Notes and the Trustee, on
written demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when
either
(a) all Notes theretofore authenticated and delivered (other than (A)
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.06 hereof and (B) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.03) have been
delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee in trust an amount of
money in dollars sufficient to pay and discharge the entire Indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation, for
the principal of, premium, if any, and interest to the date of such
deposit;
(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 (i) irrevocable
instructions to apply the deposited money toward payment of the Notes at
the Stated Maturities and the Redemption Dates thereof, and (ii) an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 and, if money shall
have been deposited with the Trustee pursuant to subclause (b)(ii) of this
Section 11.01, the obligations of the Trustee under Section 11.02 and the last
paragraph of Section 10.03, shall survive.
Section 11.02. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 10.03, all money
deposited with the Trustee pursuant to Section 11.01 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the
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persons entitled thereto, of the principal of, premium, if any, and interest on
the Notes for whose payment such money has been deposited with the Trustee.
ARTICLE TWELVE
REDEMPTION
Section 12.01. NOTICES TO THE TRUSTEE.
If the Company elects to redeem Notes pursuant to Paragraph 3 of the
reverse side of the Initial Notes or Paragraph 2 of the reverse side of the
Exchange Notes, it shall notify the Trustee of the Redemption Date and principal
amount of Notes to be redeemed.
The Company shall notify the Trustee of any redemption at least 45 days
before the Redemption Date by an Officers' Certificate, stating that such
redemption will comply with the provisions hereof and of the Notes.
Section 12.02. SELECTION OF NOTES TO BE REDEEMED.
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with any applicable requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not then
listed on a national securities exchange (or if the Notes are so listed but the
exchange does not impose requirements with respect to the selection of debt
securities for redemption), on a pro rata basis, by lot or by such method as the
Trustee in its sole discretion shall deem fair and appropriate; provided,
however, that any redemption pursuant to the provisions relating to redemptions
from the proceeds of one or more Public Equity Offerings of Common Stock and/or
(b) the sale of Capital Stock (other than Disqualified Stock) to Strategic
Equity Investors shall be made on a pro rata basis or on as nearly a pro rata
basis as practicable (subject to the Depository's procedures). No Notes of a
principal face amount of $1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company and the Registrar in writing
of the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Notes shall relate, in the case of any
Note redeemed or to be redeemed only in part, to the portion of the Accreted
Value of such Note which has been or is to be redeemed.
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Section 12.03. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Notes to be redeemed, at the address of such Holder appearing in
the Note Register maintained by the Registrar.
All notices of redemption shall identify the Notes to be redeemed and shall
state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) that, unless the Company defaults in paying the Redemption Price,
any Note called for redemption shall cease to accrete Accreted Value or, if
the Redemption Date is after March 1, 2002, shall cease to accrue interest,
in either case on and after the Redemption Date, and the only remaining
right of the Holders of such Notes is to receive payment of the Redemption
Price upon surrender to the Paying Agent of the Notes redeemed;
(d) if any Note is to be redeemed in part, the portion of the
principal face amount (equal to $1,000 or any integral multiple thereof) of
such Note to be redeemed and that on and after the Redemption Date, upon
surrender for cancellation of such Note to the Paying Agent, a new Note or
Notes in the aggregate principal face amount equal to the unredeemed
portion thereof will be issued without charge to the Noteholder;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price and the name and address of the
Paying Agent; and
(f) the CUSIP or CINS number, if any, relating to such Notes.
Notice of redemption of Notes to be redeemed at the election of the Company
shall be given by the Company or, at the Company's written request, by the
Trustee in the name and at the expense of the Company.
Section 12.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Notes called for redemption become due
and payable on the Redemption Date and at the Redemption Price. Upon surrender
to the Paying Agent, such Notes called for redemption shall be paid at the
Redemption Price (including accrued interest, if any, to the Redemption Date)
,but interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable on the relevant Interest Payment Dates to the
Holders of record at the close of business on the relevant Regular Record Dates
referred to in the Notes.
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Section 12.05. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with the
Paying Agent an amount of money in same day funds sufficient to pay the
Redemption Price of all the Notes or portions thereof which are to be redeemed
on that date (including any accrued interest to the Redemption Date), other than
Notes or portions thereof called for redemption on that date which have been
delivered by the Company to the Trustee for cancellation.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price, interest on the Notes
to be redeemed will cease to accrue on and after the applicable Redemption Date,
whether or not such Notes are presented for payment, and the Holders of such
Notes shall have no further rights with respect to such Notes except for the
right to receive the Redemption Price (including unpaid interest on the Notes
through the Redemption Date), upon surrender of such Notes. If any Note called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal, premium, if any, and, to the extent lawful, accrued interest thereon
shall, until paid, bear interest from the Redemption Date at the rate provided
in the Notes.
Section 12.06. NOTES REDEEMED OR PURCHASED IN PART.
Upon surrender to the Paying Agent of a Note which is to be redeemed in
part, the Company shall execute and the Trustee shall authenticate and deliver
to the Holder of such Note, without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder in aggregate principal face
amount equal to, and in exchange for, the unredeemed portion of the principal
face amount of the Note so surrendered that is not redeemed.
ARTICLE THIRTEEN
SUBSIDIARY GUARANTEES
Section 13.01. UNCONDITIONAL GUARANTEE.
Each Subsidiary Guarantor hereby unconditionally and irrevocably
guarantees, jointly and severally, to each Holder and to the Trustee, the full
and punctual payment of principal of, premium, if any, and interest on the Notes
when due, whether at maturity, by acceleration, by redemption, by repurchase or
otherwise, and all other Indenture Obligations of the Company (all the foregoing
being hereinafter collectively called the "Guaranteed Obligations"). Each
Subsidiary Guarantor further agrees that the Guaranteed Obligations may be
extended or renewed, in whole or in part, without notice or further assent from
such Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound
under this Article Thirteen notwithstanding any extension or renewal of any
Guaranteed Obligation.
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Each Subsidiary Guarantor waives presentation to, demand of, payment from
and protest to the Company of any of the Guaranteed Obligations and also waives
notice of protest from nonpayment. Each Subsidiary Guarantor waives notice of
any default under the Notes or the other Guaranteed Obligations. The obligations
of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure
of any Holder or the Trustee to assert any claim or demand or to enforce any
right or remedy against the Company or any other person under this Indenture,
the Notes or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Notes or any other agreement; (d) the
release of any security held by any Holder or the Trustee for Notes or any of
the other Guaranteed Obligations; (e) the failure of any Holder or the Trustee
to exercise any right or remedy against any other guarantor of the Guaranteed
Obligations; or (f), subject to Section 13.04, any change in the ownership of
such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty
herein constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
any of the Guaranteed Obligations.
Except as expressly set forth in Section 13.02, the obligations of each
Subsidiary Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be subject
to any defense of setoff, counterclaim, recoupment or termination whatsoever or
by reason of the invalidity, illegality or unenforceability of any of the
Guaranteed Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of each Subsidiary Guarantor herein shall not be
discharged or impaired or otherwise affected by the failure of any Holder or the
Trustee to assert any claim or demand or to enforce any remedy under this
Indenture, the Notes or any other agreement, by any waiver or modification of
any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of any of the Guaranteed Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of such Subsidiary Guarantor or would
otherwise operate as a discharge of such Subsidiary Guarantor from its
Subsidiary Guarantee as a matter of law or equity.
Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal of, premium, if any, or interest
on the Notes, or any other payment made in respect of any Guaranteed Obligation,
is rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other right
which any Holder or the Trustee has at law or in equity against any Subsidiary
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of, premium, if any, or interest on any of the Notes when and as the same shall
become due, whether at maturity, by acceleration, by redemption, by repurchase
or otherwise, or to perform or comply with any other Guaranteed Obligation, each
Subsidiary Guarantor hereby promises to and will, upon receipt of written demand
by the Trustee, forthwith pay,
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or cause to be paid, in cash, to the Holders or the Trustee an amount equal to
the sum of (i) the unpaid amount of such Guaranteed Obligations, (ii) accrued
and unpaid interest on such Guaranteed Obligations (but only to the extent not
prohibited by law) and (iii) all other Guaranteed Obligations of the Company to
the Holders and the Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled to any right
of subrogation in respect of any Guaranteed Obligations guaranteed hereby until
payment in full of all Guaranteed Obligations. Each Subsidiary Guarantor further
agrees that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of any or all of the Guaranteed Obligations may
be accelerated as provided in Article Five hereof for the purposes of such
Subsidiary Guarantor's Subsidiary Guaranty herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations of the Company guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in Article Five
(subject to the recision thereof as provided therein), such obligations (whether
or not due and payable) shall forthwith become due and payable by such
Subsidiary Guarantor for the purposes of this Section 13.01.
Each Subsidiary Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorney's fees) incurred by any Holder or the Trustee in
enforcing any rights under this Article.
Section 13.02. LIMITATION OF LIABILITY. Any term or provision of this
Indenture to the contrary notwithstanding, the maximum aggregate amount of the
obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed
the maximum amount that can be guaranteed by it without rendering this Indenture
or its Subsidiary Guarantee, as it relates to such Subsidiary Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. To
effectuate the foregoing intention, the obligations of each Subsidiary Guarantor
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guaranty or pursuant to its contribution
obligations hereunder, result in the obligations of such Subsidiary Guarantor
under its Subsidiary Guaranty not constituting a fraudulent conveyance or
fraudulent transfer under federal, state or foreign law. Each Subsidiary
Guarantor that makes a payment or distribution under a Subsidiary Guaranty shall
be entitled to a contribution from each other Subsidiary Guarantor in an amount
based on the consolidated net worth of each Subsidiary Guarantor.
Section 13.03. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS.
(a) Except as set forth in Articles Eight and Ten, nothing contained in
this Indenture or in any of the Notes shall prevent any consolidation or merger
of a Subsidiary Guarantor, with or into the Company or another Subsidiary
Guarantor or shall prevent any sale, assignment, transfer, lease, conveyance or
other disposition of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety, to the Company or another Subsidiary Guarantor.
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(b) Nothing contained in this Indenture or in any of the Notes shall
prevent any consolidation or merger of a Subsidiary Guarantor with or into a
corporation or corporations other than the Company or a Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor), or successive
consolidations or mergers in which a Subsidiary Guarantor or its successor or
successors shall be a party or parties, or shall prevent any sale, assignment,
transfer, lease, conveyance or other disposition of the property of a Subsidiary
Guarantor as an entirety or substantially as an entirety, to a person other than
the Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor); provided, that (i) such Subsidiary Guarantor shall be the
continuing person or, if such Subsidiary Guarantor is not the continuing person,
the resulting, surviving or transferee person (the "surviving entity") shall be
a company organized and existing under the laws of the United States or any
State or territory thereof; (b) if such Subsidiary Guarantor is not the
continuing person and the surviving entity is a Restricted Subsidiary of the
Company, the surviving entity shall expressly assume all of the obligations of
such Subsidiary Guarantor under its Subsidiary Guarantee, and shall execute a
supplemental indenture and a separate Guarantee to effect such assumption which
supplemental indenture and separate Guarantee shall each be delivered to the
Trustee and shall be in form and substance reasonably satisfactory to the
Trustee; (c) such consolidation or merger involving such Subsidiary Guarantor,
and any sale, assignment, transfer, lease, conveyance or other disposition of
the property of such Subsidiary Guarantor as an entirety or substantially as an
entirety, shall comply with the provisions of Article Eight and Article Ten
hereof; and (d) the Company and such Subsidiary Guarantor or the surviving
entity, as the case may be, shall each deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that such transaction or series of
transactions, and, if a supplemental indenture and a separate Guarantee are
required in connection with such transaction or series of transactions to
effectuate such assumption, such supplemental indenture and Guarantee, complies
with this covenant and that all conditions precedent in this Indenture relating
to the transaction or series of transactions have been satisfied. The provisions
of this Section 13.03 shall not apply if to any merger or consolidation or any
sale, assignment, transfer, lease, conveyance or other disposition of the
property of any Subsidiary Guarantor if, following such transaction and pursuant
to Section 13.04, such Subsidiary Guarantor (or any surviving entity) is
released from its Subsidiary Guarantee.
Section 13.04. RELEASE OF A SUBSIDIARY GUARANTOR.
(a) Upon the sale or other disposition (by merger or otherwise) of a
Subsidiary Guarantor (or all or substantially all of its assets) to a person
other than the Company or another Subsidiary Guarantor and pursuant to a
transaction that is otherwise in compliance with this Indenture (including as
described in Sections 13.03 above) and pursuant to which such Subsidiary
Guarantor ceases to be a Restricted Subsidiary, such Subsidiary Guarantor shall
be automatically and unconditionally released from all obligations under its
Subsidiary Guarantee.
(b) Each Subsidiary Guarantor that is Designated an Unrestricted Subsidiary
in compliance with Section 10.20 shall, upon such Designation, be automatically
and unconditionally released from all obligations under its Subsidiary
Guarantee.
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(c) Each Restricted Subsidiary that becomes a Subsidiary Guarantor in
accordance with the second paragraph of Section 10.22 due to its Guarantee of,
or in any other manner becoming liable with respect to, any Indebtedness of any
person, shall be automatically released from all obligations under its
Subsidiary Guarantee upon the unconditional release of such Restricted
Subsidiary from its obligations in respect of the Indebtedness which gave rise
to the requirement that its Subsidiary Guarantee be given; provided, that at the
time of such release such Restricted Subsidiary (i) does not have any
Guarantees, other than its Subsidiary Guarantee, outstanding and (ii) is not a
Material Restricted Subsidiary.
(d) Upon the release of a Subsidiary Guarantor from its Subsidiary
Guarantee pursuant to paragraph (a), (b) or (c) above, the Company and each
Subsidiary Guarantor shall each furnish to the Trustee an Officers' Certificate
stating that all conditions precedent for the automatic release of such
Subsidiary Guarantor from its Subsidiary Guarantee have been satisfied, and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent have been complied. On the basis of such Officers'
Certificates and Opinions of Counsel, the Trustee shall deliver an appropriate
instrument evidencing such release. Any Subsidiary Guarantor not so released
shall remain liable for all of the Guaranteed Obligations as provided in this
Article Thirteen.
Section 13.05. SUCCESSOR AND ASSIGNS. This Article Thirteen shall be
binding upon each Subsidiary Guarantor and its successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Notes shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions of this
Indenture.
Section 13.06. NO WAIVER. Neither a failure nor a delay on the part of
either the Trustee or the Holders in exercising any right, power or privilege
under this Article Thirteen shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Trustee and
the Holders herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Article
Thirteen at law, in equity, by statute or otherwise.
Section 13.07. MODIFICATION. No modification, amendment or waiver of any
provision of this Article Thirteen, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
Section 13.08. SEVERABILITY. In case any provision of this Article Thirteen
shall be invalid, illegal or unenforceable, that portion of such provision that
is not invalid, illegal or unenforceable shall remain in effect, and the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
WAM!NET INC, as Issuer
By: /s/ Edward J. Driscoll III
----------------------------
Name: Edward J. Driscoll III
Title: President and CEO
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Kathe Barrett
----------------------------
Name: Kathe Barrett
Title: Trust Officer
<PAGE>
EXHIBIT A-1
[FORM OF NOTE]
[FACE OF NOTE]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2)
AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH
SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY
PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED
BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF
REGULATION S, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, THE TRANSFER
AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (II) IN EACH OF THE
A-1-1
<PAGE>
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
This Note is issued with original issue discount for purposes of Section 1271 et
seq. of the Internal Revenue Code of 1986, as amended. For each $1,000 principal
face amount of this Note, the issue price is $539.37 and the amount of original
issue discount is $460.63. The issue date of this Note is March 5, 1998 and the
yield to maturity is 14.59%.
A-1-2
<PAGE>
WAM!NET INC.
------------------------------------
GLOBAL NOTE
13 1/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES A
CUSIP No. 933590 AA 9 $ ___________
REGISTERED No.
WAM!NET INC., a corporation incorporated under the laws of the State of
Minnesota (herein called the "Company," which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to ___________, or registered assigns, the principal sum
of __________ Dollars ($__________) on March 1, 2005, at the office or agency of
the Company referred to below, and to pay interest thereon on March 1 and
September 1 (each an "Interest Payment Date"), of each year, commencing on
September 1, 2002, accruing from March 1, 2002 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 13 1/4% per annum, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the February 15 or
August 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the then applicable interest rate borne by the Notes, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on this Note
will be made at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Note Register.
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<PAGE>
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under this Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: March 5, 1998 WAM!NET INC.
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 13 1/4% Senior Discount Notes due 2005, Series A,
referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
--------------------------
Authorized Signatory
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<PAGE>
[REVERSE OF NOTE]
ARTICLE Indenture; Guaranties. This Note is one of a duly authorized
--------- ----------
issue of Notes of the Company designated as its 13 1/4% Senior Discount Notes
due 2005, Series A (herein called the "Initial Notes"). The Notes are limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal face amount to $208,530,000, which may be issued under an indenture
(herein called the "Indenture") dated as of March 5, 1998, by and between the
Company and First Trust National Association, as trustee (herein called the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered. The Notes include the Initial Notes, the Private
Exchange Notes and the Unrestricted Notes (including the Exchange Notes referred
to below), issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement. The Initial Notes, the Private Exchange Notes and the
Unrestricted Notes are treated as a single class of securities under the
Indenture.
All capitalized terms used in this Note which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the TIA for a
statement of such terms.
No reference herein to the Indenture and no provisions of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
To guarantee the due and punctual payment of the principal, premium, if
any, and interest on the Notes and all other amounts payable by the Company
under the Indenture and the Notes when and as the same may be due and payable,
whether at maturity, by acceleration or otherwise, according to the terms of the
Indenture and the Notes, the Subsidiary Guarantors, if any, have unconditionally
guaranteed the obligations of the Company under the Indenture and the Notes on a
senior basis pursuant to the terms of the Indenture. Pursuant to the Indenture,
a Subsidiary Guarantor may be released from its obligations under its Subsidiary
Guarantee under certain circumstances.
ARTICLE Units. This Note has initially been issued as part of a unit
-----
("Unit"), each Unit consisting of $1,000 principal face amount of Notes and
three Warrants, each Warrant entitling the holder to purchase 2.01 shares of the
Company's Common Stock, subject to certain adjustments. The Warrants have been
issued pursuant to a Warrant Agreement dated as of March 5, 1998 (as amended
from time to time, the "Warrant Agreement"), between the Company and First Trust
National
A-1-5
<PAGE>
Association, as warrant agent. Pursuant to the Indenture and the Warrant
Agreement, the Warrants and the Notes will not be separately transferable until
the "Separability Date," which means the earliest to occur of: (i) September 1,
1998, (ii) the occurrence of an Exercise Event (as defined in the Warrant
Agreement), (iii) the occurrence of an Event of Default, (iv) the date on which
a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to a registered exchange offer for the Notes or
covering the sale by holders of the Notes is declared effective under the
Securities Act, (v) immediately prior to any redemption of Notes by the Company
from the net proceeds of an Initial Public Equity Offering, (vi) immediately
prior to the occurrence of a Warrant Change of Control (as defined in the
Warrant Agreement) or (v) such earlier date as determined by Merrill Lynch & Co.
in its sole discretion.
ARTICLE Registration Rights. The Holder of this Note is entitled to the
-------------------
benefits of a Registration Rights Agreement, dated March 5, 1998, between the
Company and the Initial Purchasers (as amended from time to time, the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the Company is obligated to consummate an exchange offer pursuant to which the
Holders of Initial Notes shall have the right to exchange the Initial Notes for
13 1/4% Senior Discount Notes due 2005, Series B, of the Company (herein called
the "Exchange Notes"), which have been registered under the Securities Act, in
like principal amount and having identical terms as the Initial Notes (other
than as set forth in this paragraph and paragraph 2 above). The Holders of
Initial Notes shall be entitled to receive, as liquidated damages, certain cash
interest payments in the event such exchange offer is not consummated within a
specified period and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement and the
Indenture.
ARTICLE Redemption. The Notes will be redeemable, at the option of the
----------
Company, in whole or in part, on or after March 1, 2002 upon not less than 30
nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on March 1 of each of the years indicated
below:
YEAR PERCENTAGE
---- ----------
2002............................... 106.6250%
2003............................... 103.3125%
2004............................... 100.0000%
In addition, at any time on or prior to March 1, 2001, the Company may,
other than in any circumstances resulting in a Change of Control, redeem, at its
option, up to a maximum of 25% of the originally-issued aggregate principal face
amount of Notes at a redemption price equal to 113.25% of the Accreted Value of
the Notes so redeemed, with the net cash proceeds of an Initial Public Equity
Offering resulting in gross cash proceeds to the Issuer of at least $35 million
in the aggregate; provided that not less than 75% of the originally-issued
aggregate principal face amount of Notes is outstanding immediately following
such redemption. Any such redemption must be effected upon not less than
A-1-6
<PAGE>
30 nor more than 60 days' notice given within 30 days after the consummation of
such Initial Public Equity Offering.
ARTICLE Offers To Purchase. Sections 10.10 and 10.15 of the Indenture
------------------
provide that upon the occurrence of a Change of Control and following certain
Asset Sales, and subject to certain conditions and limitations contained
therein, the Company shall make an offer to purchase all or a portion of the
Notes at the purchase prices and in accordance with the procedures set forth in
the Indenture.
ARTICLE Defaults And Remedies. If an Event of Default occurs and is
---------------------
continuing, the Default Amount of all outstanding Notes may be declared due and
payable in the manner and with the effect provided in this Indenture.
ARTICLE DEFEASANCE. The Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
ARTICLE Amendments And Waivers. The Indenture permits, with certain
----------------------
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal face amount of the
Notes at the time Outstanding. This Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal face
amount of the Notes at the time Outstanding, on behalf of the Holders of all the
Notes, to waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and this Note and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
ARTICLE Denominations, Transfer And Exchange. The Notes are issuable
------------------------------------
only in registered form without coupons in denominations of $1,000 and any
integral multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note is registrable on the Note Register, upon
surrender of this Note for registration of transfer at the office or agency of
the Company maintained for such purpose in the Borough of Manhattan in The City
of New York, State of New York, or at such other office or agency of the Company
as may be maintained for such purpose, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of
A-1-7
<PAGE>
authorized denominations and for the same aggregate principal face amount, will
be issued to the designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
ARTICLE Persons Deemed Owners. Prior to and at the time of due
---------------------
presentment of this Note for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
ARTICLE GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH SUBSIDIARY
-------------
GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture and the Registration Rights Agreement.
Requests may be made to: WAM!NET Inc., 6100 West 110th Street, Minneapolis,
Minnesota 55438; Attention: Secretary.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name and address (including zip code) and social
security or tax ID number)
and irrevocably appoint
---------------------------------------------------------
- --------------------------------------------------------------------------------
A-1-8
<PAGE>
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Note (or any Predecessor Note) or the last date on which the Company or
any Affiliate of the Company was the owner of this Note (or any Predecessor
Note), the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
A-1-9
<PAGE>
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144A
thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents, including (i) a transferee certificate substantially in
the form of Exhibit D to the Indenture in the case of a transfer to
non-QIB Accredited Investors or (ii) a transferor certificate
substantially in the form of Exhibit E to the Indenture in the case of
a transfer pursuant to Regulation S, are being furnished which comply
with the conditions of transfer set forth in this Note and the
Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Note in the name of
any person other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein and in Sections 3.16 and 3.17 of
the Indenture shall have been satisfied.
- --------------------------------------------------------------------------------
Date: Your signature:
----------------- --------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
By:
--------------------------------
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-------------------------
A-1-10
<PAGE>
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has requested
pursuant to Rule 144A (including the information specified in Rule 144A(d)(4))
or has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: Name of
----------- Purchaser:
-------------------------------
NOTICE: To be executed by an
executive officer
A-1-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to Section
10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of this Indenture, state the Accreted Value
(or percentage of principal amount at maturity):
$______________ or ___%
Date: Your signature:
-------------- --------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
By:
--------------------------------
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-------------------------
D-1
<PAGE>
EXHIBIT A-2
This Note is issued with original issue discount for purposes of Section 1271 et
seq. of the Internal Revenue Code of 1986, as amended. For each $1,000 principal
face amount of this Note, the issue price is $539.37 and the amount of original
issue discount is $460.63. The issue date of this Note is March 5, 1998 and the
yield to maturity is 14.59%.
WAM!NET INC.
------------------------------------
GLOBAL NOTE
13 1/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES B
CUSIP No. $
REGISTERED No.
WAM!NET INC., a corporation incorporated under the laws of the State of
Minnesota (herein called the "Company," which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to ____________________ , or registered assigns, the
principal sum of __________________________($_____________ ) on March 1, 2005,
at the office or agency of the Company referred to below, and to pay interest
thereon on March 1 and September 1 (each an "Interest Payment Date"), of each
year, commencing on September 1, 2002, accruing from March 1, 2002 or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of 13 1/4% per annum, until the principal hereof is
paid or duLY provided for. Interest shall be computed on the basis of a 360-day
year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the February 15 or
August 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the then applicable interest rate borne by the Notes, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not
A-2-1
<PAGE>
inconsistent with the requirements of any securities exchange on which the Notes
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on this Note
will be made at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan in The City of New York, State of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Note Register.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under this Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: WAM!NET INC.
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 13 1/4% Senior Discount Notes due 2005, Series B,
referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
---------------------------------
Authorized Signatory
A-2-2
<PAGE>
[REVERSE OF NOTE]
1. Indenture; Guaranties. This Note is one of a duly authorized issue of
---------------------
Notes of the Company designated as its 13 1/4% Senior Discount Notes due 2005,
Series B (herein called the "Unrestricted Notes"). The Notes are limited (except
as otherwise provided in the Indenture referred to below) in aggregate principal
face amount to $208,530,000, which may be issued under an indenture (herein
called the "Indenture") dated as of March 5, 1998, by and between the Company
and First Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The Notes include the Initial Notes, the Private Exchange Notes
and the Unrestricted Notes (including the Exchange Notes), issued in exchange
for the Initial Notes pursuant to the Registration Rights Agreement. The Initial
Notes, the Private Exchange Notes and the Unrestricted Notes are treated as a
single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the TIA for a
statement of such terms.
No reference herein to the Indenture and no provisions of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
To guarantee the due and punctual payment of the principal, premium, if
any, and interest on the Notes and all other amounts payable by the Company
under the Indenture and the Notes when and as the same may be due and payable,
whether at maturity, by acceleration or otherwise, according to the terms of the
Indenture and the Notes, the Subsidiary Guarantors, if any, have unconditionally
guaranteed the obligations of the Company under the Indenture and the Notes on a
senior basis pursuant to the terms of the Indenture. Pursuant to the Indenture,
a Subsidiary Guarantor may be released from its obligations under its Subsidiary
Guarantee under certain circumstances.
2. Redemption. The Notes will be redeemable, at the option of the Company,
----------
in whole or in part, on or after March 1, 2002 upon not less than 30 nor more
than 60 days' written notice at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and
A-2-3
<PAGE>
unpaid interest thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on March 1 of each of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2002..................................... 106.6250%
2003..................................... 103.3125%
2004..................................... 100.0000%
In addition, at any time on or prior to March 1, 2001, the Company may,
other than in any circumstances resulting in a Change of Control, redeem, at its
option, up to a maximum of 25% of the originally-issued aggregate principal face
amount of Notes at a redemption price equal to 113.25% of the Accreted Value of
the Notes so redeemed, with the net cash proceeds of an Initial Public Equity
Offering resulting in gross cash proceeds to the Issuer of at least $35 million
in the aggregate; provided that not less than 75% of the originally-issued
aggregate principal face amount of Notes is outstanding immediately following
such redemption. Any such redemption must be effected upon not less than 30 nor
more than 60 days' notice given within 30 days after the consummation of such
Initial Public Equity Offering.
3. Offers To Purchase. Sections 10.10 and 10.15 of the Indenture provide
------------------
that upon the occurrence of a Change of Control and following certain Asset
Sales, and subject to certain conditions and limitations contained therein, the
Company shall make an offer to purchase all or a portion of the Notes at the
purchase prices and in accordance with the procedures set forth in the
Indenture.
4. Defaults And Remedies. If an Event of Default occurs and is continuing,
---------------------
the Default Amount of all outstanding Notes may be declared due and payable in
the manner and with the effect provided in this Indenture.
5. Defeasance. The Indenture contains provisions (which provisions apply to
----------
this Note) for defeasance at any time of (a) the entire indebtedness of the
Company on this Note and (b) certain restrictive covenants and related Defaults
and Events of Default, in each case upon compliance by the Company with certain
conditions set forth therein.
6. Amendments And Waivers. The Indenture permits, with certain exceptions
----------------------
as provided therein, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders under the Indenture
at any time by the Company and the Trustee with the consent of the Holders of
not less than a majority in aggregate principal face amount of the Notes at the
time Outstanding. This Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal face amount of the Notes at the
time Outstanding, on behalf of the Holders of all the Notes, to waive compliance
by the Company with certain provisions of the Indenture and certain past
Defaults under the Indenture and this Note and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Note shall be conclusive
and binding upon such Holder
A-2-4
<PAGE>
and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
7. Denominations, Transfer And Exchange. The Notes are issuable only in
------------------------------------
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note is registrable on the Note Register, upon
surrender of this Note for registration of transfer at the office or agency of
the Company maintained for such purpose in the Borough of Manhattan in The City
of New York, State of New York, or at such other office or agency of the Company
as may be maintained for such purpose, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same aggregate principal face amount, will be issued to the designated
transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
8. Persons Deemed Owners. Prior to and at the time of due presentment of
---------------------
this Note for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the person in whose name this Note is
registered as the owner hereof for all purposes, whether or not this Note shall
be overdue, and neither the Company, the Trustee nor any agent shall be affected
by notice to the contrary.
9. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH SUBSIDIARY GUARANTEE
-------------
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written request and
without charge a copy of the Indenture and the Registration Rights Agreement.
Requests may be made to: WAM!NET Inc., 6100 West 110th Street, Minneapolis,
Minnesota 55438; Attention: Secretary.
A-2-5
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name and address (including zip code) and social
security or tax ID number)
and irrevocably appoint
---------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
A-2-6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to Section
10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of this Indenture, state the Accreted Value
(or percentage of principal amount at maturity):
$____________________ or ___%
Date: Your signature:
---------------------- -----------------------------
(Sign exactly as your name
appears on the other side of
this Note)
By:
-----------------------------
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-------------------
A-2-7
<PAGE>
EXHIBIT B
FORM OF NOTATION ON NOTES
RELATING TO SUBSIDIARY GUARANTEES
The undersigned Subsidiary Guarantor(s) (as defined in the Indenture),
jointly and severally, have unconditionally guaranteed the due and punctual
payment of the principal of, premium, if any, and interest on the Notes, and all
other amounts due and payable under the Indenture and the Notes, whether at
maturity, acceleration, redemption, repurchase or otherwise, including, without
limitation, the due and punctual payment of interest on the overdue principal
of, premium, if any, and interest on the Notes, to the extent lawful.
The obligation of each Subsidiary Guarantor pursuant to its Subsidiary
Guarantee is subject to the terms and limitations set forth in Article Thirteen
of the Indenture, and reference is made thereto for the precise terms of each
Subsidiary Guarantee.
SUBSIDIARY GUARANTORS:
[Insert name of Subsidiary Guarantor]
By:
-------------------------------
Name:
Title:
[Insert name of Subsidiary Guarantor]
By:
-------------------------------
Name:
Title:
B-1
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Note authenticated and delivered hereunder shall bear a legend
(which would be in addition to any other legends required in the case of a
Restricted Note) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF
THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE.
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.
C-1
<PAGE>
EXHIBIT D
Form of Certificate To Be
Delivered in Connection with
Transfers to Institutional (non-QIB) Accredited Investors
----------, ----
First Trust National Association
180 East 5th Street
St. Paul, MN 55101
Attention: Corporate Trust Department
Re: WAM!NET Inc.(the "Company")
Indenture (the "Indenture") relating to
__% SENIOR DISCOUNT NOTES DUE 2005
Ladies and Gentlemen:
In connection with our proposed purchase of __% Senior Discount Notes due
2005 (the "Notes") of the Company we confirm that:
1. We have received such information as we deem necessary in order to
make our investment decision.
2. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities
Act").
3. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered
or sold within the United States or to, or for the account or benefit of,
U.S. persons except as permitted in the following sentence. We agree, on
our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Notes, we will do so only
(A) to the Company, (B) inside the United States in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as
defined therein), (C) inside the United States to an
D-1
<PAGE>
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Trustee a signed letter substantially in the form
hereof, (D) outside the United States in accordance with Regulation S under
the Securities Act, (E) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (F)
pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing Notes from us a
notice advising such purchaser that resales of the Notes are restricted as
stated herein.
4. We understand that, on any proposed resale of Notes, we will be
required to furnish to the Trustee and the Company such certification,
legal opinion and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Notes purchased by
us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to
bear the economic risk of our or their investment, as the case may be.
6. We are acquiring the Notes purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Proposed Transferee]
By:
--------------------------------
[Authorized Signature]
D-2
<PAGE>
EXHIBIT E
Form of Certificate To Be Delivered
in Connection with Transfers
PURSUANT TO REGULATION S
_____________, _____
First Trust National Association
180 East 5th Street
St. Paul, MN 55101
Attention: Corporate Trust Department
Re: WAM!NET Inc. (the "Company")
_____% Senior Discount Notes due 2005
Ladies and Gentlemen:
In connection with our proposed sale of __% Senior Discount Notes due 2005
(the "Notes") of the Company, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes;
E-1
<PAGE>
(6) if the circumstances set forth in Rule 904(c) under the Securities
Act are applicable, we have complied with the additional conditions
therein, including (if applicable) sending a confirmation or other notice
stating that the Notes may be offered and sold during the restricted period
specified in Rule 903(c)(3), as applicable, in accordance with the
provisions of Regulation S; pursuant to registration of the Securities
under the Securities Act; or pursuant to an available exemption from the
registration requirements under the Securities Act; and
(7) if the sale is made during a restricted period and the provisions
of Rule 903(c)(3) are applicable thereto, we confirm that such sale has
been made in accordance with such provisions.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------
Authorized Signature
E-2
<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
_____________, ____ among [Insert name of new Subsidiary Guarantor] (the "New
Subsidiary Guarantor"), a subsidiary of WAM!NET, INC. (or its successor), a
Minnesota corporation (the "Company"), [Insert name of each existing Subsidiary
Guarantor at the time of execution of this Supplemental Indenture] (the
"Existing Subsidiary Guarantors"), and FIRST TRUST NATIONAL ASSOCIATION, a
national banking corporation, as trustee under the Indenture referred to below
(the "Trustee").
W I T N E S S E T H:
WHEREAS the Company has heretofore executed and delivered to the Trustee an
Indenture (as such may be amended from time to time, the "Indenture"), dated as
of March __, 1998, providing for the issuance of an aggregate principal face
amount of $_____________ of the Company's __% Senior Discount Notes due 2005
(the "Notes");
WHEREAS Section 10.22 of the Indenture provides that under certain
circumstances the Company is required to cause Material Restricted Subsidiaries
and certain other Restricted Subsidiaries to execute and deliver to the Trustee
a supplemental indenture pursuant to which such Subsidiaries unconditionally
guarantee all of the Company's Indenture Obligations pursuant to a Subsidiary
Guaranty on the terms and conditions set forth herein and in the Indenture;
[WHEREAS the Existing Subsidiary Guarantors, in accordance with Section
10.22 of the Indenture, have previously executed and delivered to the Trustee
supplemental indentures pursuant to which such Subsidiaries have unconditionally
guaranteed all of the Company's Indenture Obligations pursuant to a Subsidiary
Guaranty on the terms and conditions set forth therein and in Article Thirteen
of the Indenture;]
WHEREAS pursuant to Section 9.1 of the Indenture, the Trustee, the Company
[and the Existing Subsidiary Guarantors] are authorized to execute and deliver
this Supplemental Indenture; and
WHEREAS the New Subsidiary Guarantor is executing and delivering to the
Trustee this Supplemental Indenture pursuant to Section 10.22 of the Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor, the Company, the Existing Subsidiary Guarantors and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
Holders of the Notes as follows:
F-1
<PAGE>
1. DEFINITIONS. Capitalized terms used herein without definition shall have
the meanings assigned to them in the Indenture.
2. RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture
and the Indenture as supplemented hereby, except as otherwise herein expressly
provided or unless the context otherwise requires: (i) words in the singular
include the plural, and in the plural include the singular; and (ii) the words
"herein" and "hereof" and other words of similar import refer to the Indenture
and this Supplemental Indenture as a whole and, unless the context otherwise
requires, not to any particular Article, Section or other subdivision.
3. SUPPLEMENTAL INDENTURE INCORPORATED INTO INDENTURE. This Supplemental
Indenture is executed by the Company, [the Existing Subsidiary Guarantors,] the
New Subsidiary Guarantor and the Trustee pursuant to the provisions of Section
10.22 of the Indenture, and the terms and conditions hereof shall be deemed to
be part of the Indenture for all purposes of the Notes. The Indenture, as
supplemented by this Supplemental Indenture, is in all respects hereby adopted,
ratified and confirmed
4. AGREEMENT TO GUARANTEE. The New Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally with the
Existing Subsidiary Guarantors, to each Holder and to the Trustee, the full and
punctual payment of principal of, premium, if any, and interest on the Notes
when due, whether at maturity, by acceleration, by redemption, by repurchase or
otherwise, and all other obligations of the Company under the Indenture and the
Notes, on the terms and subject to the conditions set forth in Article Thirteen
of the Indenture. From and after the date hereof, the New Subsidiary Guarantor
shall be a Subsidiary Guarantor for all purposes under the Indenture and the
Notes.
5. RELEASE UNDER CERTAIN CIRCUMSTANCES. The New Subsidiary Guarantor shall
be released from its obligations under its Subsidiary Guarantee under the
circumstances set forth in Section 13.04 of the Indenture.
6. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE 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.
7. TRUSTEE MAKES NO REPRESENTATION. The Trustee makes no representation as
to the validity or sufficiency of this Supplemental Indenture and shall not be
responsible for any statement herein contained..
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
F-2
<PAGE>
9. EFFECT OF HEADINGS. The Section headings herein are for convenience only
and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written.
[Name of New Subsidiary Guarantor]
By:
-------------------------------
Name:
Title:
WAM!NET, INC.
By:
-------------------------------
Name:
Title:
[Name of Existing Subsidiary
Guarantors]
By:
-------------------------------
Name:
Title:
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Name:
Title:
F-3
<PAGE>
SCHEDULE
TO
INDENTURE, DATED AS OF MARCH 5, 1998, BETWEEN WAM!NET INC.
AND FIRST TRUST NATIONAL ASSOCIATION
PERMITTED INDEBTEDNESS
1. Indebtedness incurred pursuant to the Company's 8% Convertible Subordinated
Debentures due December 31, 1999, of which $75,000 aggregate principal
amount is currently outstanding.
2. Indebtedness incurred pursuant to the Company's 7% Subordinated Note due
December 31, 2003 in favor of WorldCom Inc. in the aggregate principal
amount of $28,500,000, of which $20,363,250 aggregate principal amount is
currently outstanding.
3. Indebtedness incurred pursuant to the Company's 10% Convertible
Subordinated Note due September 30, 1999 in favor of WorldCom Inc. in the
aggregate principal amount of $5,000,000.
4. Indebtedness incurred pursuant to the Company's $25,000,000 revolving
credit facility with The First National Bank of Chicago, under which
$24,003,313.00 aggregate principal amount is currently outstanding.
5. An equipment leasing arrangement dated as of May 1, 1996 in the aggregate
amount of $245,396.60 entered into pursuant to the Master Lease Agreement,
dated as of March 12, 1996, between the Company and Leasing Technologies
International, Inc.
6. An installment note dated as of September 30, 1997 in the aggregate
principal amount of $1,613,030.17 and an installment note dated as of
October 22, 1997 in the aggregate principal amount of $3,393,679.96, each
issued pursuant to the Master Loan and Security Agreement, dated as of
September 5, 1997, between the Company and FINOVA Technology Finance Inc.,
relating to the purchase of certain equipment.
7. An installment note dated as of December 15, 1997 in the aggregate
principal amount of $1,652,417.94, an installment note dated as of December
30, 1997 in the aggregate principal amount of $1,498,794.63, an installment
note dated as of January 30, 1998 in the aggregate principal amount of
$1,428,703.33 and an installment note dated as of February 13, 1998 in the
aggregate principal amount of $369,517.21,
<PAGE>
each issued pursuant to the Master Loan and Security Agreement, dated as of
November 26, 1997, between the Company and Transamerica Business Credit
Corporation, relating to the purchase by the Company of certain equipment.
8. An installment note bearing monthly payments of $46,667, due December 1998
and an installment note bearing monthly payments of $82,690, due April
1999, each in favor of Leasetec Corporation ("Leasetec") and each issued
pursuant to the Master Finance Agreement, dated as of September 24, 1997,
between the Company and Informix Credit Company, as amended and assigned to
Leasetec, relating to the licensing of certain proprietary software by the
Company.
9. Pursuant to a letter dated as of February 11, 1998 from the Company to
WorldCom, WorldCom has agreed to subordinate certain of its indebtedness of
the Company.
10. Any other Permitted Indebtedness referenced in the Offering Memorandum,
dated February 26, 1998, of the Company.
-2-
<PAGE>
SCHEDULE 10.14
TO
INDENTURE, DATED AS OF MARCH 5, 1998, BETWEEN WAM!NET INC.
AND FIRST TRUST NATIONAL ASSOCIATION
AFFILIATE TRANSACTIONS
1. The Company has issued its 10% Convertible Subordinated Note due September
30, 1999 in favor of WorldCom Inc. ("WorldCom") in the aggregate principal
amount of $5,000,000.
2. On November 14, 1996, the Company and WorldCom executed the Preferred
Stock, Subordinated Note and Warrant Purchase Agreement (the "WorldCom
Agreement"), pursuant to which, among other things:
(i) the Company issued 100,000 shares of its Class A Preferred Stock, par
value $10.00 per share, to WorldCom and granted WorldCom the right to
elect a majority of the Board of Directors of the Company;
(ii) the Company has issued its 7% Subordinated Note due December 31, 2003
in favor of WorldCom in the aggregate principal amount of
$28,500,000, of which $[20,363,250] aggregate principal amount is
currently outstanding;
(iii) the Company has issued to WorldCom warrants to purchase, on or before
to December 31, 2000, up to 20,787,500 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), at an initial
exercise price of $0.092 per share; and
(iv) the Company and WorldCom entered into certain arrangements with
respect to the tender and/or put by WorldCom of its Common Stock and
WorldCom granted a certain limited proxy in connection therewith.
3. In connection with a guarantee agreement, dated as of September 26, 1997,
between the Company and WorldCom, the Company issued to WorldCom warrants
to purchase up to 22,601,005 shares of Common Stock.
4. WorldCom has guaranteed the performance of the Company's obligations under
a Service Provision Agreement, dated as of July 18, 1997, between the
Company and Time Inc.
5. Pursuant to a letter dated as of February 11, 1998 from the Company to
WorldCom, WorldCom has agreed to subordinate certain of its indebtedness of
the Company.
-3-
<PAGE>
6. Pursuant to a letter dated as of February 25, 1998 from the Company to
WorldCom, WorldCom has agreed to waive certain of its registration rights.
7. Any other Affiliated Transactions referenced in the Offering Memorandum,
dated February 26, 1998, of the Company.
-4-
<PAGE>
Exhibit 4.2(A)
RULE 144A NOTE CERTIFICATE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE
FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
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.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2)
AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH
SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY
PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED
BY
<PAGE>
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF
REGULATION S, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, THE TRANSFER
AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON"
HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
This Note is issued with original issue discount for purposes of Section 1271 et
seq. of the Internal Revenue Code of 1986, as amended. For each $1,000 principal
face amount of this Note, the issue price is $539.37 and the amount of original
issue discount is $460.63. The issue date of this Note is March 5, 1998 and the
yield to maturity is 14.59%.
2
<PAGE>
WAM!NET INC.
---------------
GLOBAL NOTE
13 1/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES A
CUSIP No. 933590 AA 9 $ 200,000,000
REGISTERED No.
WAM!NET INC., a corporation incorporated under the laws of the State
of Minnesota (herein called the "Company," which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of Two Hundred Million Dollars ($200,000,000) on March 1, 2005, at the office or
agency of the Company referred to below, and to pay interest thereon on March 1
and September 1 (each an "Interest Payment Date"), of each year, commencing on
September 1, 2002, accruing from March 1, 2002 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 13 1/4% per annum, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the February 15 or
August 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not
so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that
3
<PAGE>
payment of interest may be made at the option of the Company by check mailed to
the address of the person entitled thereto as such address shall appear on the
Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under this Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: March 5, 1998 WAM!NET INC.
By: /s/ Edward J. Driscoll III
-------------------------------
Name: Edward J. Driscoll III
Title: President and CEO
By: /s/ Mark Marlow
-------------------------------
Name: Mark Marlow
Title: Vice President and
Finance Director
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 13 1/4% Senior Discount Notes due 2005, Series A,
referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Kathe Barrett
-------------------------------
Authorized Signatory
4
<PAGE>
[REVERSE OF NOTE]
1. Indenture; Guaranties. This Note is one of a duly authorized issue of
---------------------
Notes of the Company designated as its 13 1/4% Senior Discount Notes due 2005,
Series A (herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in the Indenture referred to below) in aggregate principal
face amount to $208,530,000, which may be issued under an indenture (herein
called the "Indenture") dated as of March 5, 1998, by and between the Company
and First Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The Notes include the Initial Notes, the Private Exchange Notes
and the Unrestricted Notes (including the Exchange Notes referred to below),
issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement. The Initial Notes, the Private Exchange Notes and the Unrestricted
Notes are treated as a single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
To guarantee the due and punctual payment of the principal, premium,
if any, and interest on the Notes and all other amounts payable by the Company
under the Indenture and the Notes when and as the same may be due and payable,
whether at maturity, by acceleration or otherwise, according to the terms of the
Indenture and the Notes, the Subsidiary Guarantors, if any, have unconditionally
guaranteed the obligations of the Company under the Indenture and the Notes on a
senior basis pursuant to the terms of the Indenture. Pursuant to the Indenture,
a Subsidiary Guarantor may be released from its obligations under its Subsidiary
Guarantee under certain circumstances.
2. Units. This Note has initially been issued as part of a unit
-----
("Unit"), each Unit consisting of $1,000 principal face amount of Notes and
three Warrants, each Warrant entitling the holder to purchase 2.01 shares of the
Company's Common Stock, subject to certain adjustments.
5
<PAGE>
The Warrants have been issued pursuant to a Warrant Agreement dated as of March
5, 1998 (as amended from time to time, the "Warrant Agreement"), between the
Company and First Trust National Association, as warrant agent. Pursuant to the
Indenture and the Warrant Agreement, the Warrants and the Notes will not be
separately transferable until the "Separability Date," which means the earliest
to occur of: (i) September 1, 1998, (ii) the occurrence of an Exercise Event (as
defined in the Warrant Agreement), (iii) the occurrence of an Event of Default,
(iv) the date on which a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to a registered exchange
offer for the Notes or covering the sale by holders of the Notes is declared
effective under the Securities Act, (v) immediately prior to any redemption of
Notes by the Company from the net proceeds of an Initial Public Equity Offering,
(vi) immediately prior to the occurrence of a Warrant Change of Control (as
defined in the Warrant Agreement) or (v) such earlier date as determined by
Merrill Lynch & Co. in its sole discretion.
3. Registration Rights. The Holder of this Note is entitled to the
-------------------
benefits of a Registration Rights Agreement, dated March 5, 1998, between the
Company and the Initial Purchasers (as amended from time to time, the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the Company is obligated to consummate an exchange offer pursuant to which the
Holders of Initial Notes shall have the right to exchange the Initial Notes for
13 1/4% Senior Discount Notes due 2005, Series B, of the Company (herein called
the "Exchange Notes"), which have been registered under the Securities Act, in
like principal amount and having identical terms as the Initial Notes (other
than as set forth in this paragraph and paragraph 2 above). The Holders of
Initial Notes shall be entitled to receive, as liquidated damages, certain cash
interest payments in the event such exchange offer is not consummated within a
specified period and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement and the
Indenture.
4. Redemption. The Notes will be redeemable, at the option of the
----------
Company, in whole or in part, on or after March 1, 2002 upon not less than 30
nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on March 1 of each of the years indicated
below:
Year Percentage
---- ----------
2002................ 106.6250%
2003................ 103.3125%
2004................ 100.0000%
In addition, at any time on or prior to March 1, 2001, the Company may,
other than in any circumstances resulting in a Change of Control, redeem, at
its option, up to a maximum of 25% of
6
<PAGE>
the originally-issued aggregate principal face amount of Notes at a redemption
price equal to 113.25% of the Accreted Value of the Notes so redeemed, with the
net cash proceeds of an Initial Public Equity Offering resulting in gross cash
proceeds to the Issuer of at least $35 million in the aggregate; provided that
not less than 75% of the originally-issued aggregate principal face amount of
Notes is outstanding immediately following such redemption. Any such redemption
must be effected upon not less than 30 nor more than 60 days' notice given
within 30 days after the consummation of such Initial Public Equity Offering.
5. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture provide
------------------
that upon the occurrence of a Change of Control and following certain Asset
Sales, and subject to certain conditions and limitations contained therein, the
Company shall make an offer to purchase all or a portion of the Notes at the
purchase prices and in accordance with the procedures set forth in the
Indenture.
6. Defaults and Remedies. If an Event of Default occurs and is
---------------------
continuing, the Default Amount of all outstanding Notes may be declared due and
payable in the manner and with the effect provided in this Indenture.
7. Defeasance. The Indenture contains provisions (which provisions apply
----------
to this Note) for defeasance at any time of (a) the entire indebtedness of the
Company on this Note and (b) certain restrictive covenants and related Defaults
and Events of Default, in each case upon compliance by the Company with certain
conditions set forth therein.
8. Amendments and Waivers. The Indenture permits, with certain
----------------------
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal face amount of the
Notes at the time Outstanding. This Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal face
amount of the Notes at the time Outstanding, on behalf of the Holders of all the
Notes, to waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and this Note and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
9. Denominations, Transfer and Exchange. The Notes are issuable only in
------------------------------------
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
7
<PAGE>
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note
Register, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in the Borough of Manhattan
in The City of New York, State of New York, or at such other office or agency of
the Company as may be maintained for such purpose, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal face amount, will be issued
to the designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
10. Persons Deemed Owners. Prior to and at the time of due presentment of
---------------------
this Note for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the person in whose name this Note is
registered as the owner hereof for all purposes, whether or not this Note shall
be overdue, and neither the Company, the Trustee nor any agent shall be affected
by notice to the contrary.
11. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH SUBSIDIARY GUARANTEE
-------------
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture and the Registration Rights
Agreement. Requests may be made to: WAM!NET Inc., 6100 West 110th Street,
Minneapolis, Minnesota 55438; Attention: Secretary.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
8
<PAGE>
______________________________________________________________________________
(Print or type assignee's name and address (including zip code) and social
security or tax ID number)
and irrevocably appoint_______________________________________________________
______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Note (or any Predecessor Note) or the last date on which the Company or
any Affiliate of the Company was the owner of this Note (or any Predecessor
Note), the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
9
<PAGE>
[Check One]
---------
[ ] (1) this Note is being transferred in compliance with the
exemption from registration under the Securities Act provided
by Rule 144A thereunder.
or
--
[ ] (2) this Note is being transferred other than in accordance with
(a) above and documents, including (i) a transferee
certificate substantially in the form of Exhibit D to the
Indenture in the case of a transfer to non-QIB Accredited
Investors or (ii) a transferor certificate substantially in
the form of Exhibit E to the Indenture in the case of a
transfer pursuant to Regulation S, are being furnished which
comply with the conditions of transfer set forth in this Note
and the Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Note in the name of
any person other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein and in Sections 3.16 and 3.17 of
the Indenture shall have been satisfied.
______________________________________________________________________________
Date:____________ Your signature: ____________________________________________
(Sign exactly as your name appears on the
other side of this Note)
By:_________________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee:__________________________
10
<PAGE>
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated: _________________________ Name of
Purchaser:
_______________________________________
NOTICE: To be executed by an executive
officer
11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of this Indenture, state the Accreted Value
(or percentage of principal amount at maturity):
$_________________ or ___%
Date:____________ Your signature: ____________________________________________
(Sign exactly as your name appears on the
other side of this Note)
By:_________________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee:__________________________
D-1
<PAGE>
Exhibit 4.2(B)
RULE 144A NOTE CERTIFICATE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE
FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
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.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2)
AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH
SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY
PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED
BY
<PAGE>
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF
REGULATION S, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, THE TRANSFER
AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON"
HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
This Note is issued with original issue discount for purposes of Section 1271 et
seq. of the Internal Revenue Code of 1986, as amended. For each $1,000 principal
face amount of this Note, the issue price is $539.37 and the amount of original
issue discount is $460.63. The issue date of this Note is March 5, 1998 and the
yield to maturity is 14.59%.
2
<PAGE>
WAM!NET INC.
---------------
GLOBAL NOTE
13 1/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES A
CUSIP No. 933590 AA 9 $ 8,030,000
REGISTERED No.
WAM!NET INC., a corporation incorporated under the laws of the State
of Minnesota (herein called the "Company," which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of Eight Million Thirty Thousand Dollars ($8,030,000) on March 1, 2005, at the
office or agency of the Company referred to below, and to pay interest thereon
on March 1 and September 1 (each an "Interest Payment Date"), of each year,
commencing on September 1, 2002, accruing from March 1, 2002 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, at the rate of 13 1/4% per annum, until the principal hereof is paid or
duly provided for. Interest shall be computed on the basis of a 360-day year of
twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the February 15 or
August 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not
so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that
3
<PAGE>
payment of interest may be made at the option of the Company by check mailed to
the address of the person entitled thereto as such address shall appear on the
Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under this Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: March 5, 1998 WAM!NET INC.
By: /s/ Edward J. Driscoll III
---------------------------------
Name: Edward J. Driscoll III
Title: President and CEO
By: /s/ Mark Marlow
----------------------------------
Name: Mark Marlow
Title: Vice President and
Finance Director
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 13 1/4% Senior Discount Notes due 2005, Series A,
referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Kathe Barrett
----------------------------------
Authorized Signatory
4
<PAGE>
[REVERSE OF NOTE]
1. Indenture; Guaranties. This Note is one of a duly authorized issue of
---------------------
Notes of the Company designated as its 13 1/4% Senior Discount Notes due 2005,
Series A (herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in the Indenture referred to below) in aggregate principal
face amount to $208,530,000, which may be issued under an indenture (herein
called the "Indenture") dated as of March 5, 1998, by and between the Company
and First Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The Notes include the Initial Notes, the Private Exchange Notes
and the Unrestricted Notes (including the Exchange Notes referred to below),
issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement. The Initial Notes, the Private Exchange Notes and the Unrestricted
Notes are treated as a single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
To guarantee the due and punctual payment of the principal, premium,
if any, and interest on the Notes and all other amounts payable by the Company
under the Indenture and the Notes when and as the same may be due and payable,
whether at maturity, by acceleration or otherwise, according to the terms of the
Indenture and the Notes, the Subsidiary Guarantors, if any, have unconditionally
guaranteed the obligations of the Company under the Indenture and the Notes on a
senior basis pursuant to the terms of the Indenture. Pursuant to the Indenture,
a Subsidiary Guarantor may be released from its obligations under its Subsidiary
Guarantee under certain circumstances.
2. Units. This Note has initially been issued as part of a unit
-----
("Unit"), each Unit consisting of $1,000 principal face amount of Notes and
three Warrants, each Warrant entitling the holder to purchase 2.01 shares of the
Company's Common Stock, subject to certain adjustments.
5
<PAGE>
The Warrants have been issued pursuant to a Warrant Agreement dated as of March
5, 1998 (as amended from time to time, the "Warrant Agreement"), between the
Company and First Trust National Association, as warrant agent. Pursuant to the
Indenture and the Warrant Agreement, the Warrants and the Notes will not be
separately transferable until the "Separability Date," which means the earliest
to occur of: (i) September 1, 1998, (ii) the occurrence of an Exercise Event (as
defined in the Warrant Agreement), (iii) the occurrence of an Event of Default,
(iv) the date on which a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to a registered exchange
offer for the Notes or covering the sale by holders of the Notes is declared
effective under the Securities Act, (v) immediately prior to any redemption of
Notes by the Company from the net proceeds of an Initial Public Equity Offering,
(vi) immediately prior to the occurrence of a Warrant Change of Control (as
defined in the Warrant Agreement) or (v) such earlier date as determined by
Merrill Lynch & Co. in its sole discretion.
3. Registration Rights. The Holder of this Note is entitled to the
-------------------
benefits of a Registration Rights Agreement, dated March 5, 1998, between the
Company and the Initial Purchasers (as amended from time to time, the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the Company is obligated to consummate an exchange offer pursuant to which the
Holders of Initial Notes shall have the right to exchange the Initial Notes for
13 1/4% Senior Discount Notes due 2005, Series B, of the Company (herein called
the "Exchange Notes"), which have been registered under the Securities Act, in
like principal amount and having identical terms as the Initial Notes (other
than as set forth in this paragraph and paragraph 2 above). The Holders of
Initial Notes shall be entitled to receive, as liquidated damages, certain cash
interest payments in the event such exchange offer is not consummated within a
specified period and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement and the
Indenture.
4. Redemption. The Notes will be redeemable, at the option of the
----------
Company, in whole or in part, on or after March 1, 2002 upon not less than 30
nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on March 1 of each of the years indicated
below:
Year Percentage
---- ----------
2002.................. 106.6250%
2003.................. 103.3125%
2004.................. 100.0000%
In addition, at any time on or prior to March 1, 2001, the Company may,
other than in any circumstances resulting in a Change of Control, redeem, at
its option, up to a maximum of 25% of
6
<PAGE>
the originally-issued aggregate principal face amount of Notes at a redemption
price equal to 113.25% of the Accreted Value of the Notes so redeemed, with the
net cash proceeds of an Initial Public Equity Offering resulting in gross cash
proceeds to the Issuer of at least $35 million in the aggregate; provided that
not less than 75% of the originally-issued aggregate principal face amount of
Notes is outstanding immediately following such redemption. Any such redemption
must be effected upon not less than 30 nor more than 60 days' notice given
within 30 days after the consummation of such Initial Public Equity Offering.
5. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture provide
------------------
that upon the occurrence of a Change of Control and following certain Asset
Sales, and subject to certain conditions and limitations contained therein, the
Company shall make an offer to purchase all or a portion of the Notes at the
purchase prices and in accordance with the procedures set forth in the
Indenture.
6. Defaults and Remedies. If an Event of Default occurs and is
---------------------
continuing, the Default Amount of all outstanding Notes may be declared due and
payable in the manner and with the effect provided in this Indenture.
7. Defeasance. The Indenture contains provisions (which provisions apply
----------
to this Note) for defeasance at any time of (a) the entire indebtedness of the
Company on this Note and (b) certain restrictive covenants and related Defaults
and Events of Default, in each case upon compliance by the Company with certain
conditions set forth therein.
8. Amendments and Waivers. The Indenture permits, with certain
----------------------
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal face amount of the
Notes at the time Outstanding. This Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal face
amount of the Notes at the time Outstanding, on behalf of the Holders of all the
Notes, to waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and this Note and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
9. Denominations, Transfer and Exchange. The Notes are issuable only in
------------------------------------
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
7
<PAGE>
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note
Register, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in the Borough of Manhattan
in The City of New York, State of New York, or at such other office or agency of
the Company as may be maintained for such purpose, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal face amount, will be issued
to the designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
10. Persons Deemed Owners. Prior to and at the time of due presentment of
---------------------
this Note for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the person in whose name this Note is
registered as the owner hereof for all purposes, whether or not this Note shall
be overdue, and neither the Company, the Trustee nor any agent shall be affected
by notice to the contrary.
11. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH SUBSIDIARY GUARANTEE
-------------
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture and the Registration Rights
Agreement. Requests may be made to: WAM!NET Inc., 6100 West 110th Street,
Minneapolis, Minnesota 55438; Attention: Secretary.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
8
<PAGE>
______________________________________________________________________________
(Print or type assignee's name and address (including zip code) and social
security or tax ID number)
and irrevocably appoint_______________________________________________________
______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Note (or any Predecessor Note) or the last date on which the Company or
any Affiliate of the Company was the owner of this Note (or any Predecessor
Note), the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
9
<PAGE>
[Check One]
---------
[ ] (1) this Note is being transferred in compliance with the
exemption from registration under the Securities Act provided
by Rule 144A thereunder.
or
--
[ ] (2) this Note is being transferred other than in accordance with
(a) above and documents, including (i) a transferee
certificate substantially in the form of Exhibit D to the
Indenture in the case of a transfer to non-QIB Accredited
Investors or (ii) a transferor certificate substantially in
the form of Exhibit E to the Indenture in the case of a
transfer pursuant to Regulation S, are being furnished which
comply with the conditions of transfer set forth in this Note
and the Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Note in the name of
any person other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein and in Sections 3.16 and 3.17 of
the Indenture shall have been satisfied.
______________________________________________________________________________
Date:____________ Your signature:_____________________________________________
(Sign exactly as your name appears on the
other side of this Note)
By:__________________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee:__________________________
10
<PAGE>
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated: ______________ Name of
Purchaser:
_________________________________________
NOTICE: To be executed by an executive
officer
11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of this Indenture, state the Accreted Value
(or percentage of principal amount at maturity):
$_________________ or ___%
Date:____________ Your signature:_____________________________________________
(Sign exactly as your name appears on the
other side of this Note)
By:__________________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee:__________________________
D-1
<PAGE>
Exhibit 4.3
REGULATION S NOTE CERTIFICATE
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE
FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
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.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2)
AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH
SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY
PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED
BY
<PAGE>
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF
REGULATION S, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, THE TRANSFER
AGENT AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON"
HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
This Note is issued with original issue discount for purposes of Section 1271 et
seq. of the Internal Revenue Code of 1986, as amended. For each $1,000 principal
face amount of this Note, the issue price is $539.37 and the amount of original
issue discount is $460.63. The issue date of this Note is March 5, 1998 and the
yield to maturity is 14.59%.
2
<PAGE>
WAM!NET INC.
---------------
GLOBAL NOTE
13 1/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES A
CUSIP No. U25540 AB 8 $ 500,000
REGISTERED No.
WAM!NET INC., a corporation incorporated under the laws of the State
of Minnesota (herein called the "Company," which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of Five Hundred Thousand Dollars ($500,000) on March 1, 2005, at the office or
agency of the Company referred to below, and to pay interest thereon on March 1
and September 1 (each an "Interest Payment Date"), of each year, commencing on
September 1, 2002, accruing from March 1, 2002 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 13 1/4% per annum, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the February 15 or
August 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not
so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that
3
<PAGE>
payment of interest may be made at the option of the Company by check mailed to
the address of the person entitled thereto as such address shall appear on the
Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under this Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: March 5, 1998 WAM!NET INC.
By: /s/ Edward J. Driscoll III
---------------------------------
Name: Edward J. Driscoll III
Title: President and CEO
By: /s/ Mark Marlow
---------------------------------
Name: Mark Marlow
Title: Vice President and
Finance Director
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 13 1/4% Senior Discount Notes due 2005, Series A,
referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Kathe Barrett
---------------------------------
Authorized Signatory
4
<PAGE>
[REVERSE OF NOTE]
1. Indenture; Guaranties. This Note is one of a duly authorized issue of
Notes of the Company designated as its 13 1/4% Senior Discount Notes due 2005,
Series A (herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in the Indenture referred to below) in aggregate principal
face amount to $208,530,000, which may be issued under an indenture (herein
called the "Indenture") dated as of March 5, 1998, by and between the Company
and First Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The Notes include the Initial Notes, the Private Exchange Notes
and the Unrestricted Notes (including the Exchange Notes referred to below),
issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement. The Initial Notes, the Private Exchange Notes and the Unrestricted
Notes are treated as a single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
To guarantee the due and punctual payment of the principal, premium,
if any, and interest on the Notes and all other amounts payable by the Company
under the Indenture and the Notes when and as the same may be due and payable,
whether at maturity, by acceleration or otherwise, according to the terms of the
Indenture and the Notes, the Subsidiary Guarantors, if any, have unconditionally
guaranteed the obligations of the Company under the Indenture and the Notes on a
senior basis pursuant to the terms of the Indenture. Pursuant to the Indenture,
a Subsidiary Guarantor may be released from its obligations under its Subsidiary
Guarantee under certain circumstances.
2. Units. This Note has initially been issued as part of a unit
("Unit"), each Unit consisting of $1,000 principal face amount of Notes and
three Warrants, each Warrant entitling the holder to purchase 2.01 shares of the
Company's Common Stock, subject to certain adjustments.
5
<PAGE>
The Warrants have been issued pursuant to a Warrant Agreement dated as of March
5, 1998 (as amended from time to time, the "Warrant Agreement"), between the
Company and First Trust National Association, as warrant agent. Pursuant to the
Indenture and the Warrant Agreement, the Warrants and the Notes will not be
separately transferable until the "Separability Date," which means the earliest
to occur of: (i) September 1, 1998, (ii) the occurrence of an Exercise Event (as
defined in the Warrant Agreement), (iii) the occurrence of an Event of Default,
(iv) the date on which a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to a registered exchange
offer for the Notes or covering the sale by holders of the Notes is declared
effective under the Securities Act, (v) immediately prior to any redemption of
Notes by the Company from the net proceeds of an Initial Public Equity Offering,
(vi) immediately prior to the occurrence of a Warrant Change of Control (as
defined in the Warrant Agreement) or (v) such earlier date as determined by
Merrill Lynch & Co. in its sole discretion.
3. Registration Rights. The Holder of this Note is entitled to the
benefits of a Registration Rights Agreement, dated March 5, 1998, between the
Company and the Initial Purchasers (as amended from time to time, the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
the Company is obligated to consummate an exchange offer pursuant to which the
Holders of Initial Notes shall have the right to exchange the Initial Notes for
13 1/4% Senior Discount Notes due 2005, Series B, of the Company (herein called
the "Exchange Notes"), which have been registered under the Securities Act, in
like principal amount and having identical terms as the Initial Notes (other
than as set forth in this paragraph and paragraph 2 above). The Holders of
Initial Notes shall be entitled to receive, as liquidated damages, certain cash
interest payments in the event such exchange offer is not consummated within a
specified period and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement and the
Indenture.
4. Redemption. The Notes will be redeemable, at the option of the
Company, in whole or in part, on or after March 1, 2002 upon not less than 30
nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on March 1 of each of the years indicated
below:
Year Percentage
---- ----------
2002................... 106.6250%
2003................... 103.3125%
2004................... 100.0000%
In addition, at any time on or prior to March 1, 2001, the Company may,
other than in any circumstances resulting in a Change of Control, redeem, at
its option, up to a maximum of 25% of
6
<PAGE>
the originally-issued aggregate principal face amount of Notes at a redemption
price equal to 113.25% of the Accreted Value of the Notes so redeemed, with the
net cash proceeds of an Initial Public Equity Offering resulting in gross cash
proceeds to the Issuer of at least $35 million in the aggregate; provided that
not less than 75% of the originally-issued aggregate principal face amount of
Notes is outstanding immediately following such redemption. Any such redemption
must be effected upon not less than 30 nor more than 60 days' notice given
within 30 days after the consummation of such Initial Public Equity Offering.
5. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture provide
that upon the occurrence of a Change of Control and following certain Asset
Sales, and subject to certain conditions and limitations contained therein, the
Company shall make an offer to purchase all or a portion of the Notes at the
purchase prices and in accordance with the procedures set forth in the
Indenture.
6. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Default Amount of all outstanding Notes may be declared due and
payable in the manner and with the effect provided in this Indenture.
7. Defeasance. The Indenture contains provisions (which provisions apply
to this Note) for defeasance at any time of (a) the entire indebtedness of the
Company on this Note and (b) certain restrictive covenants and related Defaults
and Events of Default, in each case upon compliance by the Company with certain
conditions set forth therein.
8. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal face amount of the
Notes at the time Outstanding. This Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal face
amount of the Notes at the time Outstanding, on behalf of the Holders of all the
Notes, to waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and this Note and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
9. Denominations, Transfer and Exchange. The Notes are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same.
7
<PAGE>
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note
Register, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in the Borough of Manhattan
in The City of New York, State of New York, or at such other office or agency of
the Company as may be maintained for such purpose, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal face amount, will be issued
to the designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
10. Persons Deemed Owners. Prior to and at the time of due presentment of
this Note for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the person in whose name this Note is
registered as the owner hereof for all purposes, whether or not this Note shall
be overdue, and neither the Company, the Trustee nor any agent shall be affected
by notice to the contrary.
11. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH SUBSIDIARY GUARANTEE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture and the Registration Rights
Agreement. Requests may be made to: WAM!NET Inc., 6100 West 110th Street,
Minneapolis, Minnesota 55438; Attention: Secretary.
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
8
<PAGE>
_______________________________________________________________________________
(Print or type assignee's name and address (including zip code) and social
security or tax ID number)
and irrevocably appoint________________________________________________________
_______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Note (or any Predecessor Note) or the last date on which the Company or
any Affiliate of the Company was the owner of this Note (or any Predecessor
Note), the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
9
<PAGE>
[Check One]
---------
[ ] (1) this Note is being transferred in compliance with the
exemption from registration under the Securities Act provided
by Rule 144A thereunder.
or
--
[ ] (2) this Note is being transferred other than in accordance with
(a) above and documents, including (i) a transferee
certificate substantially in the form of Exhibit D to the
Indenture in the case of a transfer to non-QIB Accredited
Investors or (ii) a transferor certificate substantially in
the form of Exhibit E to the Indenture in the case of a
transfer pursuant to Regulation S, are being furnished which
comply with the conditions of transfer set forth in this Note
and the Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Note in the name of
any person other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein and in Sections 3.16 and 3.17 of
the Indenture shall have been satisfied.
_______________________________________________________________________________
Date:_____________Your signature:______________________________________________
(Sign exactly as your name appears on the
other side of this Note)
By: __________________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee:_______________________________
10
<PAGE>
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated: __________________ Name of
Purchaser:
__________________________________________
NOTICE: To be executed by an executive
officer
11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of this Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of this Indenture, state the Accreted Value
(or percentage of principal amount at maturity):
$_________________ or ___%
Date:_____________Your signature:______________________________________________
(Sign exactly as your name appears on the
other side of this Note)
By: __________________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee:_______________________________
D-1
<PAGE>
Exhibit 4.4
RULE 144A WARRANT CERTIFICATE
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OF
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OF OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECU RITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) AGREES THAT IT WILL
NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS
PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE
<PAGE>
OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER
DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION
TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S, PURSUANT TO RULE 904 OF REGULATION S OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM IN
REGULATION S.
REGISTERED No.
CUSIP 933590 11 9 624,090 WARRANTS
WARRANT CERTIFICATE
WAM!NET INC.
This Warrant Certificate certifies that CEDE & CO., or registered
assigns, is the registered holder of 624,090 Warrants (the "Warrants") to
purchase shares of Common Stock, par value $0.01 per share (the "Common Stock"),
of WAM!NET INC., a Minnesota corporation (the "Company," which term includes its
successors and assigns). Each Warrant entitles the holder to purchase from the
Company at any time from 9:00 a.m. New York City time on or after the
Exercisability Date until 5:00 p.m., New York City time, on March 1, 2005 (the
"Expiration Date"), 2.01 fully paid, registered and non-assessable shares of
Common Stock, subject to adjustment as provided in Article V of the Warrant
Agreement (the "Exercise Rate"), at the exercise price of $0.01 for each share
purchased (the "Exercise Price") (the shares of Common Stock purchasable upon
exercise of a Warrant being herein referred to as the "Shares" and, unless the
context otherwise requires, such term shall also mean all other securities or
property purchasable and deliverable upon exercise of a Warrant as provided in
the Warrant Agreement), upon surrender of this Warrant
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<PAGE>
Certificate and payment of the Exercise Price (i) in United States dollars or by
certified check or official bank check, (ii) pursuant to the next sentence or
(iii) in any combination of (i) and (ii), at any office or agency maintained for
that purpose by the Company (the "Warrant Agent Office"), subject to the
conditions set forth herein and in the Warrant Agreement. In addition to payment
by cash or check, a Warrant may be exercised solely by the surrender of the
Warrant, and without the payment of the Exercise Price in cash, for such number
of Shares equal to the product of (1) the number of Shares for which such
Warrant is exercisable with payment of the Exercise Price as in cash of the date
of exercise and (2) the Cashless Exercise Ratio. For purposes of this Warrant,
the "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is
the excess of the Current Market Value per share of the Common Stock on the date
of exercise over the Exercise Price per share as of the date of exercise and the
denominator of which is the Current Market Value per share of the Common Stock
on the date of exercise. An exercise of a Warrant in accordance with the
immediately preceding sentences is herein called a "Cashless Exercise." Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the Holder's option to elect a Cashless Exercise, the number of
Shares deliverable upon a Cashless Exercise shall be equal to the Cashless
Exercise Ratio multiplied by the product of (a) the number of Warrants that the
holder specifies is to be exercised pursuant to a Cashless Exercise and (b) the
aggregate number of Shares for which such Warrants are then exercisable (without
giving effect to the Cashless Exercise option). If the Company has not effected
the registration under the Securities Act of the offer and sale of the Shares by
the Company to the holders of the Warrants upon the exercise thereof, the
Company may elect to require that holders of the Warrants effect the exercise of
the Warrants solely pursuant to the Cashless Exercise option and may also amend
the Warrants to eliminate the requirements for payment of the Exercise Price
with respect tp such Cashless Exercise option. A Warrant may not be exercised in
part. All provisions of the Warrant Agreement shall be applicable with respect
to an exercise of a Warrant Certificate pursuant to a Cashless Exercise for less
than the full number of Warrants represented thereby. Capitalized terms used
herein without being defined herein shall have the definitions ascribed to such
terms in the Warrant Agreement.
This Warrant has initially been issued as part of a unit ("Unit"),
each Unit consisting of three Warrants and $1,000 principal amount at maturity
of the Company's 13 1/4% Senior Discount Notes due 2005 (the "Notes"). As set
forth in the Warrant Agreement and the Indenture, dated as of March 5, 1998 (the
"Indenture"), between the Company and First Trust National Association, as
Trustee, pursuant to which the Notes have been issued, the Warrants and the
Notes will not be separately transferable until the "Separability Date", which
means the earliest to occur of: (i) September 1, 1998, (ii) the occurrence of an
Exercise Event (as defined herein), (iii) the occurrence of an Event of Default
(as defined in the Indenture), (iv) the date on which a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to a registered exchange offer for the Notes or covering the sale by
holders of the Notes is declared effective under the Securities Act, (v)
immediately prior to any redemption of Notes by the Company from the net
proceeds of an Initial Public Equity Offering (as defined in the Indenture),
(vi) immediately prior to the occurrence of a Warrant Change of Control (as
defined in the Warrant Agreement) or (v) such earlier date as determined by
Merrill Lynch & Co. in its sole discretion.
3
<PAGE>
"Current Market Value" per share of Common Stock or any other
security at any date of determination means (i) if the security is not traded on
a national or regional securities exchange, The Nasdaq Stock Market or in a
recognized over-the-counter market (a "Quoted Security"), (a) the fair market
value of the security, as determined in good faith by the Board of Directors of
the Company and certified in a board resolution delivered to the Warrant Agent,
which shall be based on the most recently completed arms-length transaction
between the Company and a person other than an Affiliate of the Company, the
closing of which shall have occurred within the six-month period preceding such
determination, or (b) if no such transaction shall have occurred within such
six-month period, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert (provided that,
in the case of the calculation of Current Market Value solely for determining
the cash value of fractional shares, the last determination of Current Market
Value pursuant to this clause (i), if made within the preceding six months, may
be utilized), which determination shall be set forth in an officers' certificate
delivered to the Warrant Agent, or (ii) (a) if the security is a Quoted
Security, the average of the daily closing sales prices of such security for the
20 consecutive trading days immediately preceding such date, or (b) if the
security has been a Quoted Security for less than 20 consecutive trading days
before such date, then the average of the daily closing sales prices for all of
the trading days before such date for which closing sales prices are available.
The closing sales price of a security for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any United States
national or regional securities exchange or on The Nasdaq Stock Market, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day or (B) in the
case of a security not then listed or admitted to trading on any national or
regional securities exchange or The Nasdaq Stock Market, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
source designated by the Company, or in the case of a security as to which no
such reported bid and asked prices are available on such day, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, City and State of New York, customarily published on each business
day, designated by the Company, or, if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than two days prior to the date in question) for
which prices have been so reported; provided, however, that if there are no bid
and asked prices reported for such security during such two-day period, Current
Market Value shall be determined as if the security were not a Quoted Security.
"Exercisability Date" means, with respect to each Warrant, the date as
of which both of the following shall have occurred (whether before or on such
date): (i) the Separability Date and (ii) an Exercise Event.
"Exercise Event" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (1) immediately prior to the occurrence of a
Warrant Change of Control, (2 )(a) the 90th day (or such earlier date as
determined by the Company in its sole discretion) following an Initial Public
Equity Offering (as defined in the Warrant Agreement) or (b) upon the closing of
the Initial Public Equity Offering but only in respect of Warrants, if any,
required to be exercised to
4
<PAGE>
permit the holders thereof to sell Shares pursuant to their registration rights,
(3) a class of equity securities of the Company is listed on a national
securities exchange or authorized for quotation on The Nasdaq Stock Market or is
otherwise registered under the Exchange Act, or (4) September 1, 2000.
"Independent Financial Expert" means a United States investment
banking firm of national or regional standing in the United States (i) which
does not, and whose directors and executive officers or Affiliates (as defined
in the Warrant Agreement) do not, have a direct or indirect material financial
interest for its or their proprietary account in the Company or any of its
Affiliates and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent with respect to the Company and its Affiliates
and qualified to perform the task for which it is to be engaged.
The Company has initially designated the principal corporate trust
office of the Warrant Agent in the Borough of Manhattan, The City of New York,
as the initial Warrant Agent Office.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on March 1, 2005 shall thereafter be void.
If the Company merges, amalgamates or consolidates with or into, or
sells all or substantially all of its property and assets to, another Person
solely for cash, the holders of Warrants shall be entitled to such cash on the
date of consummation of such transaction on an equal basis with holders of
Shares (or other securities issuable upon exercise of the Warrants) as if the
Warrants had been exercised immediately prior to such event, less the Exercise
Price. Upon receipt of such cash the rights of a holder of a Warrant shall
terminate and cease and such holder's Warrants shall expire.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Warrant Certificate shall not be valid unless authenticated by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
5
<PAGE>
WITNESS the seal of the Company and signatures of its duly authorized
officers.
Dated:
WAM!NET INC.
By: /s/ Edward J. Driscoll III
-----------------------------------
Name: Edward J. Driscoll III
Title: President and CEO
Attest:
By: /s/ Mark Marlow
----------------------------
Name: Mark Marlow
Title: Vice President and
Finance Director
Certificate of Authentication:
This is one of the Warrants referred to in the within-mentioned Warrant
Agreement:
FIRST TRUST NATIONAL ASSOCIATION,
as Warrant Agent
By: /s/ Kathe Barrett
-----------------------------
Authorized Signatory
6
<PAGE>
WAM!NET INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at 5:00 p.m., New York City time, on the
Expiration Date, each of which represents the right to purchase, at any time on
or after the Exercisability Date and on or prior to the Expiration Date, 2.01
shares of Common Stock, subject to adjustment as set forth in the Warrant
Agreement. The Warrants are issued pursuant to a Warrant Agreement dated as of
March 5, 1998 (as amended from time to time, the "Warrant Agreement"), duly
executed and delivered by the Company to First Trust National Association, as
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant Agent
Office this Warrant Certificate with the form of Election to Exercise set forth
hereon duly completed and executed and (ii) to the extent such exercise is not
being effected through a Cashless Exercise, by paying in full the Exercise Price
for each Warrant exercised and any other amounts required to be paid pursuant to
the Warrant Agreement.
If all of the items referred to in the preceding paragraph are
received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on
a Business Day, the exercise of the Warrant to which such items relate will be
effective on such Business Day. If all items referred to in the preceding
paragraph are not received until after 11:00 a.m., New York City time, on a
Business Day, the exercise of the Warrants to which such items relate will be
deemed to be effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of an exercise of Warrants on the Expiration Date, if all
of the items referred to in the preceding paragraph are received by the Warrant
Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, the
exercise of the Warrant to which such items relate will be effective on the
Expiration Date and prior to the expiration of such Warrant.
As soon as practicable after the exercise of any Warrant or Warrants,
the Company shall issue or cause to be issued to or upon the written order of
the registered holder of this Warrant Certificate, a certificate or certificates
evidencing the Share or Shares to which such holder is entitled, in fully
registered form, registered in such name or names as may be directed by such
holder pursuant to the form of Election to Exercise, as set forth hereon. Such
certificate or certificates evidencing the Share or Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of such Share or Shares as of the
close of business on the date upon which the exercise of this Warrant was deemed
to be effective as provided in the preceding paragraph.
The Company will not be required to issue fractional shares of Common
Stock upon exercise of Warrants or distribute Share certificates that evidence
fractional shares of Common
7
<PAGE>
Stock. In lieu of fractional shares of Common Stock, there shall be paid to the
holder of this Warrant Certificate at the time such Warrant Certificate is
exercised an amount in cash equal to the same fraction of the Current Market
Value per share of Common Stock on the Business Day preceding the date this
Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in New
York City, (ii) the principal U.S. securities exchange or market, if any, on
which the Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which any other securities
underlying the Warrants are listed or admitted to trading are open for business.
The Warrants and the Shares issuable upon exercise thereof are
entitled to the benefits of a registration rights agreement (as amended from
time to time, the "Registration Rights Agreement"), pursuant to which the
holders representing not less than a majority of Registrable Securities (as
defined in the Registration Rights Agreement) have the right under certain
circumstances to require the Company to effect one demand registration of the
Registrable Securities. The Registration Rights Agreement also provides the
holders of Registrable Securities with the right, subject to the conditions and
limitations contained therein, to include the Registrable Securities in certain
registration statements filed by the Company for its account or for the account
of any of its other securityholders. The Registration Rights Agreement further
provides, among other things, that (i) prior to the Triggering Date (as defined
in the Registration Rights Agreement), if WorldCom Inc, a Georgia corporation
("WorldCom") or its Affiliates (as defined in the Registration Rights Agreement)
effect a direct or indirect sale or other disposition of capital stock of the
Company to any proposed purchaser in any transaction or a series of related
transactions resulting in a Warrant Change of Control, the holders of Warrants
and Shares will have the right to sell all of such securities to the proposed
purchaser at the same price as received by WorldCom or its Affiliates
8
<PAGE>
and (ii) prior to an Initial Public Equity Offering, WorldCom or its Affiliates
may require the holders of Warrants and Shares to sell such securities to any
person to whom WorldCom and such Affiliates sell all of their capital stock in
the Company in a transaction that results in a Warrant Change of Control, at the
same price as that received by WorldCom and such Affiliates.
The Company will furnish to any holder of a Warrant upon written
request and without charge a copy of the Warrant Agreement and the Registration
Rights Agreement. Requests may be made to: WAM!NET Inc., 6100 West 110th
Street, Minneapolis, Minnesota 55438; Attention: Secretary.
9
<PAGE>
(ELECTION TO EXERCISE)
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise this Warrant
Certificate as to ____ Warrants and to purchase the whole number of Shares
issuable upon exercise thereof and herewith tenders payment for such Shares as
follows:
$_________________ in cash or by certified or official bank check; or
by surrender of _____ Warrants pursuant to a Cashless Exercise at the current
Cashless Exercise Ratio.
The undersigned requests that a certificate representing such Shares
be registered in the name of________whose address is____________and that such
Shares be delivered to______________whose address is_________________________.
Any cash payments to be paid in lieu of a fractional Share should
be made to__________whose address is________and the check representing payment
thereof should be delivered to____________whose address is_____________.
Dated_____________________,_____
Name of holder of
Warrant Certificate:_______________________________
(Please Print)
Tax Identification or
Social Security Number:____________________________
Address:___________________________________________
___________________________________________
Signature:_________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever and if the certificate
representing the Shares is to be registered in a
name other than that in which this Warrant
Certificate is registered, or if any cash payment to
be paid in lieu of a fractional share is to be made
to a person other than the registered holder of this
Warrant Certificate, the signature of the holder
hereof must be guaranteed.
10
<PAGE>
Dated______________,_____
Signature:_________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever.
Signature Guaranteed:______________________________
[FORM OF ASSIGNMENT]
For value received__________________hereby sells, assigns and
transfers unto__________________the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint____________attorney, to transfer said Warrant Certificate on the
books of the within-named Company, with full power of substitution in the
premises.
Dated_______________, 199_
Signature:__________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever.
Signature Guaranteed:_______________________________
In connection with any transfer of Warrants represented by this
Warrant Certificate occurring prior to the date which is the earlier of (i) the
date of the declaration by the Securities and Exchange Commission of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of the Warrants (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the Resale Restriction Termination Date, the undersigned
confirms that it has not utilized any general solicitation or general
advertising in connection with the transfer and that:
11
<PAGE>
[Check One]
---------
[ ] (a) the Warrants are being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
--
[ ] (b) this Warrant Certificate is being transferred other than in
accordance with (a) above and documents are being furnished which comply
with the conditions of transfer set forth in Section 1.08 of the Warrant
Agreement.
If none of the foregoing boxes is checked, the Unit Agent shall not be obligated
to register this Warrant Certificate in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth Section 1.08 of the Warrant Agreement shall have been
satisfied.
_______________________________________________________________________________
Date:______________________________ Your signature:________________________
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:___________________________________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing the
Warrants 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 and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: __________________ __________________________________________
NOTICE: To be executed by
an executive officer
12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE AND GLOBAL WARRANTS
-------------------------------------------------------
The following exchanges made in respect of certified Warrants or another
Global Warrant have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Exchange Amount of Decrease in Amount of Increase in Number of Warrants of this Signature of authorized
Number of Warrants Number of Warrants Global Warrant following officer of Warrant Agent
Subject to this Global Subject to this Global such decrease (or increase)
Warrant Warrant
</TABLE>
13
<PAGE>
Exhibit 4.5
REGULATION S WARRANT CERTIFICATE
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OF
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OF OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECU RITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) AGREES THAT IT WILL
NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS
PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE
<PAGE>
OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER
DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION
TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S, PURSUANT TO RULE 904 OF REGULATION S OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM IN
REGULATION S.
REGISTERED No.
CUSIP U25540 11 0 1,500 WARRANTS
WARRANT CERTIFICATE
WAM!NET INC.
This Warrant Certificate certifies that CEDE & CO., or registered
assigns, is the registered holder of 1,500 Warrants (the "Warrants") to purchase
shares of Common Stock, par value $0.01 per share (the "Common Stock"), of
WAM!NET INC., a Minnesota corporation (the "Company," which term includes its
successors and assigns). Each Warrant entitles the holder to purchase from the
Company at any time from 9:00 a.m. New York City time on or after the
Exercisability Date until 5:00 p.m., New York City time, on March 1, 2005 (the
"Expiration Date"), 2.01 fully paid, registered and non-assessable shares of
Common Stock, subject to adjustment as provided in Article V of the Warrant
Agreement (the "Exercise Rate"), at the exercise price of $0.01 for each share
purchased (the "Exercise Price") (the shares of Common Stock purchasable upon
exercise of a Warrant being herein referred to as the "Shares" and, unless the
context otherwise requires, such term shall also mean all other securities or
property purchasable and deliverable upon exercise of a Warrant as provided in
the Warrant Agreement), upon surrender of this Warrant
2
<PAGE>
Certificate and payment of the Exercise Price (i) in United States dollars or by
certified check or official bank check, (ii) pursuant to the next sentence or
(iii) in any combination of (i) and (ii), at any office or agency maintained for
that purpose by the Company (the "Warrant Agent Office"), subject to the
conditions set forth herein and in the Warrant Agreement. In addition to payment
by cash or check, a Warrant may be exercised solely by the surrender of the
Warrant, and without the payment of the Exercise Price in cash, for such number
of Shares equal to the product of (1) the number of Shares for which such
Warrant is exercisable with payment of the Exercise Price as in cash of the date
of exercise and (2) the Cashless Exercise Ratio. For purposes of this Warrant,
the "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is
the excess of the Current Market Value per share of the Common Stock on the date
of exercise over the Exercise Price per share as of the date of exercise and the
denominator of which is the Current Market Value per share of the Common Stock
on the date of exercise. An exercise of a Warrant in accordance with the
immediately preceding sentences is herein called a "Cashless Exercise." Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the Holder's option to elect a Cashless Exercise, the number of
Shares deliverable upon a Cashless Exercise shall be equal to the Cashless
Exercise Ratio multiplied by the product of (a) the number of Warrants that the
holder specifies is to be exercised pursuant to a Cashless Exercise and (b) the
aggregate number of Shares for which such Warrants are then exercisable (without
giving effect to the Cashless Exercise option). If the Company has not effected
the registration under the Securities Act of the offer and sale of the Shares by
the Company to the holders of the Warrants upon the exercise thereof, the
Company may elect to require that holders of the Warrants effect the exercise of
the Warrants solely pursuant to the Cashless Exercise option and may also amend
the Warrants to eliminate the requirements for payment of the Exercise Price
with respect tp such Cashless Exercise option. A Warrant may not be exercised in
part. All provisions of the Warrant Agreement shall be applicable with respect
to an exercise of a Warrant Certificate pursuant to a Cashless Exercise for less
than the full number of Warrants represented thereby. Capitalized terms used
herein without being defined herein shall have the definitions ascribed to such
terms in the Warrant Agreement.
This Warrant has initially been issued as part of a unit ("Unit"),
each Unit consisting of three Warrants and $1,000 principal amount at maturity
of the Company's 13 1/4% Senior Discount Notes due 2005 (the "Notes"). As set
forth in the Warrant Agreement and the Indenture, dated as of March 5, 1998 (the
"Indenture"), between the Company and First Trust National Association, as
Trustee, pursuant to which the Notes have been issued, the Warrants and the
Notes will not be separately transferable until the "Separability Date", which
means the earliest to occur of: (i) September 1, 1998, (ii) the occurrence of an
Exercise Event (as defined herein), (iii) the occurrence of an Event of Default
(as defined in the Indenture), (iv) the date on which a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to a registered exchange offer for the Notes or covering the sale by
holders of the Notes is declared effective under the Securities Act, (v)
immediately prior to any redemption of Notes by the Company from the net
proceeds of an Initial Public Equity Offering (as defined in the Indenture),
(vi) immediately prior to the occurrence of a Warrant Change of Control (as
defined in the Warrant Agreement) or (v) such earlier date as determined by
Merrill Lynch & Co. in its sole discretion.
3
<PAGE>
"Current Market Value" per share of Common Stock or any other
security at any date of determination means (i) if the security is not traded on
a national or regional securities exchange, The Nasdaq Stock Market or in a
recognized over-the-counter market (a "Quoted Security"), (a) the fair market
value of the security, as determined in good faith by the Board of Directors of
the Company and certified in a board resolution delivered to the Warrant Agent,
which shall be based on the most recently completed arms-length transaction
between the Company and a person other than an Affiliate of the Company, the
closing of which shall have occurred within the six-month period preceding such
determination, or (b) if no such transaction shall have occurred within such
six-month period, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert (provided that,
in the case of the calculation of Current Market Value solely for determining
the cash value of fractional shares, the last determination of Current Market
Value pursuant to this clause (i), if made within the preceding six months, may
be utilized), which determination shall be set forth in an officers' certificate
delivered to the Warrant Agent, or (ii) (a) if the security is a Quoted
Security, the average of the daily closing sales prices of such security for the
20 consecutive trading days immediately preceding such date, or (b) if the
security has been a Quoted Security for less than 20 consecutive trading days
before such date, then the average of the daily closing sales prices for all of
the trading days before such date for which closing sales prices are available.
The closing sales price of a security for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any United States
national or regional securities exchange or on The Nasdaq Stock Market, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day or (B) in the
case of a security not then listed or admitted to trading on any national or
regional securities exchange or The Nasdaq Stock Market, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
source designated by the Company, or in the case of a security as to which no
such reported bid and asked prices are available on such day, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, City and State of New York, customarily published on each business
day, designated by the Company, or, if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than two days prior to the date in question) for
which prices have been so reported; provided, however, that if there are no bid
and asked prices reported for such security during such two-day period, Current
Market Value shall be determined as if the security were not a Quoted Security.
"Exercisability Date" means, with respect to each Warrant, the date as
of which both of the following shall have occurred (whether before or on such
date): (i) the Separability Date and (ii) an Exercise Event.
"Exercise Event" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (1) immediately prior to the occurrence of a
Warrant Change of Control, (2 )(a) the 90th day (or such earlier date as
determined by the Company in its sole discretion) following an Initial Public
Equity Offering (as defined in the Warrant Agreement) or (b) upon the closing of
the Initial Public Equity Offering but only in respect of Warrants, if any,
required to be exercised to
4
<PAGE>
permit the holders thereof to sell Shares pursuant to their registration rights,
(3) a class of equity securities of the Company is listed on a national
securities exchange or authorized for quotation on The Nasdaq Stock Market or is
otherwise registered under the Exchange Act, or (4) September 1, 2000.
"Independent Financial Expert" means a United States investment
banking firm of national or regional standing in the United States (i) which
does not, and whose directors and executive officers or Affiliates (as defined
in the Warrant Agreement) do not, have a direct or indirect material financial
interest for its or their proprietary account in the Company or any of its
Affiliates and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent with respect to the Company and its Affiliates
and qualified to perform the task for which it is to be engaged.
The Company has initially designated the principal corporate trust
office of the Warrant Agent in the Borough of Manhattan, The City of New York,
as the initial Warrant Agent Office.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on March 1, 2005 shall thereafter be void.
If the Company merges, amalgamates or consolidates with or into, or
sells all or substantially all of its property and assets to, another Person
solely for cash, the holders of Warrants shall be entitled to such cash on the
date of consummation of such transaction on an equal basis with holders of
Shares (or other securities issuable upon exercise of the Warrants) as if the
Warrants had been exercised immediately prior to such event, less the Exercise
Price. Upon receipt of such cash the rights of a holder of a Warrant shall
terminate and cease and such holder's Warrants shall expire.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Warrant Certificate shall not be valid unless authenticated by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
5
<PAGE>
WITNESS the seal of the Company and signatures of its duly authorized
officers.
Dated:
WAM!NET INC.
By: /s/ Edward J. Driscoll III
-----------------------------------
Name: Edward J. Driscoll III
Title: President and CEO
Attest:
By: /s/ Mark Marlow
----------------------------
Name: Mark Marlow
Title: Vice President and
Finance Director
Certificate of Authentication:
This is one of the Warrants referred to in the within-mentioned Warrant
Agreement:
FIRST TRUST NATIONAL ASSOCIATION,
as Warrant Agent
By: /s/ Kathe Barrett
-----------------------------
Authorized Signatory
6
<PAGE>
WAM!NET INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at 5:00 p.m., New York City time, on the
Expiration Date, each of which represents the right to purchase, at any time on
or after the Exercisability Date and on or prior to the Expiration Date, 2.01
shares of Common Stock, subject to adjustment as set forth in the Warrant
Agreement. The Warrants are issued pursuant to a Warrant Agreement dated as of
March 5, 1998 (as amended from time to time, the "Warrant Agreement"), duly
executed and delivered by the Company to First Trust National Association, as
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant Agent
Office this Warrant Certificate with the form of Election to Exercise set forth
hereon duly completed and executed and (ii) to the extent such exercise is not
being effected through a Cashless Exercise, by paying in full the Exercise Price
for each Warrant exercised and any other amounts required to be paid pursuant to
the Warrant Agreement.
If all of the items referred to in the preceding paragraph are
received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on
a Business Day, the exercise of the Warrant to which such items relate will be
effective on such Business Day. If all items referred to in the preceding
paragraph are not received until after 11:00 a.m., New York City time, on a
Business Day, the exercise of the Warrants to which such items relate will be
deemed to be effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of an exercise of Warrants on the Expiration Date, if all
of the items referred to in the preceding paragraph are received by the Warrant
Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, the
exercise of the Warrant to which such items relate will be effective on the
Expiration Date and prior to the expiration of such Warrant.
As soon as practicable after the exercise of any Warrant or Warrants,
the Company shall issue or cause to be issued to or upon the written order of
the registered holder of this Warrant Certificate, a certificate or certificates
evidencing the Share or Shares to which such holder is entitled, in fully
registered form, registered in such name or names as may be directed by such
holder pursuant to the form of Election to Exercise, as set forth hereon. Such
certificate or certificates evidencing the Share or Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of such Share or Shares as of the
close of business on the date upon which the exercise of this Warrant was deemed
to be effective as provided in the preceding paragraph.
The Company will not be required to issue fractional shares of Common
Stock upon exercise of Warrants or distribute Share certificates that evidence
fractional shares of Common
7
<PAGE>
Stock. In lieu of fractional shares of Common Stock, there shall be paid to the
holder of this Warrant Certificate at the time such Warrant Certificate is
exercised an amount in cash equal to the same fraction of the Current Market
Value per share of Common Stock on the Business Day preceding the date this
Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in New
York City, (ii) the principal U.S. securities exchange or market, if any, on
which the Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which any other securities
underlying the Warrants are listed or admitted to trading are open for business.
The Warrants and the Shares issuable upon exercise thereof are
entitled to the benefits of a registration rights agreement (as amended from
time to time, the "Registration Rights Agreement"), pursuant to which the
holders representing not less than a majority of Registrable Securities (as
defined in the Registration Rights Agreement) have the right under certain
circumstances to require the Company to effect one demand registration of the
Registrable Securities. The Registration Rights Agreement also provides the
holders of Registrable Securities with the right, subject to the conditions and
limitations contained therein, to include the Registrable Securities in certain
registration statements filed by the Company for its account or for the account
of any of its other securityholders. The Registration Rights Agreement further
provides, among other things, that (i) prior to the Triggering Date (as defined
in the Registration Rights Agreement), if WorldCom Inc, a Georgia corporation
("WorldCom") or its Affiliates (as defined in the Registration Rights Agreement)
effect a direct or indirect sale or other disposition of capital stock of the
Company to any proposed purchaser in any transaction or a series of related
transactions resulting in a Warrant Change of Control, the holders of Warrants
and Shares will have the right to sell all of such securities to the proposed
purchaser at the same price as received by WorldCom or its Affiliates
8
<PAGE>
and (ii) prior to an Initial Public Equity Offering, WorldCom or its Affiliates
may require the holders of Warrants and Shares to sell such securities to any
person to whom WorldCom and such Affiliates sell all of their capital stock in
the Company in a transaction that results in a Warrant Change of Control, at the
same price as that received by WorldCom and such Affiliates.
The Company will furnish to any holder of a Warrant upon written
request and without charge a copy of the Warrant Agreement and the Registration
Rights Agreement. Requests may be made to: WAM!NET Inc., 6100 West 110th
Street, Minneapolis, Minnesota 55438; Attention: Secretary.
9
<PAGE>
(ELECTION TO EXERCISE)
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise this Warrant
Certificate as to ____ Warrants and to purchase the whole number of Shares
issuable upon exercise thereof and herewith tenders payment for such Shares as
follows:
$_________________ in cash or by certified or official bank check; or
by surrender of _____ Warrants pursuant to a Cashless Exercise at the current
Cashless Exercise Ratio.
The undersigned requests that a certificate representing such Shares
be registered in the name of________whose address is____________and that such
Shares be delivered to______________whose address is_________________________.
Any cash payments to be paid in lieu of a fractional Share should
be made to__________whose address is________and the check representing payment
thereof should be delivered to____________whose address is_____________.
Dated_____________________,____
Name of holder of
Warrant Certificate:____________________________
(Please Print)
Tax Identification or
Social Security Number:_________________________
Address:________________________________________
________________________________________
Signature:______________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever and if the certificate
representing the Shares is to be registered in a name
other than that in which this Warrant Certificate is
registered, or if any cash payment to be paid in lieu
of a fractional share is to be made to a person other
than the registered holder of this Warrant
Certificate, the signature of the holder hereof must
be guaranteed.
10
<PAGE>
Dated_____________,____
Signature:______________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever.
Signature Guaranteed:___________________________
[FORM OF ASSIGNMENT]
For value received___________________hereby sells, assigns and
transfers unto__________________the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint____________attorney, to transfer said Warrant Certificate on the
books of the within-named Company, with full power of substitution in the
premises.
Dated_______________, 199_
Signature:___________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in every
particular, without alteration or enlargement or any change
whatever.
Signature Guaranteed:_________________________________
In connection with any transfer of Warrants represented by this
Warrant Certificate occurring prior to the date which is the earlier of (i) the
date of the declaration by the Securities and Exchange Commission of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of the Warrants (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the Resale Restriction Termination Date, the undersigned
confirms that it has not utilized any general solicitation or general
advertising in connection with the transfer and that:
11
<PAGE>
[Check One]
---------
[ ] (a) the Warrants are being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
--
[ ] (b) this Warrant Certificate is being transferred other than in accordance
with (a) above and documents are being furnished which comply with the
conditions of transfer set forth in Section 1.08 of the Warrant
Agreement.
If none of the foregoing boxes is checked, the Unit Agent shall not be obligated
to register this Warrant Certificate in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth Section 1.08 of the Warrant Agreement shall have been
satisfied.
_______________________________________________________________________________
Date:__________________ Your signature:______________________________
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:___________________________________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing the
Warrants 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 and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: ____________________ ______________________________________
NOTICE: To be executed by
an executive officer
12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE AND GLOBAL WARRANTS
-------------------------------------------------------
The following exchanges made in respect of certified Warrants or another
Global Warrant have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Exchange Amount of Decrease in Amount of Increase in Number of Warrants of this Signature of authorized
Number of Warrants Number of Warrants Global Warrant following officer of Warrant Agent
Subject to this Global Subject to this Global such decrease (or increase)
Warrant Warrant
</TABLE>
13
<PAGE>
Exhibit 4.6(A)
RULE 144A UNIT CERTIFICATE
THIS UNIT IS A GLOBAL UNIT AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR
A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS UNIT IS NOT
EXCHANGEABLE FOR UNITS REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND THE WARRANT AGREEMENT HEREINAFTER REFERRED TO, AND NO TRANSFER OF
THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) AGREES THAT IT WILL
NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD AS MAY BE
PRESCRIBED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR
<PAGE>
THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER
OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF
ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION
DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S, PURSUANT TO RULE 904 OF REGULATION S OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM IN
REGULATION S.
<PAGE>
WAM!NET INC.
-----------------------
GLOBAL UNIT
200,000 Units
Consisting of $200,000,000 Aggregate Principal at Maturity
of
13 1/4% Senior Discount Notes due 2005
and
600,000 Warrants To Purchase Common Stock
CUSIP No. 933590 AC 5
REGISTERED No.
WAM!NET Inc., a Minnesota corporation (the "Company"), hereby certifies
that CEDE & CO., or registered assigns, is the owner of 200,000 Units. Each Unit
consists of (i) $1,000 principal amount at maturity of 13 1/4% Senior Discount
Notes due 2005 of the Company (the "Notes"), and (ii) three Warrants (the
"Warrants"), each Warrant initially entitling the holder thereof to purchase
2.01 shares of Common Stock, par value $.01 per share (the "Common Stock"), of
the Company. The terms of the Notes are governed by an Indenture (as amended
from time to time, the "Indenture") dated as of March 5, 1998 between the
Company and First Trust National Association, a national banking corporation, as
trustee (the "Trustee"), and are subject to the terms and provisions contained
therein. The terms of the Warrants are governed by a Warrant Agreement (as
amended from time to time, the "Warrant Agreement") dated as of March 5, 1998
between the Company and First Trust National Association, a national banking
corporation, as warrant agent (the "Warrant Agent"), and are subject to the
terms and provisions contained therein. The holder of this Unit Certificate
consents to all of the terms and provisions of the Indenture and the Warrant
Agreement by acceptance hereof. The Company will furnish to any Holder of this
Unit Certificate upon written request and without charge a copy of the Indenture
and/or the Warrant Agreement. Requests may be made to: WAM!NET Inc., 6100 West
110th Street, Minneapolis, Minnesota 55438, attention: Secretary.
The Company hereby appoints First Trust National Association, a national
banking corporation, as Unit Agent (the "Unit Agent") with respect to the Units.
Transfers of this Unit shall be made by the Unit Agent in accordance with the
restrictions set forth in Section 3.17 and Section 3.16 of the Indenture and
Section 1.08 of the Warrant Agreement. The Unit Agent shall be entitled to the
benefits and privileges of the Trustee under the Indenture and the Warrant Agent
under the Warrant Agreement.
<PAGE>
The Notes and the Warrants represented by this Unit Certificate will not be
separately transferable until the earliest to occur of: (i) September 1, 1998,
(ii) the occurrence of an Exercise Event (as defined in the Warrant Agreement),
(iii) the occurrence of an Event of Default (as defined in the Indenture), (iv)
the date on which a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to a registered exchange offer for
the Notes or covering the sale by holders of the Notes is declared effective
under the Securities Act, (v) immediately prior to any redemption of Notes by
the Company from the net proceeds of an Initial Public Equity Offering (as
defined in the Indenture), (vi) upon the occurrence of a Warrant Change of
Control (as defined in the Warrant Agreement) or (vii) such earlier date as may
be determined by Merrill Lynch & Co. in its sole discretion.
Dated: March 5, 1998 WAM!NET INC.
By: /s/ Edward J. Driscoll III
---------------------------------
Name: Edward J. Driscoll III
Title: President and CEO
Appointment as Unit Agent accepted
and agreed to on the terms set
forth above:
FIRST TRUST NATIONAL ASSOCIATION,
as Unit Agent
By: /s/ Kathe Barrett
--------------------------------
Authorized Signatory
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the Securities
and Exchange Commission of the effectiveness of a registration statement under
the Securities Act of 1933, as amended (the "Securities Act") covering resales
of this Security (which effectiveness shall not have been suspended or
terminated at the date of the transfer) and (ii) the Resale Restriction
Termination Date, the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
[CHECK ONE]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act provided by Rule
144A thereunder.
OR
[ ] (b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security, the Indenture and
the Warrant Agreement.
<PAGE>
If none of the foregoing boxes is checked, the Unit Agent shall not be obligated
to register this Security in the name of any person other than the Holder hereof
unless and until the conditions to any such transfer of registration set forth
herein and in Sections 3.16 and 3.17 of the Indenture and Section 1.08 of the
Warrant Agreement shall have been satisfied.
- --------------------------------------------------------------------------------
Date: Your signature:
--------------- -----------------------------
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guarantee:
------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Security
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 and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Name of
Purchaser:
Dated: By:
-------------- ----------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
Exhibit 4.6(B)
RULE 144A UNIT CERTIFICATE
THIS UNIT IS A GLOBAL UNIT AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR
A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS UNIT IS NOT
EXCHANGEABLE FOR UNITS REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND THE WARRANT AGREEMENT HEREINAFTER REFERRED TO, AND NO TRANSFER OF
THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) AGREES THAT IT WILL
NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD AS MAY BE
PRESCRIBED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR
<PAGE>
THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER
OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF
ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION
DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S, PURSUANT TO RULE 904 OF REGULATION S OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM IN
REGULATION S.
<PAGE>
WAM!NET INC.
-------------------------
GLOBAL UNIT
8,030 Units
Consisting of $8,030,000 Aggregate Principal at Maturity
of
13 1/4% Senior Discount Notes due 2005
and
24,090 Warrants To Purchase Common Stock
CUSIP No. 933590 AC 5
REGISTERED No.
WAM!NET Inc., a Minnesota corporation (the "Company"), hereby certifies
that CEDE & CO., or registered assigns, is the owner of 8,030 Units. Each Unit
consists of (i) $1,000 principal amount at maturity of 13 1/4% Senior Discount
Notes due 2005 of the Company (the "Notes"), and (ii) three Warrants (the
"Warrants"), each Warrant initially entitling the holder thereof to purchase
2.01 shares of Common Stock, par value $.01 per share (the "Common Stock"), of
the Company. The terms of the Notes are governed by an Indenture (as amended
from time to time, the "Indenture") dated as of March 5, 1998 between the
Company and First Trust National Association, a national banking corporation, as
trustee (the "Trustee"), and are subject to the terms and provisions contained
therein. The terms of the Warrants are governed by a Warrant Agreement (as
amended from time to time, the "Warrant Agreement") dated as of March 5, 1998
between the Company and First Trust National Association, a national banking
corporation, as warrant agent (the "Warrant Agent"), and are subject to the
terms and provisions contained therein. The holder of this Unit Certificate
consents to all of the terms and provisions of the Indenture and the Warrant
Agreement by acceptance hereof. The Company will furnish to any Holder of this
Unit Certificate upon written request and without charge a copy of the Indenture
and/or the Warrant Agreement. Requests may be made to: WAM!NET Inc., 6100 West
110th Street, Minneapolis, Minnesota 55438, attention: Secretary.
The Company hereby appoints First Trust National Association, a national
banking corporation, as Unit Agent (the "Unit Agent") with respect to the Units.
Transfers of this Unit shall be made by the Unit Agent in accordance with the
restrictions set forth in Section 3.17 and Section 3.16 of the Indenture and
Section 1.08 of the Warrant Agreement. The Unit Agent shall be entitled to the
benefits and privileges of the Trustee under the Indenture and the Warrant Agent
under the Warrant Agreement.
<PAGE>
The Notes and the Warrants represented by this Unit Certificate will not be
separately transferable until the earliest to occur of: (i) September 1, 1998,
(ii) the occurrence of an Exercise Event (as defined in the Warrant Agreement),
(iii) the occurrence of an Event of Default (as defined in the Indenture), (iv)
the date on which a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to a registered exchange offer for
the Notes or covering the sale by holders of the Notes is declared effective
under the Securities Act, (v) immediately prior to any redemption of Notes by
the Company from the net proceeds of an Initial Public Equity Offering (as
defined in the Indenture), (vi) upon the occurrence of a Warrant Change of
Control (as defined in the Warrant Agreement) or (vii) such earlier date as may
be determined by Merrill Lynch & Co. in its sole discretion.
Dated: March 5, 1998 WAM!NET INC.
By: /s/ Edward J. Driscoll III
--------------------------------
Name: Edward J. Driscoll III
Title: President and CEO
Appointment as Unit Agent accepted
and agreed to on the terms set
forth above:
FIRST TRUST NATIONAL ASSOCIATION,
as Unit Agent
By: /s/ Kathe Barrett
--------------------------------
Authorized Signatory
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the Securities
and Exchange Commission of the effectiveness of a registration statement under
the Securities Act of 1933, as amended (the "Securities Act") covering resales
of this Security (which effectiveness shall not have been suspended or
terminated at the date of the transfer) and (ii) the Resale Restriction
Termination Date, the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
[CHECK ONE]
[ ] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
OR
[ ] (b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security, the Indenture and
the Warrant Agreement.
<PAGE>
If none of the foregoing boxes is checked, the Unit Agent shall not be obligated
to register this Security in the name of any person other than the Holder hereof
unless and until the conditions to any such transfer of registration set forth
herein and in Sections 3.16 and 3.17 of the Indenture and Section 1.08 of the
Warrant Agreement shall have been satisfied.
- --------------------------------------------------------------------------------
Date: Your signature:
------------- -----------------------------
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:
----------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Security
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 and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Name of
Purchaser:
Dated: By:
----------------- --------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
Exhibit 4.7
REGULATION S UNIT CERTIFICATE
THIS UNIT IS A GLOBAL UNIT AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS UNIT IS
NOT EXCHANGEABLE FOR UNITS REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND THE WARRANT AGREEMENT HEREINAFTER REFERRED TO, AND NO TRANSFER OF
THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) AGREES THAT IT WILL
NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD AS MAY BE
PRESCRIBED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR
<PAGE>
THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER
OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF
ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION
DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S, PURSUANT TO RULE 904 OF REGULATION S OR (E)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM IN
REGULATION S.
<PAGE>
WAM!NET INC.
--------------------
GLOBAL UNIT
500 Units
Consisting of $500,000 Aggregate Principal at Maturity
of
13 1/4% Senior Discount Notes due 2005
and
1,500 Warrants To Purchase Common Stock
CUSIP No. U25540 AA 0
REGISTERED No.
WAM!NET Inc., a Minnesota corporation (the "Company"), hereby
certifies that CEDE & CO., or registered assigns, is the owner of 500 Units.
Each Unit consists of (i) $1,000 principal amount at maturity of 13 1/4% Senior
Discount Notes due 2005 of the Company (the "Notes"), and (ii) three Warrants
(the "Warrants"), each Warrant initially entitling the holder thereof to
purchase 2.01 shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company. The terms of the Notes are governed by an Indenture
(as amended from time to time, the "Indenture") dated as of March 5, 1998
between the Company and First Trust National Association, a national banking
corporation, as trustee (the "Trustee"), and are subject to the terms and
provisions contained therein. The terms of the Warrants are governed by a
Warrant Agreement (as amended from time to time, the "Warrant Agreement") dated
as of March 5, 1998 between the Company and First Trust National Association, a
national banking corporation, as warrant agent (the "Warrant Agent"), and are
subject to the terms and provisions contained therein. The holder of this Unit
Certificate consents to all of the terms and provisions of the Indenture and the
Warrant Agreement by acceptance hereof. The Company will furnish to any Holder
of this Unit Certificate upon written request and without charge a copy of the
Indenture and/or the Warrant Agreement. Requests may be made to: WAM!NET Inc.,
6100 West 110th Street, Minneapolis, Minnesota 55438, attention: Secretary.
The Company hereby appoints First Trust National Association, a
national banking corporation, as Unit Agent (the "Unit Agent") with respect to
the Units. Transfers of this Unit shall be made by the Unit Agent in accordance
with the restrictions set forth in Section 3.17 and Section 3.16 of the
Indenture and Section 1.08 of the Warrant Agreement. The Unit Agent shall be
entitled to the benefits and privileges of the Trustee under the Indenture and
the Warrant Agent under the Warrant Agreement.
<PAGE>
The Notes and the Warrants represented by this Unit Certificate will
not be separately transferable until the earliest to occur of: (i) September 1,
1998, (ii) the occurrence of an Exercise Event (as defined in the Warrant
Agreement), (iii) the occurrence of an Event of Default (as defined in the
Indenture), (iv) the date on which a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to a registered
exchange offer for the Notes or covering the sale by holders of the Notes is
declared effective under the Securities Act, (v) immediately prior to any
redemption of Notes by the Company from the net proceeds of an Initial Public
Equity Offering (as defined in the Indenture), (vi) upon the occurrence of a
Warrant Change of Control (as defined in the Warrant Agreement) or (vii) such
earlier date as may be determined by Merrill Lynch & Co. in its sole discretion.
Dated: March 5, 1998 WAM!NET INC.
By: /s/ Edward J. Driscoll III
---------------------------------
Name: Edward J. Driscoll III
Title: President & CEO
Appointment as Unit Agent accepted
and agreed to on the terms set
forth above:
FIRST TRUST NATIONAL ASSOCIATION,
as Unit Agent
By: /s/ Kathe Barrett
---------------------------------
Authorized Signatory
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to __________________________________
_______________________________________________________________________________
(Insert assignee's social security or tax ID number)___________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint__
_______________________________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Securities and Exchange Commission of the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
covering resales of this Security (which effectiveness shall not have been
suspended or terminated at the date of the transfer) and (ii) the Resale
Restriction Termination Date, the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with the transfer
and that:
[Check One]
---------
[ ] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
--
[ ] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security, the Indenture and
the Warrant Agreement.
<PAGE>
If none of the foregoing boxes is checked, the Unit Agent shall not be obligated
to register this Security in the name of any person other than the Holder hereof
unless and until the conditions to any such transfer of registration set forth
herein and in Sections 3.16 and 3.17 of the Indenture and Section 1.08 of the
Warrant Agreement shall have been satisfied.
_______________________________________________________________________________
Date:________________ Your signature:________________________________
________________________________
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:___________________________________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security 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 and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Name of
Purchaser:
Dated: ____________________ By:________________________________________
NOTICE: To be executed by
an executive officer
<PAGE>
EXHIBIT 4.9
NUMBER SHARES
---------------- ----------------
[LOGO OF WAM!NET APPEARS HERE]
---------------- ----------------
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
This Certifies that _______________________________________________________
is the registered holder of ____________________________________________________
Shares
of Common Stock of WAM!NET INC. a Minnesota Corporation,
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate
to be signed by its duly authorized officers
this ________________ day of ____________ A.D. _____
__________________________________ ___________________________________
<PAGE>
For Value Received, _____________ hereby sell, assign and transfer unto _______
_______________________________________________________________________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint
__________________________________________________________ Attorney to transfer
the said Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated _______________________
In presence of
_____________________________________________
_________________________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 4.10
----------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED MARCH 5, 1998
AMONG
WAM!NET INC.
AND
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED,
CREDIT SUISSE FIRST BOSTON CORPORATION
AND
FIRST CHICAGO CAPITAL MARKETS, INC.
----------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into this 5th day of March, 1998, by and among WAM!NET Inc., a Minnesota
corporation (the "Company"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation and First Chicago Capital
Markets, Inc. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated February
26, 1998, among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of an aggregate of 208,530 Units. The Units include $208,530,000
principal face amount of the Company's 13 1/4% Senior Discount Notes due 2005,
Series A (the "Notes"). In order to induce the Initial Purchasers to enter into
the Purchase Agreement, the Company has agreed to provide to the Initial
Purchasers and their direct and indirect transferees of Notes the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
specified below:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time to
time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
"CLOSING DATE" shall mean the Closing Time as defined in the Purchase
Agreement.
"COMPANY" shall have the meaning set forth in the preamble and shall also
include the Company's successors.
"DEPOSITARY" shall mean The Depository Trust Company and its nominees and
successors.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of Exchange
Notes for Registrable Notes pursuant to Section 2.1 hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933 Act
effected pursuant to Section 2.1 hereof.
<PAGE>
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement,
including the Prospectus contained therein, all exhibits thereto and all
documents incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2.1 hereof.
"EXCHANGE NOTES" shall mean the 13 1/4% Senior Discount Notes due 2005,
Series B, issued by the Company under the Indenture containing terms identical
to the Notes in all material respects (except for references to certain
liquidated damages interest rate provisions, restrictions on transfers and
trading as unit with warrants of the Company and restrictive legends), to be
offered to Holders of Securities in exchange for Registrable Notes pursuant to
the Exchange Offer.
"HOLDER" shall mean an Initial Purchaser, for so long as it owns any
Registrable Notes, and each of its successors, assigns and direct and indirect
transferees who become registered owners of Registrable Notes under the
Indenture and each Participating Broker-Dealer that holds Exchange Notes for so
long as such Participating Broker-Dealer is required to deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of such
Exchange Notes.
"INDENTURE" shall mean the Indenture relating to the Notes, dated as of
March 5, 1998, among the Company, the Subsidiary Guarantors that become parties
thereto from time to time, and First Trust National Association, as trustee, as
the same may be amended, supplemented, waived or otherwise modified from time to
time in accordance with the terms thereof.
"INITIAL PURCHASER" or "INITIAL PURCHASERS" shall have the meaning set
forth in the preamble and their successors.
"MAJORITY HOLDERS" shall mean (i), with respect to actions in respect of
the Exchange Registration Statement, the Holders of a majority of the aggregate
principal amount of Outstanding (as defined in the Indenture) Registrable Notes
that are eligible to participate in the Exchange Offer and (ii), with respect to
actions in respect of a Shelf Registration Statement, the Holders of a majority
of the aggregate principal amount of Outstanding Registrable Notes that are
covered by such Shelf Registration Statement. Whenever the consent or approval
of Holders of a specified percentage of Registrable Notes is required hereunder,
Notes held by the Company, any Subsidiary Guarantor or any other obligor on the
Notes or any Affiliate (as defined in the Indenture) of the Company shall be
disregarded in determining whether such consent or approval was given by the
Holders of such required percentage amount.
"PARTICIPATING BROKER-DEALER" shall mean any of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Credit Suisse First Boston Corporation and First
Chicago Capital Markets, Inc. and any other broker-dealer which makes a market
in the Notes and exchanges Registrable Notes in the Exchange Offer for Exchange
Notes.
2
<PAGE>
"PERSON" shall mean an individual, partnership (general or limited),
corporation, limited liability company, trust or unincorporated organization, or
a government or agency or political subdivision thereof.
"PRIVATE EXCHANGE" shall have the meaning set forth in Section 2.1 hereof.
"PRIVATE EXCHANGE NOTES" shall have the meaning set forth in Section 2.1
hereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Notes covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble.
"REGISTRABLE NOTES" shall mean the Notes and, if issued, the Private
Exchange Notes; provided, however, that any Note and, if issued, any Private
Exchange Note shall cease to be a Registrable Note on (i) the date on which such
Note is exchanged by a Person, other than a Participating Broker-Dealer, for an
Exchange Note in the Exchange Offer, (ii) as to any Exchange Note received by a
Participating Broker-Dealer in the Exchange Offer, the date on which such
Exchange Note is sold to a purchaser who receives from such Participating
Broker-Dealer on or prior to the date of such sale a copy of the Prospectus
contained in the Exchange Offer Registration Statement, as amended or
supplemented, (iii) the date on which the offer and sale of such Note or Private
Exchange Note, as the case may be, has been effectively registered under the
1933 Act, and such Note or Private Exchange Note has been disposed of under the
Shelf Registration Statement, (iv) the date on which such Note or Private
Exchange Note, as the case may be, is eligible for distribution to the public
pursuant to Rule 144(k) under the 1933 Act (or any similar provision then in
effect, but not Rule 144A), (v) the date on which such Note or Private Exchange
Note, as the case may be, shall have otherwise been sold by the holder thereof
and a new Note, executed by the Company and authenticated by the Trustee and not
containing a legend restricting further transfer, shall have been delivered to
the purchaser and subsequent sales of such Note to the public shall not require
registration or qualification under the 1933 Act or any similar state law then
in effect, or (vi) such Note or Private Exchange Note, as the case may be,
ceases to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state securities
or blue sky laws and compliance with the rules of the NASD (including reasonable
fees and disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the Exchange Notes or Registrable Notes
and any filings with the NASD), (iii) all expenses of any
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Persons in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements
and other documents relating to the performance of and compliance with this
Agreement, (iv) all fees and expenses incurred in connection with the listing,
if any, of any of the Registrable Notes on any securities exchange or exchanges,
(v) all rating agency fees, (vi) the fees and disbursements of counsel for the
Company and of the independent public accountants of the Company, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, (vii) the fees and expenses of the Trustee,
and any escrow agent or custodian, (viii) the reasonable fees and expenses of
the Initial Purchasers in connection with the Exchange Offer, including the
reasonable fees and expenses of counsel to the Initial Purchasers in connection
therewith, (ix) the reasonable fees and disbursements of special counsel
selected by Merrill Lynch to represent the Holders of Registrable Notes in
connection with any Shelf Registration and (x) any fees and disbursements of the
underwriters customarily required to be paid by issuers or sellers of securities
and the fees and expenses of any special experts retained by the Company in
connection with any Registration Statement, but excluding underwriting discounts
and commissions and transfer taxes, if any, relating to the sale or disposition
of Registrable Notes by a Holder pursuant to a Shelf Registration Statement.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company which covers any of the Exchange Notes or Registrable Notes pursuant to
the provisions of this Agreement, and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission or any successor
agency or government body performing the functions currently performed by the
United States Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to Section
2.2 hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration statement
of the Company pursuant to the provisions of Section 2.2 of this Agreement which
covers all of the Registrable Notes or all of the Private Exchange Notes on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule that may
be adopted by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"SUBSIDIARY GUARANTORS" shall have the meaning assigned thereto in the
Indenture.
"TRUSTEE" shall mean the trustee with respect to the Notes and the Exchange
Notes under the Indenture.
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2. REGISTRATION UNDER THE 1933 ACT.
2.1 EXCHANGE OFFER. The Company shall, for the benefit of the Holders, at
the Company's cost, (A) prepare and, as soon as practicable but not later than
90 days following the Closing Date, file with the SEC under the 1933 Act an
Exchange Offer Registration Statement on an appropriate form with respect to the
offer of the Company to the Holders to exchange all of the Registrable Notes
(other than Private Exchange Notes) for a like principal amount of Exchange
Notes, (B) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the 1933 Act within 150 days of the
Closing Date, (C) use its best efforts to keep the Exchange Offer Registration
Statement effective until the closing of the Exchange Offer and (D) use its best
efforts to cause the Exchange Offer to be consummated not later than 30 days
following the date on which the Exchange Offer Registration Statement is
declared effective. The Exchange Notes will be issued under the Indenture. Upon
the effectiveness of the Exchange Offer Registration Statement, the Company
shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Notes for Exchange Notes (assuming that such Holder (a) is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b)
is not a broker-dealer tendering Registrable Notes acquired directly from the
Company for its own account, (c) acquired the Exchange Notes in the ordinary
course of such Holder's business and (d) has no arrangements or understandings
with any Person to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes) to transfer such Exchange Notes from and after
their receipt without any limitations or restrictions under the 1933 Act and
under state securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(a) mail as promptly as practicable 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;
(b) keep the Exchange Offer open for acceptance for a period of not
less than 30 calendar days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange Offer;
(d) permit Holders to withdraw tendered Registrable Notes at any time
prior to 5:00 p.m. (Eastern Time) on the last business day of the Exchange
Period, by sending to the institution specified in the Prospectus forming
part of the Exchange Offer Registration Statement and in the letter of
transmittal, a telegram, telex, facsimile transmission or letter setting
forth the name of such Holder, the principal amount of Registrable Notes
delivered for exchange, and a statement that such Holder is withdrawing
such Holder's election to have such Securities exchanged;
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(e) notify each Holder that any Registrable Security not tendered will
remain outstanding and continue to accrue interest, but will not retain any
rights under this Agreement (except in the case of the Initial Purchasers
and Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all applicable laws relating
to the Exchange Offer.
If, prior to consummation of the Exchange Offer, the Initial Purchasers
hold any Securities acquired by them and having the status of an unsold
allotment in the initial distribution, the Company, upon the request of any
Initial Purchaser, shall simultaneously with the delivery of the Exchange Notes
in the Exchange Offer issue and deliver to such Initial Purchaser in exchange
(the "Private Exchange") for the Notes held by such Initial Purchaser, a like
principal amount of debt securities of the Company, on a senior basis, that are
identical (except that such securities shall bear appropriate transfer
restrictions) to the Exchange Notes (the "Private Exchange Notes").
The Exchange Notes and the Private Exchange Notes shall be issued under (i)
the Indenture or (ii) an indenture identical in all material respects to the
Indenture and which, in either case, has been qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), and which does not place the
transfer restrictions (or similar restrictions) set forth in Section 3.17 of the
Indenture or on the face of the Notes on the Exchange Notes; provided, however,
the Private Exchange Notes shall be subject to such transfer restrictions. The
Indenture or such indenture shall provide that the Exchange Notes, the Private
Exchange Notes and the Notes shall vote and consent together on all matters as
one class and that none of the Exchange Notes, the Private Exchange Notes or the
Notes will have the right to vote or consent as a separate class on any matter.
The Private Exchange Notes shall be of the same series as, and the Company shall
use its best efforts to have the Private Exchange Notes bear the same CUSIP
number as, the Exchange Notes.
As soon as practicable after the close of the Exchange Offer and/or the
Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Registrable Notes properly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement;
(ii) accept for exchange all Notes properly tendered pursuant to the
Private Exchange;
(iii) deliver to the Trustee for cancellation all Registrable Notes so
accepted for exchange; and
(iv) cause the Trustee promptly to authenticate and deliver Exchange
Notes or Private Exchange Notes, as the case may be, to each Holder of
Registrable Notes so accepted
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for exchange in a principal face amount equal to the principal face amount
of the Registrable Notes of such Holder so accepted for exchange.
The Accreted Value of each Exchange Note and Private Exchange Note shall be
equal to the Accreted Value of the Registrable Note surrendered in exchange
therefor, and interest on each Exchange Note and Private Exchange Note will
accrue from March 1, 2002 or, if later, the date on which interest was last paid
on the Registrable Note surrendered in exchange therefor. The Exchange Offer and
the Private Exchange shall not be subject to any conditions, other than (i) that
the Exchange Offer or the Private Exchange, or the making of any exchange by a
Holder, does not violate applicable law or any applicable interpretation of the
staff of the SEC, (ii) the due tendering of Registrable Notes in accordance with
the Exchange Offer and the Private Exchange, (iii) that each Holder of
Registrable Notes exchanged in the Exchange Offer shall have represented that
all Exchange Notes to be received by it shall be acquired in the ordinary course
of its business and that at the time of the consummation of the Exchange Offer
it shall have no arrangement or understanding with any person to participate in
the distribution (within the meaning of the 1933 Act) of the Exchange Notes and
shall have made such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to render the use of Form
S-4 or other appropriate form under the 1933 Act available and (iv) that no
action or proceeding shall have been instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer or the
Private Exchange which, in the Company's judgment, would reasonably be expected
to impair the ability of the Company to proceed with the Exchange Offer or the
Private Exchange. The Company shall inform the Initial Purchasers of the names
and addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Notes in the Exchange Offer.
2.2 SHELF REGISTRATION. If (i) the Company is not permitted to file the
Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or SEC policy,
(ii) the Exchange Offer is not for any other reason consummated within 180 days
after the Closing Date, (iii) any Holder of Registrable Notes notifies the
Company within 30 days after the commencement of the Exchange Offer that (a) due
to a change in law or policy it is not entitled to participate in the Exchange
Offer, (b) due to a change in law or policy it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (c)
it is a broker-dealer and owns Registrable Notes acquired directly from the
Company or an affiliate of the Company or (iv) the Holders of a majority in
aggregate principal amount of the Registrable Notes may not resell the Exchange
Notes acquired by them in the Exchange Offer to the public without restriction
under the Securities Act and under applicable blue sky or state securities laws,
then the Company will, at its cost:
(A) Use its best efforts to, prior to the later of (x) the 90th day
after the Closing Date or (y) the 60th day after such filing obligation
arises, file with the SEC a Shelf
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Registration Statement relating to the offer and sale of the Registrable Notes
by the Holders from time to time in accordance with the methods of distribution
elected by the Majority Holders participating in the Shelf Registration and set
forth in such Shelf Registration Statement, and thereafter shall use its best
efforts to cause such Shelf Registration Statement to be declared effective as
promptly as practicable but no later than 60 days after the obligation to file
the Shelf Registration Statement arises; provided, that if the Company has not
consummated the Exchange Offer within 180 days after the Closing Date, than the
Issuer will file the Shelf Registration Statement with the SEC on or prior to
the 30th day after such date.
(B) Use its best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of two
years from the date the Shelf Registration Statement is declared effective
by the SEC, or for such shorter period that will terminate when all
Registrable Notes covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement or cease to be
outstanding or otherwise to be Registrable Notes (the "Effectiveness
Period");
(C) Notwithstanding any other provisions hereof, use its best efforts
to ensure that (i) any Shelf Registration Statement and any amendment
thereto and any Prospectus forming part thereof and any supplement thereto
complies in all material respects with the 1933 Act and the rules and
regulations thereunder, (ii) any Shelf Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (iii) any Prospectus forming part of any Shelf Registration
Statement, and any supplement to such Prospectus (as amended or
supplemented from time to time), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements, in light of the circumstances under which they were made,
not misleading.
The Company shall not permit any securities other than Registrable Notes to
be included in the Shelf Registration Statement. The Company further agrees, if
necessary, to supplement or amend the Shelf Registration Statement, as required
by Section 3(b) below, and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
2.3 EXPENSES. The Company shall pay all Registration Expenses in connection
with a registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Notes pursuant to the Shelf
Registration Statement.
2.4 EFFECTIVENESS. (a) The Company will be deemed not have used its best
efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case
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may be, to become, or to remain, effective during the requisite period set forth
in Section 2.1 or 2.2 if the Company voluntarily takes any action that would, or
omits to take any action which omission would, result in any such Registration
Statement not being declared effective or in the Holders of Registrable Notes
covered thereby not being able to exchange or offer and sell such Registrable
Notes during such period as and to the extent contemplated hereby, unless such
action is required by applicable law.
(b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof
or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be
deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has been declared effective, the
offering of Exchange Notes pursuant to an Exchange Offer Registration Statement
or Registrable Notes pursuant to a Shelf Registration Statement is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Registration Statement will be
deemed not to have become effective during the period of such interference,
until the offering of Exchange Notes or Registrable Notes, as the case may be,
pursuant to such Registration Statement may legally resume.
2.5 INTEREST. The Indenture executed in connection with the Notes will
provide that in the event that either (a) the Exchange Offer Registration
Statement is not filed with the Commission on or prior to the 90th calendar day
following the Closing Date, (b) the Exchange Offer Registration Statement has
not been declared effective on or prior to the 150th calendar day following the
Closing Date or (c) the Exchange Offer is not consummated on or prior to the
180th calendar day following the Closing Date or a Shelf Registration Statement
is not declared effective within the period specified in Section 2.2(A), (each
such event referred to in clauses (a) through (c) above, a "Registration
Default"), the Registrable Notes shall accrue interest, as liquidated damages
("Additional Interest"), at a rate of one-half of one percent per annum of the
Accreted Value of the Registrable Notes upon the occurrence of each Registration
Default, which rate will increase by one-half of one percent each 90-day period
that such Additional Interest continues to accrue as a result of such
Registration Default, provided that the maximum aggregate interest rate that
accrues on the Accreted Value of the Registrable Notes will in no event exceed
one and one-half percent (1.5%) per annum. Following the cure of a Registration
Default the accrual of Additional Interest on the Registrable Notes will respect
to such Registration Default shall cease.
If the Shelf Registration Statement is declared effective but becomes
unusable by the Holders of Notes covered by such Shelf Registration Statement
("Shelf Registered Notes") for any reason, and the aggregate number of days in
any consecutive twelve-month period for which the Shelf Registration Statement
shall not be usable exceeds 30 days in the aggregate, then commencing on such
30th day the Shelf Registered Notes shall accrue Additional Interest (in
addition to any interest then accruing in accordance with the immediately
preceding paragraph), as liquidated damages, at a rate of one-half of one
percent per annum of the Accreted Value of the Shelf Registered Notes, which
rate will increase by one-half of one percent at the end of each 90-day period
in which such Shelf Registration Statement is not usable, provided that the
maximum aggregate interest rate that accrues on the Accreted Value of the Shelf
Registered Notes as a result
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<PAGE>
of a Shelf Registration Statement being unusable (inclusive of any interest that
accrues on such Shelf Registered Notes pursuant to the first paragraph of this
Section 2.5) will in no event exceed one and one-half percent (1.5%) per annum.
Upon the Shelf Registration Statement once again becoming usable, the accrual of
Additional Interest on the Shelf Registered Notes due to such Shelf Registration
Statement not being usable will cease.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement or Registration
Statements, within the relevant time period specified in Section 2.1 or 2.2, as
applicable, on the appropriate form under the 1933 Act, which form (i) shall be
selected by the Company, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Notes by the selling Holders thereof,
and (iii) shall comply as to form in all material respects with the requirements
of the applicable form and include or incorporate by reference all financial
statements required by the SEC to be filed therewith or incorporated by
reference therein;
(b) use its best efforts to cause such Registration Statement(s) to become
effective and remain effective within the time periods specified in Section 2.1
or Section 2.2 hereof, as the case may be, and prepare and file with the SEC
such post-effective amendments to each Registration Statement as may be
necessary under applicable law to keep such Registration Statement effective for
the applicable period; and cause each Prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provision then in force) under the 1933 Act and comply
with the provisions of the 1933 Act, the 1934 Act and the rules and regulations
thereunder applicable to them with respect to the disposition of all securities
covered by each Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the selling
Holders thereof (including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least five business days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being filed and
advising such Holder that the distribution of Registrable Notes will be made in
accordance with the method selected by the Majority Holders participating in the
Shelf Registration; (ii) furnish to each Holder of Registrable Notes and to each
underwriter of an underwritten offering of Registrable Notes, if any, without
charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other documents as
such Holder or underwriter may reasonably request, including financial
statements and schedules and, if the Holder so requests, all exhibits in order
to facilitate the public sale or other disposition of the Registrable Notes, and
(iii) hereby consent to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Registrable
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Notes in connection with the offering and sale of the Registrable Notes covered
by the Prospectus or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the Registrable Notes under
all applicable state securities or "blue sky" laws of such jurisdictions as any
Holder of Registrable Notes covered by a Registration Statement and each
underwriter of an underwritten offering of Registrable Notes shall reasonably
request by the time the applicable Registration Statement is declared effective
by the SEC, and do any and all other acts and things which may be reasonably
necessary or advisable to enable each such Holder and underwriter to consummate
the disposition in each such jurisdiction of such Registrable Notes owned by
such Holder; provided, however, that the Company shall not be required to (i)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), or (ii) take any action which would subject it to general service
of process or taxation in any such jurisdiction where it is not then so subject;
(e) notify promptly each Holder of Registrable Notes under a Shelf
Registration or any Participating Broker-Dealer who has notified the Company
that it utilizing the Exchange Offer Registration Statement as provided in
paragraph (f) below and, if requested by such Holder or Participating
Broker-Dealer, confirm such advice in writing promptly (i) when a Registration
Statement has become effective and when any post-effective amendments and
supplements thereto become effective, (ii) of any request by the SEC or any
state securities authority for post-effective amendments or supplements to a
Registration Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness of
a Registration Statement or the initiation of any proceedings for that purpose,
(iv) in the case of a Shelf Registration, if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Notes covered
thereby, the representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar agreement,
if any, relating to the offering cease to be true and correct in all material
respects, (v) of the happening of any event or the discovery of any facts during
the period a Shelf Registration Statement is effective which makes any statement
made in such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein not
misleading, (vi) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Notes or the Exchange
Notes, as the case may be, for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (vii) of any determination by
the Company that a post-effective amendment to such Registration Statement would
be appropriate,
(f) (A) in the case of the Exchange Offer Registration Statement, (i)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution" which section shall be reasonably acceptable to Merrill Lynch on
behalf of the Participating Broker-Dealers, and which shall contain a summary
statement of the positions taken or policies made by the staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that holds
Registrable
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Notes acquired for its own account as a result of market-making activities or
other trading activities and that will be the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of Exchange Notes to be received by such
broker-dealer in the Exchange Offer, whether such positions or policies have
been publicly disseminated by the staff of the SEC or such positions or
policies, in the reasonable judgment of Merrill Lynch on behalf of the
Participating Broker-Dealers and its counsel, represent the prevailing views of
the staff of the SEC, including a statement that any such broker-dealer who
receives Exchange Notes for Registrable Notes pursuant to the Exchange Offer may
be deemed a statutory underwriter and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such Exchange
Notes, (ii) furnish to each Participating Broker-Dealer who has delivered to the
Company the notice referred to in Section 3(e), without charge, as many copies
of each Prospectus included in the Exchange Offer Registration Statement,
including any preliminary prospectus, and any amendment or supplement thereto,
as such Participating Broker-Dealer may reasonably request, (iii) hereby consent
to the use of the Prospectus forming part of the Exchange Offer Registration
Statement or any amendment or supplement thereto, by any Person subject to the
prospectus delivery requirements of the SEC, including all Participating
Broker-Dealers, in connection with the sale or transfer of the Exchange Notes
covered by the Prospectus or any amendment or supplement thereto, and (iv)
include in the transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer (x) the following
provision:
"If the exchange offeree is a broker-dealer holding Registrable Notes
acquired for its own account as a result of market-making activities or
other trading activities, it will deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of Exchange
Notes received in respect of such Registrable Notes pursuant to the
Exchange Offer"
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Notes, the broker-dealer will not be
deemed to admit that it is an underwriter within the meaning of the 1933 Act;
and
(B) in the case of any Exchange Offer Registration Statement involving
Participating Broker-Dealers, if in the opinion of counsel to the Initial
Purchasers such Participating Broker-Dealers would have liability under the 1933
Act or the 1934 Act with respect to any untrue statement of a material fact
contained in such Exchange Offer Registration Statement or the related
Prospectus, or with respect to any omission to state a material fact therein
necessary (in the case of the Prospectus, in light of the circumstances under
which they were made) to make the statements made therein not misleading, the
Company shall cause to be delivered to the Initial Purchasers, on behalf of the
Participating Broker-Dealers, upon the effectiveness of the Exchange Offer
Registration Statement: (i) an opinion of counsel or opinions of counsel
substantially in the form attached hereto as Exhibit A, (ii) officers'
certificates substantially in the form customarily delivered in a public
offering of debt securities and (iii) a comfort letter or comfort letters in
customary form to the extent permitted by Statement on Auditing Standards No. 72
of the American Institute of Certified Public
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Accountants (or if such a comfort letter is not permitted, an agreed upon
procedures letter in customary form) from the Company's independent certified
public accountants (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired or
proposed to be acquired by the Company for which financial statements are, or
are required to be, included in the Registration Statement) at least as broad in
scope and coverage as the comfort letter or comfort letters delivered to the
Initial Purchasers in connection with the initial sale of the Notes to the
Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for the Initial
Purchasers and (ii) in the case of a Shelf Registration, furnish special counsel
for the Holders of Registrable Notes participating in such Shelf Registration
copies of any comment letters received from the SEC or any other request by the
SEC or any state securities authority for amendments or supplements to any
Registration Statement or Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, and each underwriter, if any, without charge, at least one
conformed copy of each Registration Statement and any post-effective amendment
thereto, including financial statements and schedules (but without documents
incorporated therein by reference or exhibits, unless requested);
(j) in the case of a Shelf Registration, cooperate with the selling Holders
of Registrable Notes to facilitate the timely preparation and delivery of
physical certificates representing Registrable Notes to be sold and not bearing
any restrictive legends; and enable such Registrable Notes to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders or the underwriters, if any, may reasonably
request at least one business day prior to the closing of any sale of
Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any event
or the discovery of any facts, each as contemplated by Sections 3(e)(v) and
3(e)(vii) hereof, as promptly as practicable after the occurrence of such an
event, use its best efforts to prepare a post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or amend any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Notes or
Participating Broker-Dealers, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. At such time as such
public disclosure is otherwise made or the Company determines that such
disclosure is not necessary, in each case to correct any misstatement of a
material fact or to include any omitted material fact, the Company agrees
promptly to notify each Holder of such determination and to furnish each Holder
such number of copies of the Prospectus as amended or supplemented, as such
Holder may reasonably request;
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(l) in the case of a Shelf Registration, a reasonable time prior to the
filing of any Shelf Registration Statement, any Prospectus contained therein,
any amendment (including any post-effective amendment) to such Shelf
Registration Statement or any supplement to such Prospectus or any filing of, or
amendment to, any document which is to be incorporated by reference into such
Registration Statement or Prospectus after the initial filing of such
Registration Statement, provide copies of such documents to the Initial
Purchasers on behalf of the Holders of Registrable Notes participating in such
Shelf Registration; and make representatives of the Company as shall be
reasonably requested by Holders of Registrable Notes, or the Initial Purchasers
on behalf of such Holders, available for discussion of such documents;
(m) obtain a CUSIP number for all Exchange Notes, Private Exchange Notes or
Registrable Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Notes, Private Exchange Notes or the Registrable Notes, as the case
may be, in a form eligible for deposit with the Depositary;
(n) (i) cause the Indenture to be qualified under the TIA in connection
with the registration pursuant to Section 2.1 or Section 2.2 of the offer of the
Exchange Notes, the Private Exchange Notes or the Registrable Notes , as the
case may be, (ii) cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for the Indenture to be so qualified
in accordance with the terms of the TIA and (iii) execute, and use its best
efforts to cause any Subsidiary Guarantor and the Trustee to execute, all
documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(o) in the case of a Shelf Registration, enter into agreements (including
underwriting agreements) and take all other customary and appropriate actions in
order to expedite or facilitate the disposition of the Registrable Notes of the
Holders participating therein, and in such connection, and whether or not the
offering is an underwritten offering:
(i) make such representations and warranties to the Holders of such
Registrable Notes and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in similar
underwritten offerings as may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the
Majority Holders participating in such Shelf Registration, addressed to
each selling Holder and the underwriters, if any, covering the matters
customarily covered in opinions requested in sales of securities or
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters, if any;
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(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants (and any other
independent certified public accountants of any subsidiary of the Company
or of any business acquired or proposed to be acquired by the Company for
which financial statements are, or are required to be, included in the
Registration Statement) addressed to the underwriters, if any, and use
reasonable efforts to have such letter addressed to the selling Holders of
Registrable Notes (to the extent consistent with Statement on Auditing
Standards No. 72 of the American Institute of Certified Public Accounts),
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in connection
with similar underwritten offerings;
(iv) if requested by the Majority Holders, enter into a securities
sales agreement with the selling Holders of Registrable Notes and an agent
of such Holders providing for, among other things, the appointment of such
agent for the selling Holders for the purpose of soliciting purchases of
Registrable Notes, which agreement shall be in form, substance and scope
customary for similar offerings;
(v) if an underwriting agreement is to be entered into, cause the same
to set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth in
Section 4 hereof with respect to the underwriters and all other parties to
be indemnified pursuant to said Section or, at the request of any
underwriters, in the form customarily provided to such underwriters in
similar types of transactions; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings to the
Holders of a majority in principal amount of the Registrable Notes being
sold and the managing underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(p) in the case of a Shelf Registration or if a Prospectus is required to
be delivered by any Participating Broker-Dealer in the case of an Exchange
Offer, make available for inspection by representatives of the Holders of the
Registrable Notes, any underwriters participating in any disposition pursuant to
a Shelf Registration Statement, any Participating Broker-Dealer and any counsel
or accountant retained by any of the foregoing, all financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
reasonably requested by any such persons, and cause the respective officers,
directors, employees, and any other agents of the Company and such subsidiaries
to supply all information reasonably requested by any such representative,
underwriter, special counsel or accountant in connection with any such
Registration Statement, and make such representatives of the Company available
for discussion of such documents as shall be reasonably requested by the Initial
Purchasers;
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(q) (i) in the case of an Exchange Offer Registration Statement, a
reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an Exchange
Offer Registration Statement or amendment or supplement to such Prospectus,
provide copies of such documents to the Initial Purchasers and its counsel and
make such changes in any such document prior to the filing thereof as the
Initial Purchasers or its counsel may reasonably request and, except as
otherwise required by applicable law, not file any such document in a form to
which the Initial Purchasers or its counsel shall not have previously been
advised and furnished a copy of or to which the Initial Purchasers or its
counsel shall reasonably object, and make representatives of the Company and its
counsel available for discussion of such documents as shall be reasonably
requested by the Initial Purchasers (all such actions being taken by the Initial
Purchasers for the benefit of the Holders of Registrable Securities); and
(ii) in the case of a Shelf Registration, a reasonable time prior to filing
any Shelf Registration Statement, any Prospectus forming a part thereof, any
amendment to such Shelf Registration Statement (including any post-effective
amendment) or any supplement to such Prospectus, provide copies of such document
to the Holders of Registrable Notes to be registered thereon, to the Initial
Purchasers, to special counsel for the Holders (who shall be appointed by the
Majority Holders participating in such Shelf Registration) and to the
underwriter or underwriters of an underwritten offering of Registrable Notes, if
any; make such changes in any such document prior to the filing thereof as the
Initial Purchasers, special counsel to such Holders or the underwriter or
underwriters reasonably request and not file any such document in a form to
which the Majority Holders, the Initial Purchasers, special counsel for the
Holders of Registrable Notes or any underwriter shall not have previously been
advised and furnished a copy of or to which the Majority Holders, the Initial
Purchasers, special counsel to the Holders of Registrable Notes or any
underwriter shall reasonably object, and make the representatives of the Company
and its subsidiaries available for discussion of such document as shall be
reasonably requested by the Holders of Registrable Notes, the Initial
Purchasers, special counsel for the Holders of Registrable Notes or any
underwriter (all actions by the Initial Purchasers pursuant to clause (ii) being
taken by the Initial Purchasers for the benefit of the Holders of Registrable
Notes).
(r) in the case of a Shelf Registration, use its best efforts to cause all
Registrable Notes to be listed on any securities exchange on which similar debt
securities issued by the Company are then listed, or if not then listed, on any
national securities exchange requested by the underwriter or underwriters of an
underwritten offering of Registrable Notes, if any;
(s) in the case of a Shelf Registration, use its best efforts to cause the
Registrable Notes to be rated by the appropriate rating agencies;
(t) otherwise comply with all applicable rules and regulations of the SEC
and make available to its security holders an earnings statement which shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder
(or any similar rule of the SEC then in effect) no later than 45 days after the
end of any 12-month period (or 90 days after the end of any 12 month period if
such period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which
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Registrable Notes are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company after the
effective date of a Registration Statement;
(u) cooperate and assist in any filings required to be made with the NASD
and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD);
(v) upon consummation of an Exchange Offer or a Private Exchange, obtain a
customary opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable Notes participating in the Exchange Offer
or Private Exchange, and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Exchange Notes and/or Private Exchange
Notes, as applicable, and the related indenture, and (ii) each of the Exchange
Notes and related indenture constitute a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its respective
terms (with customary exceptions); and
(w) use its best efforts to take all other steps necessary to effect the
registration of the Registrable Notes and the Exchange Notes covered by a
Registration Statement contemplated hereby.
In the case of a Shelf Registration Statement, the Company may require each
Holder of Registrable Notes (as a condition to such Holder's participation in
the Shelf Registration) to furnish to the Company such information regarding the
Holder and the proposed distribution by such Holder of such Registrable Notes as
the Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(v) hereof,
such Holder will forthwith discontinue disposition of Registrable Notes pursuant
to a Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in such Holder's possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Notes current at the time of receipt of such notice.
In the event that the Company falls to effect the Exchange Offer or file
any Shelf Registration Statement and maintain the effectiveness of any Shelf
Registration Statement as provided herein, the Company shall not file any
Registration Statement with respect to any securities (within the meaning of
Section 2(l) of the 1933 Act) of the Company other than Registrable Notes.
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If any of the Registrable Notes covered by any Shelf Registration Statement
are to be sold in an underwritten offering, the underwriter or underwriters and
manager or managers that will manage such offering will be selected by the
Majority Holders participating in such Shelf Registration. No Holder of
Registrable Notes may participate in any underwritten registration hereunder
unless such Holder (a) agrees to sell such Holder's Registrable Notes on the
basis provided in any underwriting arrangements approved by the Majority Holders
participating in the Shelf Registration and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
4. INDEMNIFICATION, CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder, each Participating Broker-Dealer, each Person who
participates as an underwriter (any such Person being an "Underwriter") and each
Person, if any, who controls any Holder or Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
(or any amendment or supplement thereto) pursuant to which the offer or
sale of Exchange Notes or Registrable Notes were registered under the 1933
Act, including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
4(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the reasonable fees and disbursements of counsel chosen by any indemnified
party), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue
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statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Holder or Underwriter expressly for use in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto).
(b) Each Holder by participating in the Exchange Offer or a Shelf
Registration severally, but not jointly, agrees to indemnify and hold harmless
the Company, the Initial Purchasers, each Underwriter and the other selling
Holders, and each of their respective directors and officers, and each Person,
if any, who controls the Company, any Initial Purchaser, any Underwriter or any
other selling Holder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, against any and all loss, liability, claim, damage and
expense described in the indemnity contained in Section 4(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Shelf Registration Statement (or any
amendment thereto) or any Prospectus included therein (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
with respect to such Holder furnished to the Company by such Holder expressly
for use in the Shelf Registration Statement (or any amendment thereto) or such
Prospectus (or any amendment or supplement thereto); provided, however, that no
such Holder shall be liable for any claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Registrable Notes pursuant
to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought hereunder, but failure so
to notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out
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of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Holders and the Initial Purchasers
on the other hand in connection with the statements or omissions which resulted
in such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative fault of the Company on the one hand and the Holders and the
Initial Purchasers on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company, the Holders or the Initial Purchasers and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this Section 4 were determined
by pro rata allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
4. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 4 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Notes sold by it were offered exceeds the amount of any
damages which such Initial Purchaser has
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otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each director of the Company, and each Person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution as
the Company. The Initial Purchasers' respective obligations to contribute
pursuant to this Section 4 are several in proportion to the principal amount of
Securities set forth opposite their respective names in Schedule A to the
Purchase Agreement and not joint.
5. MISCELLANEOUS.
5.1 RULE 144 AND RULE 144A. For so long as the Company is subject to the
reporting requirements of Section 13 or 15 of the 1934 Act, the Company
covenants that it will file the reports required to be filed by it under the
1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable Notes (a) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the 1933
Act, (b) deliver such information to a prospective purchaser as is necessary to
permit sales pursuant to Rule 144A under the 1933 Act, and (c) take such further
action that is reasonable in the circumstances, in each case, to the extent
required from time to time to enable such Holder to sell its Registrable Notes
without registration under the 1933 Act within the limitation of the exemptions
provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended
from time to time, or (iii) any similar rules or regulations hereafter adopted
by the SEC. Upon the request of any Holder of Registrable Notes, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements.
5.2 NO INCONSISTENT AGREEMENTS. The Company has not entered into and the
Company will not after the date of this Agreement enter into any agreement which
is inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or which otherwise conflicts with the provisions hereof. The
Company covenants and agrees that the rights granted to the Holders hereunder do
not, and will not for the term of this Agreement, in any way conflict with the
rights (including registration rights) granted to the holders of the Company's
other issued and outstanding securities.
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5.3 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of at least a
majority in aggregate principal amount of the outstanding Registrable Notes
affected by such amendment, modification, supplement, waiver or departure.
5.4 NOTICES. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, registered first-class
mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if
to a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 5.4,
which address initially is the address set forth in the Purchase Agreement with
respect to the Initial Purchasers; and (b) if to the Company, initially at the
Company's address set forth in the Purchase Agreement, and thereafter at such
other address of which notice is given in accordance with the provisions of this
Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and on the next
business day if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5 SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of and
be binding upon the successors, assigns and transferees of each of the parties,
including, without limitation and without the need for an express assignment,
subsequent Holders; provided that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Registrable Notes in violation of
the terms of the Purchase Agreement or the Indenture. If any transferee of any
Holder shall acquire Registrable Notes, in any manner, whether by operation of
law or otherwise, such Registrable Notes shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Notes such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement applicable to Holders of
Registrable Notes, and such person shall be entitled to receive the benefits
hereof.
5.6 THIRD PARTY BENEFICIARIES. The Initial Purchasers (even if the Initial
Purchasers are not Holders of Registrable Notes) shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Holders, on the other hand, and shall have the right to enforce
such agreements directly to the extent they deem such enforcement necessary or
advisable to protect their rights or the rights of Holders hereunder. Each
Holder of Registrable Notes shall be a third party beneficiary to the agreements
made hereunder between the Company, on the one hand, and the Initial Purchasers,
on the other hand, and shall have the right to
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enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights hereunder.
5.7 SPECIFIC ENFORCEMENT. Without limiting the remedies available to the
Initial Purchasers and the Holders, the Company acknowledges that any failure by
the Company to comply with its obligations under Sections 2.1 through 2.4 hereof
may result in material irreparable injury to the Initial Purchasers or the
Holders for which there is no adequate remedy at law, that it would not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's obligations under
Sections 2.1 through 2.4 hereof.
5.8 RESTRICTION ON RESALES. Until the expiration of two years after the
original issuance of the Notes, the Company will not, and will cause its
"affiliates" (as such Term is defined in Rule 144(a)(1) under the 1933 Act) not
to, resell any Notes which are "restricted securities" (as such term is defined
under Rule 144(a)(3) under the 1933 Act) that have been reacquired by any the
Company or any of its affiliates and shall immediately upon any purchase of any
such Notes submit such the same to the Trustee for cancellation.
5.9 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.
5.10 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof
5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.12 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity , legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
5.13 SUBSIDIARY GUARANTORS. If any Subsidiary (as such term is defined in
the Indenture) become a Subsidiary Guarantor pursuant to Section10.22 of the
Indenture, the Company shall cause such Subsidiary to take all actions that may
be required under applicable law and SEC policy to cause the guarantee of such
Subsidiary to be registered under the 1933 Act as part of the Exchange Offer
Registration Statement and any Shelf Registration Statement. Any actions by a
Subsidiary taken in compliance with this Section 5.13 shall be taken within the
periods required for actions to be taken by the Company hereunder (including
without limitation within the periods
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specified in Sections 2.1 and 2.2 hereof). At the request of any Initial
Purchaser, the Company shall cause each Subsidiary Guarantor to execute,
acknowledge and deliver such instruments and documents, and take all such other
actions, as may be reasonably required in order to effectuate the purposes of
this Agreement (including, without limitation, the joining by such Subsidiary
Guarantor with the Company, on a joint and several basis, in all of the
obligations of the Company hereunder).
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
WAM!NET INC
By: /s/ Edward J. Driscoll III
-----------------------------
Name: Edward J. Driscoll III
Title: President and CEO
Confirmed and accepted as
of the date first above
written:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
FIRST CHICAGO CAPITAL MARKETS, INC.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:
/s/ Barbara Daniel
-------------------------
Name: Barbara Daniel
Title: Vice President
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EXHIBIT A
FORM OF OPINION OF COUNSEL
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Credit Suisse First Boston Corporation
First Chicago Capital Markets, Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
We have acted as counsel for WAM!NET Inc., a Minnesota corporation (the
"Company"), in connection with the sale by the Company to you (the "Initial
Purchasers") of $___________ aggregate principal amount at maturity of ___%
Senior Discount Notes due 2005 (the "Notes") of the Company pursuant to the
Purchase Agreement dated February 26, 1998 (the "Purchase Agreement") among the
Company and the Initial Purchasers and the filing by the Company of an Exchange
Offer Registration Statement (the "Registration Statement") in connection with
an Exchange Offer to be effected pursuant to the Registration Rights Agreement
(the "Registration Rights Agreement"), dated March ___, 1998 between the Company
and the Initial Purchasers. This opinion is furnished to you pursuant to Section
3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein,
capitalized terms used in this opinion that are defined in the Registration
Rights Agreement are used herein as so defined.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. In rendering this opinion, as to
all matters of fact relevant to this opinion, we have assumed the completeness
and accuracy of, and are relying solely upon, the representations and warranties
of the Company set forth in the Purchase Agreement and the statements set forth
in certificates of public officials and officers of the Company, without making
any independent investigation or inquiry with respect to the completeness or
accuracy of such representations, warranties or statements, other than a review
of the certificate of incorporation, by-laws and relevant minute books of the
Company.
Based on and subject to the foregoing, we are of the opinion that:
1. The Exchange Offer Registration Statement and the Prospectus (other than
the financial statements, notes or schedules thereto and other financial data
and supplemental
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schedules included or incorporated by reference therein or omitted therefrom and
the Form T-1, as to which such counsel need express no opinion), comply as to
form in all material respects with the requirements of the 1933 Act and the
applicable rules and regulations promulgated under the 1933 Act.
2. We have participated in the preparation of the Registration Statement
and the Prospectus and in the course thereof have had discussions with
representatives of the Underwriters, officers and other representatives of the
Company and Ernest & Young, the Company's independent public accountants, during
which the contents of the Registration Statement and the Prospectus were
discussed. We have not, however, independently verified and are not passing
upon, and do not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus. Based on our participation as described above, nothing has come to
our attention that would lead us to believe that the Registration Statement
(except for financial statements and schedules and other financial data included
therein as to which we make no statement) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein, as to which
such counsel need make no statement), at the time the Prospectus was issued, at
the time any such amended or supplemented Prospectus was issued or at the
Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
This opinion is being furnished to you solely for your benefit in
connection with the transactions contemplated by the Registration Rights
Agreement, and may not be used for any other purpose or relied upon by any
person other than you. Except with our prior written consent, the opinions
herein expressed are not to be used, circulated, quoted or otherwise referred to
in connection with any transactions other than those contemplated by the
Registration Rights Agreement by or to any other person.
Very truly yours,
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Exhibit 4.11
================================================================================
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
Dated as of March 5, 1998
Among
WAM!NET INC.,
WORLDCOM INC.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
CREDIT SUISSE FIRST BOSTON CORPORATION
AND
FIRST CHICAGO CAPITAL MARKETS, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
Section 1. Definitions........................................................1
Section 2. Registration Rights................................................7
2.1 Demand Registration................................................7
2.2 Piggy-Back Registration...........................................10
2.3 Rule 144 and Rule 144A............................................12
Section 3. Transfers by WorldCom.............................................12
3.1 Generally.........................................................12
3.2 Tag-Along Rights..................................................12
3.3 Drag-Along Rights.................................................14
Section 4. Registration Procedures...........................................14
Section 5. Indemnification and Contribution..................................19
Section 6. Miscellaneous.....................................................22
6.1 No Inconsistent Agreements........................................22
6.2 Amendments and Waivers............................................22
6.3 Notices...........................................................23
6.4 Successors and Assigns............................................23
6.5 Counterparts......................................................23
6.6 Headings..........................................................23
6.7 Governing Law; Jurisdiction.......................................24
6.8 Severability......................................................24
6.9 Entire Agreement..................................................24
6.10 Attorneys' Fees...................................................24
6.11 Securities Held by the Company or Its Affiliates..................24
6.12 Remedies..........................................................24
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COMMON STOCK REGISTRATION RIGHTS AGREEMENT
THIS COMMON STOCK WARRANT REGISTRATION RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of March 5, 1998, among WAM!NET Inc., a Minnesota
corporation (the "Company"), WorldCom Inc., a Georgia corporation ("WorldCom"),
Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Credit
Suisse First Boston Corporation and First Chicago Capital Markets, Inc.
(together with Merrill Lynch, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated as of
February 26, 1998, among the Company and the Initial Purchasers (the "Purchase
Agreement"), relating to, among other things, the sale by the Company to the
Initial Purchasers of an aggregate of 208,530 units ("Units"), each Unit
consisting of $1,000 principal amount at maturity of 13 1/4% Senior Discount
Notes due 2005 ("Notes") and three warrants ("Warrants"), each initially
exercisable for 2.01 shares of Common Stock, par value $.01 per share, of the
Company at an initial exercise price of $.01 per share. In order to induce the
Initial Purchasers to enter into the Purchase Agreement, the Company has agreed
to provide to the Initial Purchasers and the Holders (as defined herein), among
other things, the registration rights for the Warrant Shares (as defined herein)
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
Section 1. DEFINITIONS. As used in this Agreement, the following defined
terms shall have the following meanings:
"ADVICE" has the meaning ascribed to such term in the last paragraph of
Section 4(o) hereof.
"AFFILIATE" of any specified Person shall mean any other Person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative of the foregoing. None of the Initial Purchasers or any of their
Affiliates shall be deemed to be an Affiliate of the Company or of any of its
subsidiaries or Affiliates.
"BUSINESS DAY" shall mean any day on which (i) banks in New York City, (ii)
the principal U.S. securities exchange or market, if any, on which any Common
Stock is listed or admitted to trading and (iii) the principal U.S. securities
exchange or market, if any, on which any other securities underlying the
Warrants are listed or admitted to trading are open for business.
<PAGE>
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, whether
outstanding on the date hereof or issued after the date hereof, and any and all
rights, warrants or options or other securities exchangeable or exercisable for
or convertible into such capital stock.
"COMMON STOCK" shall mean the Common Stock, par value $.01 per share, of
the Company and any options, warrants or securities convertible into or
exchangeable or exercisable for such common stock.
"COMPANY" shall have the meaning ascribed to that term in the preamble of
this Agreement and shall also include the Company's successors.
"CURRENT MARKET VALUE" per share of Common Stock or any other security at
any date of determination means (i) if the security is not traded on a national
or regional securities exchange, The Nasdaq Stock Market or in a recognized
over-the-counter market (a "Quoted Security"), (a) the fair market value of the
security, as determined in good faith by the Board of Directors of the Company
and certified in a board resolution delivered to the Warrant Agent, which shall
be based on the most recently competed arms-length transaction between the
Company and a person other than an Affiliate of the Company, the closing of
which shall have occurred within the six-month period preceding such
determination, or (b) if no such transaction shall have occurred within such
six-month period, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert (provided that,
in the case of the calculation of Current Market Value solely for determining
the cash value of fractional shares, the last determination of Current Market
Value pursuant to this clause (i), if made within the preceding six months, may
be utilized), which determination shall be set forth in an officers' certificate
delivered to the Warrant Agent, or (ii) (a) if the security is a Quoted
Security, the average of the daily closing sales prices of such security for the
20 consecutive trading days immediately preceding such date, or (b) if the
security has been a Quoted Security for less than 20 consecutive trading days
before such date, then the average of the daily closing sales prices for all of
the trading days before such date for which closing sales prices are available.
The closing sales price of a security for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any United States
national or regional securities exchange or on The Nasdaq Stock Market, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day or (B) in the
case of a security not then listed or admitted to trading on any national or
regional securities exchange or The Nasdaq Stock Market, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
source designated by the Company, or in the case of a security as to which no
such reported bid and asked prices are available on such day, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, City and State of New York, customarily published on each Business
Day, designated by the Company, or, if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the
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most recent day (not more than two days prior to the date in question) for which
prices have been so reported; provided, however, that if there are no bid and
asked prices reported for such security during such two-day period, Current
Market Value shall be determined as if the security were not a Quoted Security.
"DEMAND REGISTRATION" shall have the meaning ascribed to that term in
Section 2.1(a).
"DTC" has the meaning ascribed to such term in Section 4(i) hereof.
"EFFECTIVENESS PERIOD" shall have the meaning ascribed to that term in
Section 2.1(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"EXERCISE EVENT" has the meaning set forth in the Warrant Agreement.
"FAIR MARKET VALUE", in respect of any security, shall mean the private
market value of such security as determined (without any discount for lack of
liquidity, the amount of such securities proposed to be sold or the fact that
such securities held by any Holder of such security may represent a minority
interest in a private company) by a nationally or regionally recognized
investment banking firm selected by the Company for the determination of such
value.
"HOLDER" shall mean any Person in whose name a Warrant or Warrant Share is
registered on the books of the Company or any transfer agent or registrar for
the Warrants or Warrant Shares.
"INCLUDED SECURITIES" shall mean all Registrable Securities that the
Company has been timely requested to include in a Demand Registration pursuant
to Section 2.1 or a Piggyback Registration pursuant to Section 2.2.
"INITIAL PUBLIC EQUITY OFFERING" shall mean an initial public offering of
equity securities of the Company (whether or not underwritten and whether or not
pursuant to a primary or secondary offering but excluding any offering pursuant
to Form S-8 under the Securities Act or any other publicly registered offering
pursuant to an issuance of shares of Common Stock or securities exercisable
therefor under any benefit plan, employee compensation plan, or employee or
director stock purchase plan) pursuant to an effective registration statement
under the Securities Act.
"INITIAL PURCHASERS" has the meaning ascribed to such term in the preamble
hereof.
"INDENTURE" means the Indenture, of even date herewith, between the Company
and First Trust National Association, as Trustee, pursuant to which the Notes
were issued.
"INSPECTORS" has the meaning ascribed to such term in Section 4(m) hereof.
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"MERRILL LYNCH" shall have the meaning ascribed to that term in the
preamble hereto, and any successor.
"NOTES" shall have the meaning ascribed to that term in the preamble
hereto.
"PARTICIPATING HOLDERS" shall have the meaning ascribed to that term in
Section 3.2(a).
"PERSON" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity, including any predecessor of any such entity.
"PIGGY-BACK REGISTRATION" shall have the meaning ascribed to that term in
Section 2.2(a) hereof.
"PROPOSED PURCHASER" shall have the meaning ascribed to that term in
Section 3.2(a) hereof.
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement (including, without limitation, any preliminary prospectus subject to
completion and a prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"PURCHASE AGREEMENT" shall have the meaning ascribed to that term in the
preamble hereof.
"REGISTRABLE SECURITIES" shall mean (i) Warrant Shares that are issuable
upon exercise of Warrants, (ii) Warrant Shares that have been issued upon
exercise of Warrants, (iii) any securities issued or delivered to the Holders of
Warrants pursuant to Section 5.03 of the Warrant Agreement (in connection with a
pro rata dividend or distribution made by the Company to holders of its Common
Stock) and (iv) any securities issued or issuable upon exercise of the Warrants
as a result of a "Fundamental Transaction" pursuant to Section 5.01(d) of the
Warrant Agreement. As to any particular Registrable Security of a Holder, such
security shall cease to be a Registrable Security when (i) a Registration
Statement with respect to the offering of such security by the Holder thereof
shall have been declared effective under the Securities Act and such security
shall have been disposed of by such Holder pursuant to such Registration
Statement, (ii) such security shall have been sold to the public pursuant to, or
is eligible for sale to the public without volume or manner of sale restrictions
under, Rule 144(k) (or any similar provision then in force, but not Rule 144(A))
promulgated under the Securities Act, (iii) such security shall have been
otherwise transferred and a new certificate for the successor security not
bearing a legend restricting further transfer shall have been delivered by the
Company or its transfer agent and subsequent disposition of such security shall
not require registration or qualification under the Securities Act or any
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similar state law then in force or (iv) such security shall have ceased to be
outstanding. Registrable Securities shall not include any Warrant Shares that
are issued pursuant to an effective registration statement filed in accordance
with Section 4.02 of the Warrant Agreement.
"REGISTRATION EXPENSES" shall mean all expenses incident to the Company's
performance of or compliance with Section 2 and Section 4 of this Agreement,
including, without limitation, all SEC and stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees and
expenses, fees and expenses of compliance with securities or blue sky laws
(including, without limitation, reasonable fees and disbursements of counsel for
any underwriters in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger, telephone and delivery expenses, fees
and disbursements of counsel for the Company and all independent certified
public accountants, the fees and disbursements of underwriters customarily paid
by issuers in underwritten offerings (but not including any underwriting
discounts or commissions or transfer taxes, if any, attributable to the sale of
Registrable Securities by Holders of such Registrable Securities) and other
reasonable out-of-pocket expenses incurred by Holders of Registrable Securities
in connection with the registration of such securities pursuant to this
Agreement (it being understood that Registration Expenses shall not include, as
to the fees and expenses of counsel, the fees and expenses of more than one
counsel for all Holders).
"REGISTRATION STATEMENT" shall mean any appropriate registration statement
of the Company filed with the SEC pursuant to the Securities Act which covers
any of the Registrable Securities pursuant to the provisions of this Agreement
and all amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"REQUISITE SECURITIES" shall mean a number of Registrable Securities equal
to not less than 50% of the Warrant Shares subject to the originally issued
Warrants; provided, however, that with respect to any action to be taken at the
request of the Holders of the Registrable Securities prior to such time as the
Warrants have expired pursuant to the terms thereof, each Warrant outstanding
shall be deemed to represent that number of Registrable Securities for which
such Warrant would be then exercisable (without giving effect to the Cashless
Exercise (as defined in the Warrant Agreement)).
"RULE 144" shall mean Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
"RULE 144A" shall mean Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
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"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended from
time to time.
"SELLING HOLDER" shall mean a Holder who is selling Registrable Securities
in accordance with the provisions of Section 2.1 or 2.2.
"SUBJECT EQUITY" means all outstanding Warrants and Warrant Shares.
"SUSPENSION PERIOD" shall have the meaning ascribed to that term in Section
2.1(a).
"TAG-ALONG NOTICE" shall have the meaning ascribed to that term in Section
3.2(a).
"TAG-ALONG RIGHT" shall have the meaning ascribed to that term in Section
3.2(a).
"TRANSFER" shall have the meaning ascribed to the term in Section 3.2(a).
"TRANSFER NOTICE" shall have the meaning ascribed to that term in Section
3.2(a).
"TRIGGERING DATE" shall mean the date of the consummation of a bona fide
underwritten public offering of Common Stock as a result of which at least 20%
of the outstanding shares of Common Stock are listed on a United States national
securities exchange or the National Market tier of The Nasdaq Stock Market.
"VOTING STOCK" means, with respect to any Person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors
or other members of the governing body of such Person.
"WARRANT CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding WorldCom and its
Affiliates, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has or acquires the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
voting power of all Voting Stock of the Company or has, directly or indirectly,
the right to elect or designate a majority of the Board of Directors; or (b) the
Company consolidates with, or merges with or into, another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for Voting Stock of the surviving or transferee corporation or
its parent corporation, (ii) the "beneficial owners" (as defined in Rules 13d-3
and
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13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time) of the Voting Stock of the Company immediately before such transaction
own, directly or indirectly, immediately after such transaction, at least a
majority of the voting power of all Voting Stock of the surviving or transferee
corporation or its parent corporation immediately after such transaction, as
applicable, and (iii) no "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), excluding WorldCom and its Affiliates, is
the "beneficial owner" directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of the surviving or transferee corporation or
its parent corporation, as applicable, or has, directly or indirectly, the right
to elect or designate a majority of the board of directors of the surviving or
transferee corporation or its parent corporation, as applicable. The good faith
determination by the Board of Directors of the Company, based upon advice of
outside counsel, of the beneficial ownership of securities of the Company within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act shall be conclusive,
absent contrary controlling judicial precedent or contrary written
interpretation published by the SEC.
"WARRANT AGENT" means First Trust National Association and any successor
Warrant Agent for the Warrants appointed pursuant to the Warrant Agreement.
"WARRANT AGREEMENT" means the Warrant Agreement dated as of March 5, 1998
between the Company and the Warrant Agent, as amended or supplemented from time
to time in accordance with the terms thereof.
"WARRANTS" means, at any time, all warrants of the Company issued pursuant
to the Warrant Agreement then outstanding.
"WARRANT SHARES" means (i) shares of Common Stock or other securities
deliverable upon exercise of unexercised Warrants (including without limitation
securities deliverable as a result of a Fundamental Transaction (as such term is
defined in the Warrant Agreement)), (ii) shares of Common Stock delivered upon
exercise of Warrants, including any successor shares of Common Stock, and (iii)
shares of Common Stock and any other securities issued or delivered to the
Holders of Warrants pursuant to Section 5.03 of the Warrant Agreement in
connection with a pro rata distribution made by the Company to its holders of
Common Stock.
Section 2. REGISTRATION RIGHTS.
2.1 DEMAND REGISTRATION. (a) REQUEST FOR REGISTRATION. At any time and from
time to time after the occurrence of an Exercise Event, Holders owning,
individually or in the aggregate, at least the Requisite Securities may require
the Company to effect one registration (a "DEMAND REGISTRATION") under the
Securities Act of Registrable Securities. Any such demand shall specify the
number and type of Registrable Securities proposed to be sold and shall also
specify the intended method of disposition thereof. The Company shall give
written notice of such
7
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registration request within 10 days after the receipt thereof to all other
Holders of Registrable Securities. Within 30 days after receipt of such notice
by any such Holder, such Holder may request in writing that its Registrable
Securities be included in such registration and the Company shall include in the
Demand Registration the Registrable Securities of any such Holder requested to
be so included. Each such request by such other selling Holders shall specify
the number and type of Registrable Securities proposed to be sold and the
intended method of disposition thereof. Upon a demand, the Company will prepare,
file and cause to become effective within 150 days of such demand a Registration
Statement in respect of all Included Securities and keep such Registration
Statement continuously effective for the shorter of (a) 180 days or (b) such
period of time as all of the Included Securities shall have been sold thereunder
(the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER, that if such demand occurs
during the "lock up" or "black out" period (not to exceed 180 days) imposed on
the Company pursuant to or in connection with any underwriting or purchase
agreement relating to an underwritten Rule 144A or registered public offering of
securities of the Company of the same class or series as any of the Registrable
Securities or securities convertible into or exchangeable or exercisable for any
such securities, the Company shall not be required to so notify Holders of
Registrable Securities and file such demand registration statement prior to the
end of such "lock up" or "black out" period, in which event the Company will use
its best efforts to cause such Demand Registration to become effective no later
than the later of (i) 120 days after such demand or (ii) 30 days after the end
of such "lock up" or "black out" period; PROVIDED, FURTHER, that the Company may
postpone the filing of, or suspend the effectiveness of, any registration
statement or amendment thereto, suspend the use of any Prospectus and shall not
be required to amend or supplement the Registration Statement, any related
Prospectus or any document incorporated therein by reference (other than an
effective registration statement being used for an underwritten offering) in the
event that, and for a period (a "SUSPENSION PERIOD") not to exceed an aggregate
of 60 days with respect to the Demand Registration if, (i) an event or
circumstance occurs and is continuing as a result of which the Registration
Statement, any related Prospectus or any document incorporated therein by
reference as then amended or supplemented or proposed to be filed would, in the
Company's good faith judgment, contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and (ii) the Company determines in its good faith judgment that (A), the
disclosure of such event at such time would have a material adverse effect on
the business, operations or prospects of the Company or (B) such disclosure
relates to a business transaction which has not yet been publicly disclosed, and
disclosure at that time would jeopardize the success of such transaction
(subject, in each case, to such disclosure not being otherwise required under
applicable Federal securities laws or any listing agreement with The Nasdaq
Stock Market or any stock exchange on which securities of the Company are then
listed or quoted); PROVIDED, FURTHER that the Effectiveness Period shall be
extended by the number of days in any Suspension Period. In the event of any
"lock up" or "black out" period in any underwriting or purchase agreement, the
Company will so notify the Holders of Registrable Securities. The Company shall
not be entitled to more than one Suspension Period in any twelve month period.
Notwithstanding the foregoing, in lieu of filing and causing to become effective
a Demand Registration, the Company may satisfy it obligation with respect to
such Demand Registration by making (or having its designee make),
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an offer to purchase all Subject Equity at a price at least equal to Current
Market Value (without giving effect to clause (i)(a) of the definition of such
term) less any applicable Exercise Price and consummating (or having its
designee consummate), prior to the time a Demand Registration would have
otherwise been required to be made effective, the purchase of Subject Equity as
to which Holders accept such offer.
(b) EFFECTIVE REGISTRATION. A Registration Statement will not be deemed to
have been effected as a Demand Registration unless it has been declared
effective by the SEC and the Company has complied in all material respects with
all of its obligations under this Agreement with respect thereto. If (i) a
registration requested pursuant to this Section 2.1 is deemed not to have been
effected pursuant to the preceding sentence or (ii) a Demand Registration does
not remain effective for the Effectiveness Period, then the Company shall be
continue to be obligated to effect a Demand Registration pursuant to this
Section 2.1. A Holder of Included Securities shall be permitted to withdraw all
or any part of its Included Securities from a Demand Registration at any time
prior to the effective date of such Demand Registration. If the Company is
required to effect a Demand Registration and subsequently a sufficient amount of
the Included Securities is withdrawn from the Demand Registration so that such
Demand Registration does not cover at least the amount of Requisite Securities,
then the Company may, upon notice to the Holders of all Included Securities that
have not withdrawn such securities from such Demand Registration, terminate such
Demand Registration; provided, however, that such terminated registration will
not count as a Demand Registration and the Company shall continue to be
obligated to effect a Demand Registration pursuant to this Section 2.1.
Notwithstanding the foregoing, if the Company effects a Suspension Period
following a demand and prior to the effectiveness of a Demand Registration, the
Holders of Included Securities in an amount equal to the Requisite Shares may
withdraw such demand, in which case the Demand Registration shall be terminated
and the Company shall continue to be obligated to effect a Demand Registration
pursuant to this Section 2.1 following another demand made in accordance with
this Section 2.1.
(c) UNDERWRITTEN REGISTRATIONS. If Holders of Included Securities
comprising an amount equal to the Requisite Shares request that the Demand
Registration be effected as an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will be
selected by such Holders, subject to such investment banker(s) and manager(s)
being reasonably acceptable to the Company.
No Holder of Included Securities may participate in an underwritten Demand
Registration unless such Holder (a) agrees to (i) sell such Holder's Included
Securities in compliance with underwriting arrangements approved by the Holders
of not less than a majority of the Included Securities and (ii) comply with
Regulation M under the Exchange Act and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
(d) EXPENSES. The Company will pay all Registration Expenses in connection
with any Demand Registration. Each Holder of Included Securities shall pay all
underwriting
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discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Included Securities pursuant to a Demand
Registration.
(e) PRIORITY IN DEMAND REGISTRATION. If a Demand Registration involves an
underwritten offering and the lead managing underwriter of such offering advises
the Holders of Included Securities and the Company in writing that in its view
the total number of securities which the selling Holders, the Company and any
other Persons that have the contractual right to participate in such
registration intend to include in such offering exceeds the number which can be
sold in such offering without materially and adversely affecting the success of
the offering (including the initial offering price at which such securities can
be sold), then there shall be included in such registration only the amount and
type of securities that the lead managing underwriter advises should be included
in such registration. In such event, securities shall be included in such
registration in the following order of priority: (i) first, the Included
Securities (if necessary, such Included Securities to be cut back pro rata based
on the amount of Registrable Securities sought to be registered by each Holder
participating in the Demand Registration) and (ii) second, provided that no
Included Securities have been cut back from such registration, securities to be
sold for the account of the Company and the securities of other Persons entitled
to register such securities on the Demand Registration pursuant to contractual
commitments of the Company in the order of priority determined in accordance
with agreements between the Company and such other Persons, if any.
2.2 PIGGY-BACK REGISTRATION.
(a) GENERAL. If at any time following an Exercise Event the Company
proposes to file a Registration Statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its security holders of any class of its common equity securities (other than
(i) a registration statement on Form S-4 or S-8, (ii) a registration statement
filed in connection with an offer of securities solely to the Company's existing
security holders, or (iii) a Demand Registration) (a "PIGGY-BACK REGISTRATION"),
then the Company shall give written notice of such proposed filing to the
Holders of Registrable Securities as soon as practicable (but in no event less
than 15 days before the anticipated filing date of such Registration Statement
with the SEC). Such notice shall offer each Holder of Registrable Securities the
opportunity to register in such Piggyback Registration such amount of
Registrable Securities as such Holder may request in writing within 15 days
after receipt of such written notice from the Company. Any request by a Holder
of Registrable Securities to participate in a PiggyBack Registration shall
specify the amount and type of Registrable Securities intended to be disposed of
by such selling Holder and the intended method of distribution thereof;
provided, however, that if the Piggyback Registration is an underwritten
offering, then all selling Holders must agree to participate in such
underwritten offering on the same terms as the Company and/or any other selling
securityholders. Any selling Holder may withdraw all or any part of its Included
Securities from a Piggy-Back Registration by giving written notice to the
Company to such effect prior to the date the Piggy-Back Registration becomes
effective. The Company may withdraw a Piggy-Back Registration at any time prior
to the time it becomes effective; provided, that the
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Company shall give prompt written notice thereof to each Holder of Included
Securities. The Company will pay all Registration Expenses in connection with
each registration of Included Securities requested pursuant to this Section
2.2(a), and each Holder of Included Securities shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Included Securities.
The Company shall cause any Registration Statement filed pursuant to this
Section 2.2(a) which includes any Included Shares to be continuously effective
for at least the shorter of (a) 180 days or (b) such period of time as all of
the Included Securities shall have been sold thereunder, subject to the right of
the Company to effect a Suspension Period with respect to such Registration
Statement on the same terms and conditions as are applicable to a Demand
Registration as set forth in Section 2.1(a).
No Piggy-Back Registration shall relieve the Company of its obligation to
effect a Demand Registration upon the request of Holders of Registrable
Securities pursuant to Section 2.1 hereof.
Notwithstanding any language to the contrary contained herein, an Initial
Public Equity Offering shall not constitute a Piggy-Back Registration.
(b) PRIORITY IN PIGGY-BACK REGISTRATION. If a Piggy-Back Registration
involves an underwritten offering and the lead managing underwriter of such
offering advises the Company and the Holders of Included Securities in writing
that in its view the total number of securities which the Company, the selling
Holders and any other Persons entitled to participate in such registration
intend to include in such offering exceeds the number which can be sold in such
offering without adversely affecting the success of such offering (including the
initial offering price at which such securities can be sold), then the Company
will be required to include in such registration only the amount and type of
securities which it is so advised should be included in such registration. In
such event: (x) in the case of a registration initiated by the Company involving
the sale of securities for its own account (and not pursuant to a contractual
"demand" registration right granted to any Person), securities shall be
registered in such offering in the following order of priority: (i) first, the
securities which the Company proposes to register, (ii) second, provided that no
securities sought to be included by the Company have been excluded from such
registration, the securities which have been requested to be included in such
registration by the Holders of Included Securities (if necessary, such Included
Securities to be cut back pro rata based on the amount of Registrable Securities
sought to be registered by each Holder participating in the Piggy-Back
Registration) and (iii) third, provided that no securities sought to be included
by the Company or Included Securities have been excluded from such registration,
the securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments of the Company (such securities to be
cut back in accordance with the contractual arrangements made by the Company
with such Persons); and (y) in the case of a registration initiated by the
Company pursuant to a contractual "demand" registration right of any Person(s)
(other than a Demand Registration), securities shall be registered in such
offering in the following order of priority: (i) first, securities to be sold
for the account of the Company and the securities of the Person(s) whose
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exercise of a contractual "demand" registration right is the basis for the
Piggy-Back Registration (if necessary, such securities to be cut back on the
basis of the contractual arrangements made by the Company with such Person(s)),
(ii) second, provided that no securities of the Company or such Person(s)
referred to in the immediately preceding clause (i) have been excluded from such
registration, the securities requested to be included in such registration by
the Holders of Included Securities pursuant to this Agreement (if necessary,
such Included Securities to be cut back pro rata based on the amount of
Registrable Securities sought to be registered by each Holder participating in
the Piggy-Back Registration) and (iii) third, provided that no securities of the
Company or the Person(s) referred to in clause (y)(i) of this Section 2.2(b) or
Included Securities have been excluded from such registration, securities of
other Persons entitled to exercise "piggyback" registration rights pursuant to
contractual commitments of the Company (such securities to be cut back in
accordance with the contractual arrangements made by the Company with such
Persons).
2.3 RULE 144 AND RULE 144A. The Company covenants that, after such time as
it becomes subject to the periodic reporting requirements of the Exchange Act,
it will file the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the SEC thereunder in
a timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder or beneficial owner of
Registrable Securities, make available such information necessary to permit
sales pursuant to Rule 144A under the Securities Act. The Company further
covenants that it will take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144(k) and Rule 144A under the Securities Act, as such Rules may be amended from
time to time, or (b) any similar rule or regulation hereafter adopted by the
SEC. Upon the request of any Holder of Registrable Securities, the Company will
in a timely manner deliver to such Holder a written statement as to whether it
has complied with such information requirements.
Section 3. TRANSFERS BY WORLDCOM.
3.1 GENERALLY. All (i) Subject Equity held by any Holder and (ii) any
shares of Capital Stock held by WorldCom or any of its Affiliates, at any time
and from time to time outstanding, shall be held subject to the conditions and
restrictions set forth in this Section 3. Each Holder of Subject Equity, by
accepting a certificate or certificates for, or other indicia of ownership of,
Subject Equity agrees to such conditions and restrictions.
3.2 TAG-ALONG RIGHTS. (a) Prior to the Triggering Date, each Holder of
Subject Equity shall have the right (the "TAG-ALONG RIGHT"), but not the
obligation, to require the Proposed Purchaser to purchase from it all Subject
Equity owned by such Holder in the event of any proposed direct or indirect sale
or other disposition (collectively, a "TRANSFER") of Capital Stock of the
Company to any Person or Persons (such other Person or Persons being referred to
herein as the "PROPOSED PURCHASER") by WorldCom and/or any of its Affiliates in
any transaction or series of
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related transactions resulting in a Warrant Change of Control (a "TAG-ALONG
TRANSFER"). WorldCom shall notify, or cause to be notified, each Holder of
Subject Equity in writing (a "TRANSFER NOTICE") of any proposed Tag-Along
Transfer at least 30 days prior to the effective date thereof. Such notice shall
set forth: (a) the name and address of the Proposed Purchaser, (b) the number
and type of shares of Capital Stock of the Company proposed to be transferred to
the Proposed Purchaser, (c) the proposed amount of consideration and terms and
conditions of payment offered by the Proposed Purchaser (if the proposed
consideration does not consist entirely or cash, the Transfer Notice shall
describe the form and terms of the non-cash consideration), (d) the anticipated
closing date of the Tag-Along Transfer (the "PROPOSED TAG-ALONG CLOSING DATE")
and (e) that either the Proposed Purchaser has been informed of the Tag-Along
Right and has agreed to purchase Subject Equity in accordance with the terms
hereof or that WorldCom or one or more of its named Affiliates will make such
purchase. The Tag-Along Right may be exercised by any Holder of Subject Equity
by delivery of a written notice to the Company ("TAG-ALONG NOTICE"), within 10
days of receipt of the Transfer Notice, indicating its election to exercise the
Tag-Along Right the ("PARTICIPATING HOLDERS"). The Tag-Along Notice shall state
the amount of Subject Equity that such Holder proposes to sell pursuant to its
Tag-Along Right. Failure by any Holder to provide a Tag-Along Notice within the
10-day notice period shall be deemed to constitute an election by such Holder
not to exercise its Tag-Along Right. The closing of the sale of any Subject
Equity pursuant to the exercise of a Tag-Along Right shall occur concurrently
with the closing of the Tag-Along Transfer, and WorldCom shall cause the closing
of a Tag-Along Transfer to be conditioned upon the concurrent sale, in
accordance with the terms hereof, by the Holders of all Subject Equity that they
elect to sell pursuant to the exercise of their Tag-Along Right hereunder. Each
Holder of Subject Equity that exercise its Tag-Along Right shall be made an
express third party beneficiary of such closing condition.
(b) Any Subject Equity purchased from the Holders pursuant to this Section
3.2 shall be paid for in the same type of consideration and at the same price
per share, and upon the same terms and conditions, as made available to WorldCom
or its Affiliates in the proposed Tag-Along Transfer. The price paid per Warrant
shall be less the aggregate exercise price of such Warrant on the closing date
for the Tag-Along Transfer. If the Subject Equity to be purchased includes
securities of a type that is different from the shares of Capital Stock being
sold by WorldCom or its Affiliates, the price to be paid for such securities
shall be the Fair Market Value of such securities, and the consideration paid
therefor may, at the election of WorldCom, be made in cash or in the same form
of consideration as that paid to WorldCom or its proposed Affiliates by the
Proposed Purchaser.
(c) The purchaser of any Holder's Subject Equity pursuant to this Section
3.2 shall have the right to receive from such Holder customary representations
and warranties with respect to ownership of such Subject Equity and customary
instruments of transfer. A Holder shall be entitled to withdraw an exercise of
its Tag-Along Right, and promptly receive a return of all of its Subject Equity,
in the event the Tag-Along Transfer, and the purchase of such Holder's Subject
Equity, does not occur with 10 Business Days after the Proposed Tag-Along
Closing Date.
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3.3 DRAG-ALONG RIGHTS. If at any time prior to an Initial Public Equity
Offering, WorldCom and/or any of its Affiliates determines to Transfer all of
the Capital Stock of the Company owed by WorldCom and its Affiliates to a Person
(other than WorldCom or any of its Affiliates) in a transaction resulting in a
Warrant Change of Control, WorldCom (whether directly or through an Affiliate)
shall have the right, but not the obligation, to require the Holders of Subject
Equity to sell all of such Subject Equity to such transferee; PROVIDED that (a)
the consideration to be received by the Holders of Subject Equity shall be the
same amount (per share) and type of consideration as that received by WorldCom
and its Affiliates and, in any event, shall be cash or freely transferable
marketable securities, and (b) after giving effect to such transaction, WorldCom
and its Affiliates shall not beneficially own, directly or indirectly, any
Capital Stock of the Company or any rights to purchase Capital Stock of the
Company. The price per Warrant to be paid by the proposed purchaser shall be
less the aggregate exercise price of such Warrant as of the date of purchase. If
the Subject Equity to be purchased pursuant to this Section 3.3 includes
securities of a type that is different from the shares of Capital Stock being
sold by WorldCom or its Affiliates, the price to be paid for such securities
shall be the Fair Market Value of such securities. The purchaser of any Holder's
Subject Equity pursuant to this Section 3.3 shall have the right to receive from
such Holder customary representations and warranties with respect to ownership
of such Subject Equity and customary instruments of transfer.
Section 4. REGISTRATION PROCEDURES. In connection with the obligations of
the Company with respect to any Registration Statement required to be filed
pursuant to Section 2.1 or Section 2.2, the Company shall:
(a) Prepare and file with the SEC a Registration Statement, within the
relevant time period specified in Section 2.1 or 2.2, as applicable, on the
appropriate form under the Securities Act, which form (i) shall be selected by
the Company, (ii) shall be available for the sale of Included Securities by the
selling Holders thereof in accordance with the requested methods of
distribution, and (iii) shall comply as to form in all material respects with
the requirements of the applicable form and include or incorporate by reference
all financial statements required by the SEC to be filed therewith or
incorporated by reference therein.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the time periods prescribed
hereby; cause the related Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to it with
respect to the disposition of all securities covered by such Registration
Statement as so amended or in such prospectus as so supplemented.
(c) Notify the Holders of Included Securities, their counsel and the
managing underwriter or underwriters, if any, promptly (but in any event within
two Business Days), and
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confirm such notice in writing, (i) when a Prospectus or any prospectus
supplement or post-effective amendment is to be filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective (including in such notice a written statement that any Holder may,
upon request, obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules and exhibits but excluding documents incorporated by reference, if
any), (ii) of the issuance by the SEC of any stop order suspending the
effectiveness of such Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation or
threatening of any proceedings for that purpose, (iii) of the receipt by the
Company of any notification with respect to (A) the suspension of the
qualification or exemption from qualification of the Registration Statement or
any of the Included Securities covered thereby for offer or sale in any
jurisdiction, or (B) the initiation of any proceeding for such purpose, (iv) of
the happening of any event, the existence of any condition or information
becoming known that requires the making of any changes in such Registration
Statement, Prospectus or documents so that, in the case of such Registration
Statement, it will conform in all material respects with the requirements of the
Securities Act and it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, not misleading, and that in the case of the
Prospectus, it will conform in all material respects with the requirements of
the Securities Act and it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (v) of the Company's reasonable
determination that a post-effective amendment to such Registration Statement
would be appropriate.
(d) Use every reasonable effort to prevent the issuance of any order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Included Securities covered
thereby for sale in any jurisdiction, and, if any such order is issued, to
obtain the withdrawal of any such order at the earliest possible moment.
(e) If reasonably requested by the managing underwriter or underwriters, if
any, or the Holders of a majority of the Included Securities being sold in
connection with an underwritten offering (only for registrations pursuant to
Section 2.1 hereof), (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters, if any, or such Holders reasonably request to be included therein
to comply with applicable law, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment, and (iii) supplement or make
amendments to such Registration Statement.
(f) Furnish to each Holder of Included Securities who so requests and to
counsel for the Holders of Included Securities and each managing underwriter, if
any, without charge, upon request, one conformed copy of the Registration
Statement and each post-effective
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amendment thereto, including financial statements and schedules, and of all
documents incorporated or deemed to be incorporated therein by reference and all
exhibits (including exhibits incorporated by reference).
(g) Deliver to each Holder of Included Securities, their counsel and each
underwriter, if any, without charge, as many copies of each Prospectus
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and, subject to the last paragraph of this
Section 4, the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the Holders of Included Securities
and the underwriter or underwriters or agents, if any, in connection with the
offering and sale of the Included Securities covered by such Prospectus and any
amendment or supplement thereto.
(h) Prior to any offering of Included Securities, to register or qualify,
and cooperate with the Holders of Included Securities, the underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of, such Included Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
the managing underwriter or underwriters reasonably request in writing, or, in
the event of a non-underwritten offering, as the Holders of a majority of the
Included Securities may request; provided, however, that where Included
Securities are offered other than through an underwritten offering, the Company
agrees to cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
4(h); keep each such registration or qualification (or exemption therefrom)
effective during the period required hereunder for effectiveness of the
Registration Statement and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the securities
covered thereby; provided, however, that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C) become
subject to taxation in any jurisdiction where it is not then so subject.
(i) Cooperate with the Holders of Included Securities and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Included Securities to be sold, which
certificates shall not bear any restrictive legends whatsoever and shall be in a
form eligible for deposit with The Depository Trust Company ("DTC"); and enable
such Included Securities to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
reasonably request at least two Business Days prior to any sale of Included
Securities in a firm commitment underwritten public offering.
(j) Subject to the right of the Company to effect a Suspension Period, upon
the occurrence of any event contemplated by Section 4(c)(iv) or 4(c)(v) above
(or immediately following the end of a Suspension Period), as promptly as
practicable prepare a supplement or
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post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and, subject to Section 4(b) hereof, file such with the
SEC so that, as thereafter delivered to the Holders of Included Securities being
sold thereunder, such Prospectus will not 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, in light of the circumstances under
which they were made, not misleading.
(k) Prior to the effective date of a Registration Statement, (i) provide
the transfer agent and registrar for the Included Securities with certificates
for such securities in a form eligible for deposit with DTC and (ii) provide a
CUSIP number for such securities.
(l) For an underwritten offering of Included Securities pursuant to Section
2.1 hereof, enter into an underwriting agreement in form, scope and substance as
is customary in underwritten offerings and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in order to
expedite or facilitate the registration or disposition of such Included
Securities, and in such connection (i) make such representations and warranties
to the underwriter or underwriters, with respect to the business of the Company
and the subsidiaries of the Company, and the Registration Statement, Prospectus
and documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
companies to underwriters in underwritten offerings; (ii) use best efforts to
obtain opinions of counsel to the Company and customary updates thereof,
addressed to the underwriter or underwriters covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by underwriters; (iii) use best efforts to 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 of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by the
managing underwriter or underwriters and as permitted by the Statement of
Auditing Standards No. 72; and (iv) if an underwriting agreement is entered
into, the same shall contain customary indemnification provisions and procedures
with respect to the underwriters and the selling Holders of Included Securities.
(m) Make available for inspection by a representative of the Holders of
Included Securities being sold, any underwriter participating in any such
disposition of Included Securities, if any, and any attorney or accountant
retained by such representative of the Holders or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and the subsidiaries of the Company, and cause the
officers, directors and employees of the Company and the subsidiaries of the
Company to supply all information in each case reasonably requested by any such
Inspector in connection with such Registration Statement;
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provided, however, that all material non-public information shall be kept
confidential by such Inspector (and such Inspector shall be required to enter
into a customary confidentiality agreement with the Company), except to the
extent that (i) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in the Registration Statement or in any
Prospectus; (ii) the release of such information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, (iii) disclosure
of such information is necessary or advisable in connection with any action,
claim, suit or proceeding, directly or indirectly, involving or potentially
involving such Inspector, any underwriter of any Holder of Included Securities
and arising out of, based upon, relating to or involving this Agreement or any
of the transactions contemplated hereby or arising hereunder; provided, however,
that prior notice shall be provided as soon as practicable to the Company of the
potential disclosure of any information by such Inspector pursuant to clauses
(ii) or (iii) of this sentence to permit the Company to obtain a protective
order, or (iv) such information has been made generally available to the public
by the Company or by a source other than the Inspectors.
(n) Comply with all applicable rules and regulations of the SEC and make
generally available to its security-holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Included Securities are sold to an underwriter or to
underwriters in a firm commitment or best efforts underwritten offering and (ii)
if not sold to an underwriter or to underwriters in such an offering, commencing
on the first day of the first fiscal quarter of the Company after the effective
date of the relevant Registration Statement, which statements shall cover said
12-month periods.
(o) Use its best efforts to cause all Included Securities relating to such
Registration Statement to be listed on each securities exchange, if any, or on
the National Market tier of The Nasdaq Stock Market on which similar securities
issued by the Company are then listed.
Each Holder of Included Securities as to which any registration is being
effected agrees, as a condition to the registration obligations with respect to
such Holder provided herein, to furnish to the Company such information
regarding such seller and the distribution of its Included Securities as the
Company may, from time to time, reasonably request in writing to comply with the
Securities Act and other applicable law. The Company may exclude from such
registration the Included Securities of any Holder for so long as such Holder
fails to furnish such information within a reasonable time after receiving such
request.
Each Holder of Included Securities agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4(c)(ii), 4(c)(iii), 4(c)(iv), or 4(c)(v) hereof, such Holder will forthwith
discontinue disposition of such Included Securities covered by the Registration
Statement or Prospectus (in the case of Section 4(c)(iii), in the affected
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jurisdiction(s) only) until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 4(j) hereof), or
until it is advised in writing (the "Advice") by the Company that the use of the
applicable prospectus may be resumed, and has received copies of any amendments
or supplements thereto, and, if so directed by the Company, such Holder will, at
the Company's expense, deliver to the Company all copies, other than permanent
file copies, then in such Holder's actual possession of the Prospectus covering
such Included Securities current at the time of receipt of such notice;
provided, however, that nothing herein shall create any obligation on the part
of any Holder to undertake to retrieve or return any such Prospectus not within
the actual possession of such Holder. In the event the Company shall give any
such notice, the period of time for which a Registration Statement is required
hereunder to be effective shall be extended by the number of days during such
periods from and including the date of the giving of such notice to and
including the date when each seller of Included Securities covered by such
Registration Statement shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Section 4(j) hereof or (y) the Advice.
Section 5. INDEMNIFICATION AND CONTRIBUTION. (a) The Company shall
indemnify and hold harmless each Holder of Included Securities, each underwriter
who participates in an offering of Included Securities, their respective
affiliates, each Person, if any, who controls any of such parties within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and each of their respective directors, officers, employees and agents, as
follows:
(i) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto), covering Included
Securities, including all documents incorporated therein by reference, or
the omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendment
or supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) from and against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation
or proceeding by any court or governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, if such
settlement is effected with the prior written consent of the Company
(except as provided in Section 5(d) below); and
(iii) from and against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by such
Holder, or any underwriter (except to the extent otherwise expressly
provided in Section 5(c) hereof)),
19
<PAGE>
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any court or governmental
agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished in writing to the Company by such
Holder or any underwriter with respect to such Holder or underwriter, as the
case may be, expressly for use in the Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto). Any amounts
advanced by the Company to an indemnified party pursuant to this Section 5 as a
result of such losses shall be returned to the Company if it shall be finally
determined by such a court in a judgment not subject to appeal or final review
that such indemnified party was not entitled to indemnification by the Company.
(b) Each Holder of Included Securities agrees, severally and not jointly,
to indemnify and hold harmless the Company, each underwriter who participates in
an offering of Included Securities and the other selling Holders and each of
their respective directors, officers (including each officer of the Company who
signed the Registration Statement), employees and agents and each Person, if
any, who controls the Company, any underwriter or any other selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all loss, liability, claim, damage and
expense whatsoever described in the indemnity contained in Section 5(a) hereof,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such selling Holder with respect to such Holder expressly for use in
the Registration Statement (or any amendment thereto), or any such Prospectus
(or any amendment or supplement thereto); provided, however, that no such Holder
shall be liable for any claims hereunder in excess of the amount of net proceeds
received by such Holder from the sale of Included Securities pursuant to any
Registration Statement.
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have other than
on account of this indemnity agreement and shall not relieve the indemnifying
party from its obligation under this Section 5 unless materially prejudiced
thereby. An indemnifying party may participate at its own expense in the defense
of such action. Notwithstanding the foregoing, if it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and approved by the indemnified
parties defendant in such action (such approval not to be unreasonably
withheld), unless such
20
<PAGE>
indemnified parties reasonably object to such assumption on the ground that
there may be legal defenses available to them which are different from or in
addition to those available to such indemnifying party. If an indemnifying party
assumes the defense of such action, the indemnifying parties shall not be liable
for any fees and expenses of counsel for the indemnified parties incurred
thereafter in connection with such action. In no event shall the indemnifying
parties be liable for the fees and expenses of more than one counsel (in
addition to local counsel) for all indemnified parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 5 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent includes an unconditional written release
in form and substance satisfactory to the indemnified parties of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel pursuant to Section 5(a)(iii) above, such indemnifying party
agrees that it shall liable for any settlement of the nature contemplated by
Section 5(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) If the indemnification provided for in Section 5(a) or (b) hereof is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Holder on the other hand from the offering of the Warrants pursuant
to the Purchase Agreement or (ii) if the allocation provided by the immediately
preceding clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of the
Holder on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative fault of the Company on the one hand and the Holder on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information
21
<PAGE>
supplied by the Company or by the Holder, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Holders of the Included Securities agree that it would
not be just and equitable if contribution pursuant to this Section 5(e) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 5(e). The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
5(e) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon such untrue or
alleged untrue statement or omission or alleged omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 5(e), each Person, if any, who controls a
Holder of Registrable Securities within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such other Person, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each Person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Company.
Section 6. MISCELLANEOUS.
6.1 NO INCONSISTENT AGREEMENTS. Each of the Company (as to itself only) and
WorldCom (as to itself and its Affiliates (other than the Company) only)
represents and warrants to the Initial Purchasers and the Holders of Subject
Equity that neither the Company nor WorldCom or any of its Affiliates is a party
to any agreement which conflicts, or is inconsistent, with the rights granted to
the Holders of Subject Equity in this Agreement. Neither the Company nor
WorldCom shall, and WorldCom shall not permit any of its Affiliates to, after
the date hereof, enter into any agreement that in any manner conflicts, or is
inconsistent, with the rights granted to the Holders of Subject Equity
hereunder.
6.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company has obtained the prior
written consent of holders of Registrable Securities then outstanding
representing not less than a majority of the Registrable Securities. For
purposes of the foregoing sentence, outstanding Warrants shall be deemed to
equal that number of Registrable Securities for which such Warrant would then be
exercisable (assuming all conditions to exercise were satisfied and the exercise
price was paid for entirely in cash). Notwithstanding the foregoing, Sections 3
and 5 hereof and this Section 6.2 may not be
22
<PAGE>
amended, modified or supplemented without the prior written consent of each
Holder (including any Person who was a Holder of Included Securities disposed of
pursuant to any Registration Statement) of Subject Equity. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders of Included Securities whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Securities or Subject Equity may be given by the Holders
of not less than a majority of the Included Securities proposed to be sold by
such Holders pursuant to such Registration Statement.
6.3 NOTICES. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, first-class postage
pre-paid mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address of such Holder as set forth in
the register for the Warrants or the Warrant Shares, as applicable; and (ii) if
to the Company, at the address set forth below the Company's name on the
signature pages hereto, or such other address notice of which is given to the
Holders in accordance with the provisions of this Section 6.3. A copy of any
notice to the Company shall also be delivered to Willkie Farr & Gallagher, One
Citicorp Center, 153 E. 53rd Street, New York, NY 10022, Attention: Daniel D.
Rubino, Esq. (or such other address for such firm notice of which is given in
accordance with the provisions of this Section 6.3).
All such notices and communications shall be deemed to have been received:
if personally delivered, at the time delivered by hand; if mailed first-class
postage prepaid mail, five Business Days after being deposited in the mail; if
telexed or telecopied, when answered back received; and if delivered to an air
courier guaranteeing overnight delivery, on the next Business Day.
6.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. Any Subject Equity acquired by a transferee
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Subject Equity such transferee shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement (including without limitation Sections 3, 4 and 5) and such transferee
shall be entitled to receive the benefits hereof.
6.5 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.
6.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
23
<PAGE>
6.7 GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
6.8 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
6.9 ENTIRE AGREEMENT. This Agreement, together with the Purchase Agreement
and the Warrant Agreement, is intended by the parties as a final expression of
their agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. This Agreement, the Purchase Agreement and
the Warrant Agreement supersede all prior agreements and understandings between
the parties with respect to such subject matter.
6.10 ATTORNEYS' FEES. As between the parties to this Agreement, in any
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
6.11 SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the consent
or approval of Holders of a specified percentage of securities is required
hereunder, Subject Equity held by the Company or by any of its Affiliates shall
not be counted (in either the numerator or the denominator) in determining
whether such consent or approval was given by the Holders of such required
percentage.
6.12 REMEDIES. In the event of a breach by the Company or WorldCom of any
of its obligations under this Agreement, each Holder, in addition to being
entitled to exercise all rights provided herein, in the Purchase Agreement or
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Each of the Company and WorldCom
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by either the Company or WorldCom of any of the
provisions of this Agreement.
[Signature Pages Follow]
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
WAM!NET INC.
By: /s/ Edward J. Driscoll III
-------------------------------
Name: Edward J. Driscoll III
-----------------------------
Title: President and CEO
----------------------------
Address for Notices:
6100 West 110th Street
Minneapolis, Minnesota 55438
Attn: Chief Executive Officer
Facsimile No.: (612) 885-0687
Telephone No.: (612) 886-5100
WORLDCOM INC.
By: /s/ K. William Grothe, Jr.
-------------------------------
Name: K. William Grothe, Jr.
-----------------------------
Title: Vice President
----------------------------
Address for Notices:
515 East Amite Street
Jackson, Mississippi 39201
Facsimile No.: (601) 974-8233
Telephone No.: (601) 360-8600
<PAGE>
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By: /s/ Barbara Daniel
-------------------------------
Name: Barbara Daniel
-----------------------------
Title: Vice President
----------------------------
Address for Notices:
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1305
Facsimile No.: (212) 449-8983
Telephone No.: (212) 449-1000
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ J. Peter Beckett
----------------------------
Name: J. Peter Beckett
--------------------------
Title: Director
-------------------------
Address for Notices:
11 Madison Avenue
New York, New York 10010-3629
Facsimile No.: (212) 325-8278
Telephone No.: (212) 325-2107
FIRST CHICAGO CAPITAL MARKETS, INC.
By: /s/ Abel Mojica
----------------------------
Name: Abel Mojica
--------------------------
Title: Associate
-------------------------
Address for Notices:
One First National Plaza
Mail Suite 0701
Chicago, Illinois 50570-0324
Facsimile No.: (312) 336-4500
Telephone No.: (312) 732-3538
<PAGE>
Exhibit 4.12
-------------------------------------------------------------------------------
WARRANT AGREEMENT
Dated as of March 5, 1998
By and Between
WAM!NET INC.
and
FIRST TRUST NATIONAL ASSOCIATION
as Warrant Agent
------------------------------------
Warrants to Purchase Common Stock
Par Value $.01 Per Share
-------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants...........................................8
SECTION 1.02. Form of Warrant Certificates...................................8
SECTION 1.03. Execution of Warrant Certificates..............................8
SECTION 1.04. Authentication and Delivery....................................9
SECTION 1.05. Temporary Warrant Certificates................................10
SECTION 1.06. Separation of Warrants and Notes..............................10
SECTION 1.07. Registration..................................................10
SECTION 1.08. Registration of Transfers or Exchanges........................11
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated
Warrant Certificates..........................................16
SECTION 1.10. Offices for Exercise, etc.....................................17
ARTICLE II
DURATION, EXERCISE OF WARRANTS;
EXERCISE PRICE AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants..........................................17
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery.............18
SECTION 2.03. Cancellation of Warrant Certificates..........................21
SECTION 2.04. Notice of an Exercise Event...................................21
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights.........................................21
SECTION 3.02. Obtaining Stock Exchange Listings.............................22
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes..............................................22
<PAGE>
SECTION 4.02. Qualification Under the Securities Laws.......................22
SECTION 4.03. Rules 144 and 144A............................................23
SECTION 4.04. Form of Initial Public Equity Offering........................23
SECTION 4.05. Registration of Shares........................................23
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices..........................24
SECTION 5.02. Fractional Shares.............................................30
SECTION 5.03. Certain Distributions.........................................30
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent.................................................31
SECTION 6.02. Conditions of Warrant Agent's Obligations.....................31
SECTION 6.03. Resignation and Appointment of Successor......................35
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment.....................................................36
SECTION 7.02. Notices and Demands to the Company and Warrant Agent..........37
SECTION 7.03. Addresses for Notices to Parties and for
Transmission of Documents.....................................37
SECTION 7.04. Notices to Holders............................................38
SECTION 7.05. APPLICABLE LAW; SUBMISSION TO JURISDICTION....................38
SECTION 7.06. Persons Having Rights Under Agreement.........................38
SECTION 7.07. Headings......................................................38
SECTION 7.08. Counterparts..................................................38
SECTION 7.09. Inspection of Agreement.......................................38
SECTION 7.10. Availability of Equitable Remedies............................39
SECTION 7.11. Obtaining of Governmental Approvals...........................39
<PAGE>
EXHIBITS:
EXHIBIT A Form of Warrant Certificate
EXHIBIT B Form of Legend for Global Warrant
EXHIBIT C Certificate to be Delivered Upon Exchange or Registration of
Transfer of Warrants
EXHIBIT D Form of Certificate to be Delivered in Connection with
Regulation S Transfers
<PAGE>
INDEX OF DEFINED TERMS
DEFINED TERM SECTION
- ------------ -------
Affiliate SECTION 5.01.(l)
Agreement Preamble
Business Day SECTION 2.01.
Capital Stock SECTION 5.01.(l)
Cashless Exercise SECTION 2.02.(b)
Cashless Exercise Ratio SECTION 2.02.(b)
Common Stock Preamble
Company Preamble
control SECTION 5.01.(l)
Current Market Value SECTION 5.01.(l)
Definitive Warrants SECTION 1.02.
Distribution SECTION 5.03.
Distribution Rights SECTION 5.03.
Election to Exercise SECTION 2.02.(a)
Exercisability Date SECTION 2.02.
Exercise Date SECTION 2.02.(c)
Exercise Event SECTION 2.02.
Exercise Price SECTION 2.02.
Exercise Rate SECTION 2.02.
Expiration Date SECTION 2.01.
Fundamental Transaction SECTION 5.01.(d)
Global Shares SECTION 2.02.(e)
Global Warrants SECTION 1.02.
Indenture Preamble
Independent Financial Expert SECTION 5.01.(l)
Initial Public Equity Offering SECTION 2.02.
Initial Purchasers Preamble
Merrill Lynch Preamble
Notes Preamble
Officers' Certificate SECTION 1.08.(d)(i)
Person SECTION 2.02.
Private Placement Legend SECTION 1.08.(g)
Prospectus SECTION 4.02.
Purchase Agreement Preamble
QIB SECTION 1.08.(a)(B)
Registrar SECTION 1.07.
Registration Rights Agreement Preamble
Related Parties SECTION 6.02.(e)
<PAGE>
Requisite Warrant Holders SECTION 7.01.
Resale Restriction Termination Date SECTION 1.08.(a)(y)
Securities Act SECTION 1.06.
Separability Date SECTION 1.06.
Separation SECTION 1.06.
Shares SECTION 1.01.
Subject Class SECTION 4.04.
Surviving Person SECTION 5.01.(d)
Time of Determination SECTION 5.01.(l)
Trustee Preamble
Units Preamble
Warrant Agent Preamble
Warrant Agent Office SECTION 1.10.
Warrant Certificates SECTION 2.01
Warrant Change of Control SECTION 2.01
Warrant Exercise Office SECTION 2.02.(a)
Warrant Register SECTION 1.07.
Warrants Preamble
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT ("AGREEMENT"), dated as of March 5, 1998 by and between
WAM!NET INC., a Minnesota corporation (together with any successor thereto, the
"COMPANY"), and FIRST TRUST NATIONAL ASSOCIATION, as warrant agent (with any
successor Warrant Agent, the "WARRANT AGENT").
WHEREAS, the Company has entered into a purchase agreement (the "PURCHASE
AGREEMENT") dated February 26, 1998 with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MERRILL LYNCH"), Credit Suisse First Boston Corporation and First
Chicago Capital Markets, Inc. (collectively, the "INITIAL PURCHASERS") in which
the Company has agreed to sell to the Initial Purchasers 208,530 Units (the
"UNITS") consisting, in the aggregate, of (i) $208,530,000 aggregate principal
amount at maturity of Senior Discount Notes due 2005 (the "NOTES") of the
Company, to be issued under an Indenture dated as of March 5, 1998 (the
"INDENTURE"), between the Company and First Trust National Association, as
trustee (in such capacity, the "TRUSTEE"), and (ii) 625,590 Warrants (the
"WARRANTS"), each Warrant initially entitling the holder thereof to purchase
2.01 shares of Common Stock, par value $.01 per share (the "COMMON STOCK"'), of
the Company, to be issued under this Agreement. First Trust National Association
has been appointed Unit Agent by the Company (in such capacity, the "Unit
Agent"). The certificates evidencing the Warrants are herein referred to
collectively as the "WARRANT CERTIFICATES"; and
WHEREAS, each Unit will consist of one Note in the principal amount at
maturity of $1,000 and three Warrants; the Notes and the Warrants comprising
part of the Units shall not be separately transferable until the Separability
Date (as defined below); and
WHEREAS, the holders of the Warrants are entitled to the benefits of a
Common Stock Registration Rights Agreement dated as of March 5, 1998 among the
Company, the Initial Purchasers and WorldCom Inc. (the "REGISTRATION RIGHTS
AGREEMENT"); and
WHEREAS, the Company desires the Warrant Agent to assist the Company in
connection with the issuance, exchange, cancellation, replacement and exercise
of the Warrants, and in this Agreement wishes to set forth, among other things,
the terms and conditions on which the Warrants may be issued, exchanged,
canceled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. ISSUANCE OF WARRANTS. Warrants comprising part of the Units
shall be originally issued in connection with the issuance of the Units and such
Warrants shall not be separately transferable from the Notes until on or after
the Separability Date as provided in Section 1.06 hereof.
Each Warrant Certificate shall evidence the number of Warrants specified
therein, and each Warrant evidenced thereby shall, when exercisable as provided
herein and therein, represent the right, subject to the provisions contained
herein and therein, to purchase from the Company (and the Company shall issue
and sell to the holder of such Warrant) 2.01 fully paid, registered and
non-assessable shares of Common Stock at an exercise price of $0.01 per share.
The number of shares issuable upon exercise of a Warrant is subject to
adjustment as provided herein and in the Warrant. The shares purchasable upon
exercise of a Warrant are hereinafter referred to as the "SHARES" and, unless
the context otherwise requires, such term shall also include any other
securities or property purchasable and deliverable upon exercise of a Warrant as
provided in Article V, subject to adjustment as provided herein and in the
Warrant.
SECTION 1.02. FORM OF WARRANT CERTIFICATES. The Warrant Certificates will
initially be issued either in global form (the "GLOBAL WARRANTS"), substantially
in the form of EXHIBIT A hereto, or in registered form as definitive Warrant
Certificates (the "DEFINITIVE WARRANTS") substantially in the form of EXHIBIT A
attached hereto. Any Global Warrants to be delivered pursuant to this Agreement
shall bear the legend set forth in EXHIBIT B attached hereto. Such Global
Warrants shall represent such of the outstanding Warrants as shall be specified
therein and each shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Warrant to
reflect the amount of any increase or decrease in the amount of outstanding
Warrants represented thereby shall be made by the Warrant Agent and the
Depositary (as defined below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall act as the Depositary with
respect to the Global Warrants until a successor shall be appointed by the
Company and the Warrant Agent. Upon written request, a holder of Warrants may
receive from the Warrant Agent or the Depository Definitive Warrants as set
forth in Section 1.08 hereof.
SECTION 1.03. EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by the Chairman of its Board of
Directors, its President or any Vice President and attested by its Secretary or
Assistant Secretary. Such signatures may be the manual or facsimile signatures
of the present or any future such officers. Typographical and other minor errors
or defects in any such reproduction of any such signature shall not affect the
validity
8
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or enforceability of any Warrant Certificate that has been duly countersigned
and delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before the Warrant Certificate so
signed shall be countersigned and delivered by the Warrant Agent or disposed of
by the Company, such Warrant Certificate nevertheless may be countersigned and
delivered or disposed of as though the person who signed such Warrant
Certificate had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by such persons as, at the
actual date of the execution of such Warrant Certificate, shall be the proper
officers of the Company, although at the date of the execution and delivery of
this Agreement any such person was not such an officer.
SECTION 1.04. AUTHENTICATION AND DELIVERY. Subject to the immediately
following paragraph, Warrant Certificates shall be authenticated by manual
signature and dated the date of authentication by the Warrant Agent and shall
not be valid for any purpose unless so authenticated and dated. The Warrant
Certificates shall be numbered and shall be registered in the Warrant Register
(as defined in Section 1.07 hereof).
Upon the receipt by the Warrant Agent of a written order of the Company,
which order shall be signed by the Chairman of its Board of Directors, its
President or any Vice President and attested by its Secretary or Assistant
Secretary, and shall specify the amount of Warrants to be authenticated, whether
the Warrants are to be Global Warrants or Definitive Warrants, the date of such
Warrants and such other information as the Warrant Agent may reasonably request,
without any further action by the Company, the Warrant Agent is authorized, upon
receipt from the Company at any time and from time to time of the Warrant
Certificates, duly executed as provided in Section 1.03 hereof, to authenticate
the Warrant Certificates and upon the holder's request deliver them. Such
authentication shall be by a duly authorized signatory of the Warrant Agent
(although it shall not be necessary for the same signatory to sign all Warrant
Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such an
authorized signatory before the Warrant Certificate shall be disposed of by the
Company or the Warrant Agent, such Warrant Certificate nevertheless may be
delivered or disposed of as though the person who authenticated such Warrant
Certificate had not ceased to be such authorized signatory of the Warrant Agent,
and any Warrant Certificate may be authenticated on behalf of the Warrant Agent
by such persons as, at the actual time of authentication of such Warrant
Certificates, shall be the duly authorized signatories of the Warrant Agent,
although at the time of the execution and delivery of this Agreement any such
person is not such an authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates shall be in
substantially the form set forth in EXHIBIT A hereto.
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SECTION 1.05. TEMPORARY WARRANT CERTIFICATES. Pending the preparation of
definitive Warrant Certificates, the Company may execute, and the Warrant Agent
shall authenticate and deliver, temporary Warrant Certificates, which are
printed, lithographed, typewritten or otherwise produced, substantially of the
tenor of the definitive Warrant Certificates in lieu of which they are issued
and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Warrant Certificates may determine, as
evidenced by their execution of such Warrant Certificates.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay. After
the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for that purpose pursuant to Section 1.10 hereof.
Subject to the provisions of Section 4.01 hereof, such exchange shall be without
charge to the holder. Upon surrender for cancellation of any one or more
temporary Warrant Certificates, the Company shall execute, and the Warrant Agent
shall authenticate and deliver in exchange therefor, one or more definitive
Warrant Certificates representing in the aggregate a like number of Warrants.
Until so exchanged, the holder of a temporary Warrant Certificate shall in all
respects be entitled to the same benefits under this Agreement as a holder of a
definitive Warrant Certificate.
SECTION 1.06. UNITS; SEPARATION OF WARRANTS AND NOTES. The Warrants shall
initially be issued as part of a Unit, each Unit consisting of three Warrants
and $1,000 principal face amount of Notes. The Notes and the Warrants comprising
a Unit will not be separately transferable until the Separability Date.
"SEPARABILITY DATE" shall mean the earliest to occur of: (i) September 1, 1998,
(ii) the occurrence of an Exercise Event (as defined herein), (iii) the
occurrence of an Event of Default (as defined in the Indenture), (iv) the date
on which a registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to a registered exchange offer for the
Notes or covering the sale by holders of the Notes is declared effective under
the Securities Act, (v) immediately prior to any redemption of Notes by the
Company from the net proceeds of an Initial Public Equity Offering (as defined
in the Indenture), (vi) immediately prior to the occurrence of a Warrant Change
of Control (as defined herein) or (v) such earlier date as determined by Merrill
Lynch & Co. in its sole discretion and specified to the Company, the Trustee,
the Warrant Agent and the Unit Agent in writing. The separation of the Warrants
and the Notes is herein referred to as a "SEPARATION". Transfers of the Units
shall be made by the Unit Agent in accordance with the restrictions set forth in
Section1.08 hereof. The Unit Agent shall be entitled to the same benefits and
privileges as those accorded to the Warrant Agent under this Warrant Agreement.
SECTION 1.07. REGISTRATION. The Company will keep, at the office or agency
maintained by the Company for such purpose, a register or registers in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of, and registration of transfer and exchange of,
Warrants as provided in this Article. Each person designated by the Company from
time to time as a person authorized to register the transfer and exchange of the
Warrants is hereinafter called, individually and collectively, the "REGISTRAR."
The
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Company hereby initially appoints the Warrant Agent as Registrar. Upon written
notice to the Warrant Agent and any acting Registrar, the Company may appoint a
successor Registrar for such purposes.
The Company will at all times designate one person (who may be the Company
and who need not be a Registrar) to act as repository of a master list of names
and addresses of the holders of Warrants (the "WARRANT REGISTER"). The Warrant
Agent will act as such repository unless and until some other person is, by
written notice from the Company to the Warrant Agent and the Registrar,
designated by the Company to act as such. The Company shall cause each Registrar
to furnish to such repository, on a current basis, such information as to all
registrations of transfer and exchanges effected by such Registrar, as may be
necessary to enable such repository to maintain the Warrant Register on as
current a basis as is practicable.
SECTION 1.08. REGISTRATION OF TRANSFERS OR EXCHANGES.
(a) TRANSFER OR EXCHANGE OF DEFINITIVE WARRANTS. When Definitive Warrants
are presented to the Warrant Agent with a request from the holder:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of Definitive
Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements under this Warrant Agreement as set forth in this Section
1.08 hereof for such transactions are met; PROVIDED, HOWEVER, that the
Definitive Warrants presented or surrendered by a holder for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction of
transfer or exchange in form satisfactory to the Company and the
Warrant Agent, duly executed by such holder or by his attorney, duly
authorized in writing; and
(y) in the case of Warrants the offer and sale of which have not been
registered under the Securities Act and are presented for transfer or
exchange prior to (X) the date which is two years (or such shorter
period as may be prescribed by Rule 144(k) (or any successor provision
thereto)) after the later of the date of original issuance of the
Warrants and the last date on which the Company or any affiliate of
the Company was the owner of such Warrants, or any predecessor
thereto, and (Y) such later date, if any, as may be required by any
subsequent change in applicable law (the "RESALE RESTRICTION
TERMINATION DATE"), such Warrants shall be accompanied by the
following additional information and documents, as applicable:
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(A) if such Warrants are being delivered to the Warrant Agent by a
holder for registration in the name of such holder, without
transfer, a certi fication from such holder to that effect (in
substantially the form of EXHIBIT C hereto); or
(B) if such Warrants are being transferred to a qualified
institutional buyer (as defined in Rule 144A under the Securities
Act) (a "QIB") in accordance with Rule 144A under the Securities
Act, a certification from the transferor to that effect (in
substantially the form of EXHIBIT C hereto); or
(C) if such Warrants are being transferred in reliance on Regulation
S under the Securities Act, delivery by the transferor of a
certification to that effect (in substantially the form of
EXHIBIT C hereto), and a Certificate for Regulation S Transfers
in the form of EXHIBIT D hereto; or
(D) if such Warrants are being transferred in reliance on Rule 144
under the Securities Act, delivery by the transferor of (i) a
certification from the transferor to that effect (in
substantially the form of EXHIBIT C hereto), and (ii) an opinion
of counsel reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act; or
(E) if such Warrants are being transferred in reliance on another
exemption from the registration requirements of the Securities
Act, a certification from the transferor to that effect (in
substantially the form of EXHIBIT C hereto) and an opinion of
counsel reasonably satisfactory to the Company to the effect that
such transfer is in compliance with the Securities Act; PROVIDED
that the Company may, based upon the views of its own counsel,
instruct the Warrant Agent not to register such transfer in any
case where the proposed transferee is not a QIB or non-U.S.
Person.
(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE WARRANT FOR A BENEFICIAL
INTEREST IN A GLOBAL WARRANT. A Definitive Warrant may not be transferred by a
holder for a beneficial interest in a Global Warrant except upon satisfaction of
the requirements set forth below. Upon receipt by the Warrant Agent of a
Definitive Warrant, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Warrant Agent, together with:
(A) certification from such holder (in substantially the form of
EXHIBIT C hereto) that such Definitive Warrant is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act; and
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(B) written instructions directing the Warrant Agent to make, or to
direct the Depositary to make, an endorsement on the Global
Warrant to reflect an increase in the aggregate amount of the
Warrants represented by the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Shares represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall upon written instructions from the Company authenticate a new Global
Warrant in the appropriate amount.
(c) TRANSFER OR EXCHANGE OF GLOBAL WARRANTS. The transfer or exchange of
Global Warrants or beneficial interests therein shall be effected through the
Depositary, in accordance with this Section 1.08, the Private Placement Legend,
this Agreement (including the restrictions on transfer set forth herein) and the
procedures of the Depositary therefor.
(d) TRANSFER OR EXCHANGE OF A BENEFICIAL INTEREST IN A GLOBAL WARRANT FOR A
DEFINITIVE WARRANT.
(i) Any person having a beneficial interest in a Global Warrant may
transfer or exchange such beneficial interest for a Definitive Warrant
upon receipt by the Warrant Agent of written instructions or such
other form of instructions as is customary for the Depositary from the
Depositary or its nominee on behalf of any person having a beneficial
interest in a Global Warrant, including a written order containing
registration instructions and, in the case of any such transfer or
exchange prior to the Resale Restriction Termination Date, the
following additional information and documents:
(A) if such beneficial interest is being transferred to the person
designated by the Depositary as being the beneficial owner, a
certification from such person to that effect (in substantially
the form of EXHIBIT C hereto); or
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a
certification from the transferor to that effect (in
substantially the form of EXHIBIT C hereto); or
(C) if such beneficial interest is being transferred in reliance on
Regulation S under the Securities Act, delivery by the transferor
of (i) a certification to that effect (in substantially the form
of EXHIBIT C
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hereto) and (ii) a Certificate for Regulation S Transfers in the
form of EXHIBIT D hereto; or
(D) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery by the transferor of
(i) a certi fication to that effect (in substantially the form of
EXHIBIT C hereto) and (ii) an opinion of counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(E) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification from the transferor to that
effect (in substantially the form of EXHIBIT C hereto) and an
opinion of counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the Securities
Act; PROVIDED that the Company may instruct the Warrant Agent not
to register such transfer in any case where the proposed
transferee is not a QIB or Non-U.S. Person;
then the Warrant Agent will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Warrant Agent, the aggregate amount of the Global Warrant to be
reduced and, following such reduction, the Company will execute and,
upon receipt from the Comany of an authentication order in the form of
an officers' certificate (a certificate signed by two officers of the
Company, one of whom must be the principal executive officer,
principal financial officer or principal accounting officer) (an
"OFFICERS' CERTIFICATE"), the Warrant Agent will authenticate and
deliver to the transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial interest in a
Global Warrant pursuant to this Section 1.08(d) shall be registered in
such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent in writing. The Warrant
Agent shall deliver such Definitive Warrants to the persons in whose
names such Warrants are so registered and adjust the Global Warrant
pursuant to paragraph (h) of this Section 1.08.
(e) RESTRICTIONS ON TRANSFER OR EXCHANGE OF GLOBAL WARRANTS.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.08), a Global Warrant
may not be transferred or exchanged as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
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another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) AUTHENTICATION OF DEFINITIVE WARRANTS IN ABSENCE OF DEPOSITARY. If at
any time:
(i) the Depositary for the Global Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Warrant and a successor Depositary for the Global Warrant is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) the Company, at its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrants
for all Global Warrants under this Agreement,
then the Company will execute, and the Warrant Agent will, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Definitive
Warrants, authenticate and deliver Definitive Warrants, in an aggregate number
equal to the aggregate number of Warrants represented by the Global Warrant, in
exchange for such Global Warrant.
(g) PRIVATE PLACEMENT LEGEND. Upon the registration of transfer, exchange
or replacement of Warrant Certificates not bearing the legend set forth in the
first paragraph of EXHIBIT A attached hereto (the "PRIVATE PLACEMENT LEGEND"),
the Warrant Agent shall deliver Warrant Certificates that do not bear the
Private Placement Legend. Upon the registration of transfer, exchange or
replacement of Warrant Certificates bearing the Private Placement Legend, the
Warrant Agent shall deliver Warrant Certificates that bear the Private Placement
Legend unless, and the Warrant Agent is hereby authorized to deliver Warrant
Certificates without the Private Placement Legend if, (i) the requested transfer
is not prior to the date which is two years (or such shorter period as may be
prescribed by Rule 144(k) (or any successor provision thereto) under the
Securities Act or any successor provision thereunder) after the later of the
original Issue Date of the Warrants or the last day on which the Company or any
of its affiliates was the owner of the Warrant or any predecessor security, (ii)
there is delivered to the Warrant Agent an opinion of counsel reasonably
satisfactory to the Company and the Warrant Agent to the effect that neither
such legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act or (iii) the
Warrants to be transferred or exchanged represented by such Warrant Certificates
are being transferred or exchanged pursuant to an effective registration
statement under the Securities Act.
(h) CANCELLATION OR ADJUSTMENT OF A GLOBAL WARRANT. At such time as all
beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or canceled, such Global Warrant
shall be returned to the Company or, upon written order to the Warrant Agent in
the form of an Officers' Certificate from the Company, retained and canceled by
the Warrant Agent. At any time prior to such cancellation, if any beneficial
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interest in a Global Warrant is exchanged for Definitive Warrants, redeemed,
repurchased or cancelled, the number of Warrants represented by such Global
Warrant shall be reduced and an endorsement shall be made on such Global Warrant
by the Warrant Agent to reflect such reduction.
(i) OBLIGATIONS WITH RESPECT TO TRANSFERS OR EXCHANGES OF DEFINITIVE
WARRANTS.
(i) To permit registrations of transfers or exchanges, the Company shall
execute, at the Warrant Agent's request, and the Warrant Agent shall
authenticate Definitive Warrants and Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to
the same benefits under this Warrant Agreement as the Definitive
Warrants or Global Warrants surrendered upon the registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any Warrant,
the Warrant Agent and the Company may deem and treat the person in
whose name any Warrant is registered as the absolute owner of such
Warrant, and neither the Warrant Agent nor the Company shall be
affected by notice to the contrary.
SECTION 1.09. LOST, STOLEN, DESTROYED, DEFACED OR MUTILATED WARRANT
CERTIFICATES. Upon receipt by the Company and the Warrant Agent (or any agent of
the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to them of the loss, theft, destruction, defacement, or mutilation
of any Warrant Certificate and of an indemnity bond satisfactory to them and, in
the case of mutilation or defacement, upon surrender thereof to the Warrant
Agent for cancellation, then, in the absence of notice to the Company or the
Warrant Agent that such Warrant Certificate has been acquired by a BONA FIDE
purchaser or holder in due course, the Company shall execute, and an authorized
signatory of the Warrant Agent shall manually authenticate and deliver, in
exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated
Warrant Certificate, a new Warrant Certificate representing a like number of
Warrants, bearing a number or other distinguishing symbol not contemporaneously
outstanding. Upon the issuance of any new Warrant Certificate under this Section
in a name other than the prior registered holder of the lost, stolen, destroyed,
defaced or mutilated Warrant Certificate, the Company may require the payment
from the holder of such Warrant Certificate of a sum sufficient to cover any
tax, stamp tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Warrant
Agent and the Registrar) in connection therewith. Every substitute Warrant
Certificate executed and delivered pursuant to this Section in lieu of any lost,
stolen or destroyed Warrant Certificate shall constitute an additional
contractual obligation of the Company, whether or not the lost, stolen or
destroyed Warrant Certificate shall be at any time enforceable by anyone, and
shall be entitled to the benefits of (but shall be subject to all the
limitations of rights set forth in) this Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Section 1.09 are exclusive with respect to
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the replacement of lost, stolen, destroyed, defaced or mutilated Warrant
Certificates and shall preclude (to the extent lawful) any and all other rights
or remedies notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement of lost, stolen, destroyed, defaced
or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate in accordance with
the provisions of this Agreement, and deliver the new Warrant Certificates
required pursuant to the provisions of this Section.
SECTION 1.10. OFFICES FOR EXERCISE, ETC. So long as any of the Warrants
remain outstanding, the Company will designate and maintain in the Borough of
Manhattan, The City of New York: (a) an office or agency where the Warrant
Certificates may be presented for exercise, (b) an office or agency where the
Warrant Certificates may be presented for registration of transfer and for
exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.05 hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Agreement may be served. The Company may from time to
time change or rescind such designation, as it may deem desirable or expedient;
PROVIDED, HOWEVER, that an office or agency shall at all times be maintained in
the Borough of Manhattan, The City of New York, as provided in the first
sentence of this Section. In addition to such office or offices or agency or
agencies, the Company may from time to time designate and maintain one or more
additional offices or agencies within or outside The City of New York, where
Warrant Certificates may be presented for exercise or for registration of
transfer or for exchange, and the Company may from time to time change or
rescind such designation, as it may deem desirable or expedient. The Company
will give to the Warrant Agent written notice of the location of any such office
or agency and of any change of location thereof. The Company hereby designates
the Warrant Agent at its principal corporate trust office identified in Section
7.03 in the Borough of Manhattan, The City of New York (the "WARRANT AGENT
OFFICE"), as the initial agency maintained for each such purpose. In case the
Company shall fail to maintain any such office or agency or shall fail to give
such notice of the location or of any change in the location thereof,
presentations and demands may be made and notice may be served at the Warrant
Agent Office and the Company appoints the Warrant Agent as its agent to receive
all such presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS;
EXERCISE PRICE AND REPURCHASE OF WARRANTS
SECTION 2.01. DURATION OF WARRANTS. Subject to the terms and conditions
established herein, the Warrants shall expire at 5:00 p.m., New York City time,
on March 1, 2005. The date of expiration of a particular Warrant is referred to
herein as the "EXPIRATION DATE" of such Warrant. Each Warrant may be exercised
on any Business Day (as defined below) on or after the
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Exercisability Date (as defined in Section 2.02) and on or prior to the close of
business on the Expiration Date.
Any Warrant not exercised before the close of business on the Expiration
Date shall become void, and all rights of the holder under the Warrant
Certificate evidencing such Warrant and under this Agreement shall cease.
"BUSINESS DAY" shall mean any day on which (i) banks in New York City, (ii)
the principal U.S. securities exchange or market, if any, on which any Common
Stock is listed or admitted to trading and (iii) the principal U.S. securities
exchange or market, if any, on which any other securities underlying the
Warrants are listed or admitted to trading are open for business.
SECTION 2.02. EXERCISE, EXERCISE PRICE, SETTLEMENT AND DELIVERY. (a)
Subject to the provisions of this Agreement, a holder of a Warrant shall have
the right to purchase from the Company on or after the Exercisability Date, and
on or prior to the close of business on the Expiration Date, 2.01 fully paid,
registered and non-assessable shares of Common Stock (and any other securities
or property purchasable or deliverable upon exercise of such Warrant as provided
in Article V), subject to adjustment in accordance with Article V hereof, at the
purchase price of $0.01 for each share purchased (the "EXERCISE PRICE"). The
number of Shares for which a particular Warrant may be exercised (the "EXERCISE
RATE") shall be subject to adjustment from time to time as set forth in Article
V hereof.
"EXERCISABILITY DATE" means, with respect to each Warrant, the date as of
which both of the following shall have occurred (whether before or on such
date): (i) the Separability Date and (ii) an Exercise Event.
"EXERCISE EVENT" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (1) immediately prior to the occurrence of a
Warrant Change of Control, (2) (a) the 90th day (or such earlier date as
determined by the Company in its sole discretion) following an Initial Public
Equity Offering or (b) upon the closing of an Initial Public Equity Offering but
only in respect of Warrants, if any, required to be exercised to permit the
holders thereof to sell Shares pursuant to their registration rights, (3) a
class of equity securities of the Company is listed on a national securities
exchange or authorized for quotation on the The Nasdaq Stock Market or is
otherwise subject to registration under the Exchange Act, or (4) September 1,
2000.
"INITIAL PUBLIC EQUITY OFFERING" means an initial public offering of equity
securities of the Company (whether or not underwritten and whether or not
pursuant to a primary or secondary offering but excluding any offering pursuant
to Form S-8 under the Securities Act or any other publicly registered offering
pursuant to an issuance of shares of Common Stock or securities exercisable
therefor under any benefit plan, employee compensation plan, or employee or
director stock purchase plan) pursuant to an effective registration statement
under the Securities Act.
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"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity, including any predecessor of any such entity.
"VOTING STOCK" means, with respect to any Person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors
or other members of the governing body of such Person.
"WARRANT CHANGE OF CONTROL" shall mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), excluding WorldCom Inc., a Georgia corporation ("WORLDCOM")
and its Affiliates, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has or acquires
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of all Voting Stock of the Company or has, directly or
indirectly, the right to elect or designate a majority of the Board of Directors
of the Company; or (b) the Company consolidates with, or merges with or into,
another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is converted into or exchanged for cash, securities or other property, other
than any such transaction where (i) the outstanding Voting Stock of the Company
is converted into or exchanged for Voting Stock of the surviving or transferee
corporation or its parent corporation, (ii) the "beneficial owners" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time) of the Voting Stock of the Company immediately before such
transaction own, directly or indirectly, immediately after such transaction, at
least a majority of the voting power of all Voting Stock of the surviving or
transferee corporation or its parent corporation immediately after such
transaction, as applicable, and (iii) no "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), excluding WorldCom and
its Affiliates, is the "beneficial owner" directly or indirectly, of more than
50% of the total voting power of the Voting Stock of the surviving or transferee
corporation or its parent corporation, as applicable, or has, directly or
indirectly, the right to elect or designate a majority of the board of directors
of the surviving or transferee corporation or its parent corporation, as
applicable. The good faith determination by the Board of Directors of the
Company, based upon advice of outside counsel, of the beneficial ownership of
securities of the Company within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act shall be conclusive, absent contrary controlling judicial precedent
or contrary written interpretation published by the Securities and Exchange
Commission.
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(a) Warrants may be exercised, in whole but not in part, on or after the
date they are exercisable hereunder by (i) surrendering at any office or agency
maintained for that purpose by the Company pursuant to Section 1.10 (each a
"WARRANT EXERCISE OFFICE") the Warrant Certificate evidencing such Warrants with
the form of election to exercise Shares set forth on the reverse side of the
Warrant Certificate (the "ELECTION TO EXERCISE") duly completed and signed by
the registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, and in the case of a
transfer, such signature shall be guaranteed by an eligible guarantor
institution, and (ii) paying in full the Exercise Price for each such Warrant
exercised. Each Warrant may be exercised only in whole.
(b) Simultaneously with the exercise of each Warrant, payment in full of
the aggregate Exercise Price may be made, at the option of the holder, (i) by
United States dollars or by certified or official bank check, (ii) by the
surrender (which surrender shall be evidenced by cancellation of the number of
Warrants represented by any Warrant Certificate presented in connection with a
Cashless Exercise) of a Warrant or Warrants (represented by one or more Warrant
Certificates), and without payment of the Exercise Price in cash, for such
number of Shares equal to the product of (1) the number of Shares for which such
Warrant is exercisable with payment in cash of the aggregate Exercise Price as
of the date of exercise and (2) the Cashless Exercise Ratio or (iii) with any
combination of (i) and (ii). For purposes of this Agreement, the "CASHLESS
EXERCISE RATIO" shall equal a fraction, the numerator of which is the excess of
the Current Market Value per share of the Common Stock on the date of exercise
over the Exercise Price per share as of the date of exercise, and the
denominator of which is the Current Market Value per share of the Common Stock
on the date of exercise. An exercise of a Warrant in accordance with the
immediately preceding sentences is herein called a "CASHLESS EXERCISE". Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the number of
Shares deliverable upon a Cashless Exercise shall be equal to the Cashless
Exercise Ratio multiplied by the product of (a) the number of Warrants that the
holder specifies is to be exercised pursuant to a Cashless Exercise and (b) the
aggregate number of Shares for which such Warrants is then exercisable (without
giving effect to the Cashless Exercise option). All provisions of this Agreement
shall be applicable with respect to an exercise of a Warrant Certificate
pursuant to a Cashless Exercise for less than the full number of Warrants
represented thereby. No payment or adjustment shall be made on account of any
dividends on the Shares issued upon exercise of a Warrant. If the Company has
not effected the registration under the Securities Act of the offer and sale of
the Shares by the Company to the holders of the Warrants upon the exercise
thereof, the Company may elect to require that holders of the Warrants effect
the exercise of the Warrants solely pursuant to the Cashless Exercise option and
may also amend the Warrants to eliminate the requirement for payment of the
Exercise Price with respect to such Cashless Exercise option. The Warrant Agent
shall have no obligation under this section to calculate the Cashless Exercise
Ratio.
(c) Upon such surrender of a Warrant Certificate and payment and collection
of the Exercise Price at any Warrant Exercise Office (other than any Warrant
Exercise Office that also is an office of the Warrant Agent), such Warrant
Certificate and payment shall be promptly delivered
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to the Warrant Agent. The "EXERCISE DATE" for a Warrant shall be the date when
all of the items referred to in the first sentence of paragraphs (b) and (c) of
this Section 2.02 are received by the Warrant Agent at or prior to 11:00 a.m.,
New York City time, on a Business Day and the exercise of the Warrants will be
effective as of such Exercise Date. If all items referred to in the first
sentence of paragraphs (b) and (c) are received after 11:00 a.m., New York City
time, on a Business Day, the exercise of the Warrants to which such items relate
will be effective on the next succeeding Business Day. Notwithstanding the
foregoing, in the case of an exercise of Warrants on the Expiration Date, if all
of the items referred to in the first sentence of paragraphs (b) and (c) are
received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on
the Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
(d) Upon the exercise of a Warrant in accordance with the terms hereof, the
receipt of a Warrant Certificate and payment of the Exercise Price (or election
of the Cashless Exercise option), the Warrant Agent shall: (i) except to the
extent exercise of the Warrant has been effected through Cashless Exercise,
cause an amount equal to the aggregate Exercise Price to be paid to the Company
by crediting the same to the account designated by the Company in writing to the
Warrant Agent for that purpose; (ii) advise the Company immediately by telephone
of the amount so deposited to the Company's account and promptly confirm such
telephonic advice in writing; and (iii) as soon as practicable, advise the
Company in writing of the number of Warrants exercised in accordance with the
terms and conditions of this Agreement and the Warrant Certificates, the
instructions of each exercising holder of the Warrant Certificates with respect
to delivery of the Shares to which such holder is entitled upon such exercise,
and such other information as the Company shall reasonably request.
(e) Subject to Section 5.02 hereof, as soon as practicable after the
exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered holder of the Warrant Certificate evidencing such exercised Warrant
or Warrants, a certificate or certificates evidencing the Shares to which such
holder is entitled, in fully registered form, registered in such name or names
as may be directed by such holder pursuant to the Election to Exercise, as set
forth on the reverse of the Warrant Certificate. Such certificate or
certificates evidencing the Shares shall be deemed to have been issued and any
Persons who are designated to be named therein shall be deemed to have become
the holder of record of such Shares as of the close of business on the Exercise
Date; the Shares may initially be issued in global form (the "GLOBAL SHARES").
Such Global Shares shall represent such of the outstanding Shares as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Shares from time to time endorsed thereon and that the
aggregate amount of outstanding Shares represented thereby may from time to time
be reduced or increased, as appropriate. Any endorsement of a Global Share to
reflect the amount of any increase or decrease in the amount of outstanding
Shares represented thereby shall be made by the registrar for the Shares and the
Depositary (referred to below) in accordance with instructions given by the
holder thereof. The Depository Trust Company shall (if possible) act as the
Depositary with respect to the Global Shares until a successor shall be
appointed by the Company and the registrar for the Shares. After such exercise
of any Warrant or Warrants, the Company shall also issue or cause to be issued
to or
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upon the written order of the registered holder of such Warrant Certificate, a
new Warrant Certificate, countersigned by the Warrant Agent pursuant to written
instruction, evidencing the number of Warrants, if any, remaining unexercised
unless such Warrants shall have expired.
SECTION 2.03. CANCELLATION OF WARRANT CERTIFICATES. In the event the
Company shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall at the Company's written instruction be canceled by it and
retired. The Warrant Agent shall cancel all Warrant Certificates properly
surrendered for exchange, substitution, transfer or exercise. Upon the Company's
written request, the Warrant Agent shall deliver such canceled Warrant
Certificates to the Company.
SECTION 2.04. NOTICE OF AN EXERCISE EVENT. The Company shall, as soon as
practicable after the occurrence of an Exercise Event, send or cause to be sent
to each holder of Warrants, and to each beneficial owner of the Warrants with
respect to which such Exercise Event has occurred to the extent that the
Warrants are held of record by a depositary or other agent (with a copy to the
Warrant Agent), by first-class mail, at the addresses appearing on the Warrant
Register, a notice prepared by the Company advising such holder of the Exercise
Event which has occurred, which notice shall describe the type of Exercise Event
and the date of the occurrence thereof, as applicable, and the date and time of
expiration of the right to exercise the Warrants prominently set forth in the
face of such notice.
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. ENFORCEMENT OF RIGHTS. (a) Notwithstanding any of the
provisions of this Agreement, any holder of a Warrant Certificate, without the
consent of the Warrant Agent, the holder of any Shares or the holder of any
other Warrant Certificate, may, in and for his own behalf, enforce, and may
institute and maintain any suit, action or proceeding against the Company
suitable to enforce his right to exercise the Warrant or Warrants evidenced by
his Warrant Certificate in the manner provided in such Warrant Certificate and
in this Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall entitle the
holders thereof to any of the rights of a holder of Shares, including, without
limitation, the right to vote or to receive any dividends or other payments or
to consent or to receive notice as stockholders in respect of the meetings of
stockholders or for the election of directors of the Company or any other
matter, or any rights whatsoever as stockholders of the Company, except as
expressly provided herein (including Section 5.03 hereof).
SECTION 3.02. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from time
to time take all action which may be necessary so that the Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within
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the United States (including the Nasdaq National Market), if any, on which other
shares of Common Stock are then listed.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrants and of the Shares upon
the exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax or other governmental charge which may be payable in
respect of any transfer or exchange of any Warrant Certificates or any
certificates for Shares in a name other than the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant. In any such case, no
transfer or exchange shall be made unless or until the person or persons
requesting issuance thereof shall have paid to the Company the amount of such
tax or other governmental charge or shall have established to the satisfaction
of the Company that such tax or other governmental charge has been paid or an
exemption is available therefrom.
SECTION 4.02. QUALIFICATION UNDER THE SECURITIES LAWS. (a) Immediately
prior to the occurrence of an Exercise Event (or, in the case of a Warrant
Change of Control, as promptly as practicable thereafter), the Company will, if
permitted by applicable law, take all such action as is necessary to cause the
offer and sale by the Company of the Shares issuable or deliverable upon
exercise of the Warrants to be registered or otherwise qualified under the
provisions of the Securities Act and pursuant to all applicable state securities
laws and to provide for the issuance of all Shares delivered upon exercise of
the Warrants pursuant to an effective shelf registration statement under the
Securities Act. Subject to the last sentence of this Section 4.02(a) and to
paragraph (b) of this Section 4.02, so long as any unexpired Warrants which have
become exercisable due to the occurrence of an Exercise Event remain
outstanding, the Company will file such amendments and/or supplements to any
registration statement under the Securities Act or under any state securities
laws covering the issuance of such Shares and supplement and keep current any
prospectus forming a part of such registration statement as may be necessary to
permit the Company to deliver to each person exercising a Warrant a prospectus
meeting the requirements of Section 10(a)(3) of the Securities Act (a
"PROSPECTUS") and the regulations of the Securities and Exchange Commission and
otherwise complying with the Securities Act and regulations thereunder, and as
may be necessary to comply with any applicable state securities laws. The
Warrant Agent shall have no duty to monitor when such registration or
qualification is necessary nor shall the Warrant Agent be responsible for the
Company's failure to comply with this Section 4.02. The Company's obligation to
cause a shelf registration statement to become effective and maintain a
Prospectus for delivery to each person exercising a Warrant shall be terminated
on the date the Company delivers to the Warrant Agent an unqualified opinion of
counsel reasonably satisfactory to the Warrant Agent to the effect that all
Shares registrable or deliverable upon exercise of the Warrants may be issued
without the
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requirement of registration under the Securities Act and will be freely
transferable after receipt without limitation under the Securities Act.
(b) The Company may suspend the effectiveness of such shelf registration
statement and the use of any related prospectus in the event that, and for a
period not to exceed an aggregate of 60 days in any calendar year if, (i) an
event occurs and is continuing as a result of which the shelf registration
statement would, in the Company's good faith judgement, which determination
shall be evidenced by a resolution of the Company's board of directors, contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make statements therein, in the light of the circumstances
under which they were made, not misleading, and (ii)(a) the Company determines
in its good faith judgment, which determination shall be evidenced by a
resolution of the Company's board of directors, that (A) the disclosure of such
event at such time would have a material adverse effect on the business,
operations or prospects of the Company (PROVIDED the Company is not otherwise
required to disclose such event) or (b) the disclosure relates to a pending
material business transaction which has not yet been publicly disclosed and
disclosure of such event at that time would jeopardize the success of such
transaction.
SECTION 4.03. RULES 144 AND 144A. The Company covenants that it will file
the reports required to be filed by it under the Securities Act and the Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder in a timely manner in accordance with the requirements of
the Securities Act and the Exchange Act and, if at any time the Company is not
required to file such reports, it will, upon the request of any holder or
beneficial owner of Warrants or Shares, make available such information
necessary to permit sales pursuant to Rule 144A under the Securities Act.
SECTION 4.04. FORM OF INITIAL PUBLIC EQUITY OFFERING. The Company agrees
that it will not make an Initial Public Equity Offering of any class of its
Capital Stock other than the principal class and series of Capital Stock into
which the Warrants are then exercisable.
SECTION 4.05. REGISTRATION OF SHARES. The Company agrees that it will
comply with all applicable laws, including the Securities Act and any applicable
state securities laws, in connection with the offer and sale of Shares (and
other securities and property deliverable) upon exercise of the Warrants.
ARTICLE V
ADJUSTMENTS
SECTION 5.01. ADJUSTMENT OF EXERCISE RATE; NOTICES. The Exercise Rate is
subject to adjustment from time to time as provided in this Section.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the date hereof, the
Company:
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(i) pays a dividend or makes a distribution on any of its Common Stock
in shares of any of its Common Stock (other than any such dividend to the
extent covered by Section 5.03);
(ii) subdivides any of its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines any of its outstanding shares of Common Stock into a
smaller number of shares;
(iv) pays a dividend or makes a distribution on any of its Common
Stock in shares of any of its Capital Stock (as defined below) (other than
Common Stock or rights, warrants, or options for its Common Stock to the
extent such issuance or distribution is covered by Section 5.03); or
(v) issues by reclassification of any of its Common Stock any shares
of any of its Capital Stock;
then the Exercise Rate in effect immediately prior to such action for each
Warrant then outstanding shall be adjusted so that the holder of a Warrant
thereafter exercised may receive the number of shares of Capital Stock of the
Company which such holder would have owned immediately following such action if
such holder had exercised the Warrant immediately prior to such action or
immediately prior to the record date applicable thereto, if any (regardless of
whether the Warrants then outstanding are then exercisable and without giving
effect to the Cashless Exercise option). If there are no outstanding shares of
Common Stock that are of the same class as the Shares at the time of any such
action and such action has therefore been taken only in respect of the Shares,
the adjustment shall relate to the Shares in their same form if it would not
frustrate the intent and purposes of this Section 5.01.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification. In the event that
such dividend or distribution is not so paid or made or such subdivision,
combination or reclassification is not effected, the Exercise Rate shall again
be adjusted to be the Exercise Rate which would then be in effect if such record
date or effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of such Warrant
may receive shares of two or more classes of Capital Stock of the Company, the
Exercise Rate shall thereafter be subject to adjustment upon the occurrence of
an action taken with respect to any such class of Capital Stock as is
contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
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(b) ADJUSTMENT FOR SALE OF COMMON STOCK BELOW CURRENT MARKET VALUE. If,
after the date hereof, the Company grants or sells to any Interested Person
(other than a wholly-owned subsidiary) any Common Stock or any securities
convertible into or exchangeable or exercisable for any Common Stock at a price
below the then Current Market Value (other than (1) pursuant to the exercise of
the Warrants, (2) pursuant to any security convertible into, or exchangeable or
exercisable for shares of Common Stock outstanding as of the date of this
Agreement, (3) upon the conversion, exchange or exercise of any convertible,
exchangeable or exercisable security as to which upon the issuance thereof an
adjustment pursuant to this Article V has previously been made, or (4) upon the
conversion, exchange or exercise of convertible, exchangeable or exercisable
securities of the Company outstanding on the date of this Agreement (to the
extent in accordance with the terms of such securities as in effect on the date
of this Agreement)), the Exercise Rate for each Warrant then outstanding shall
be adjusted in accordance with the following formula:
E' = E x (O + N)
---------------
(O + (N x P/M))
where:
E' = the adjusted Exercise Rate for each Warrant then outstanding;
E = the then current Exercise Rate for each Warrant then outstanding;
O = the number of shares of Common Stock outstanding immediately prior to the
sale of Common Stock or issuance of securities convertible, exchangeable or
exercisable for Common Stock;
N = the number of shares of Common Stock so sold or the maximum stated number
of shares of Common Stock issuable upon the conversion, exchange or
exercise of any such convertible, exchangeable or exercisable securities,
as the case may be;
P = the proceeds per share of Common Stock received by the Company, which (i)
in the case of shares of Common Stock is the amount received by the Company
in consideration for the sale and issuance of such shares; and (ii) in the
case of securities convertible into or exchangeable or exercisable for
shares of Common Stock is the amount received by the Company in
consideration for the sale and issuance of such convertible or exchangeable
or exercisable securities, plus the minimum aggregate amount of additional
consideration, other than the surrender of such convertible or exchangeable
securities, payable to the Company upon exercise, conversion or exchange
thereof; and
M = the Current Market Value as of the Time of Determination or at the time of
sale, as the case may be.
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The adjustment shall become effective (i) immediately after grant to an
Interested Person of the convertible, exchangeable or exercisable securities to
which this paragraph (b) applies or (ii) upon consummation of the sale of such
securities or Common Stock to an Interested Person, as the case may be. To the
extent that shares of Common Stock are not delivered after the expiration of
such convertible, exchangeable or exercisable securities, the Exercise Rate for
each Warrant then outstanding shall be readjusted to the Exercise Rate which
would otherwise be in effect had the adjustment made upon the grant or sale of
such convertible, exchangeable or exercisable securities been made on the basis
of only the number of shares of Common Stock actually delivered upon conversion,
exchange or exercise of such securities. In the event that such convertible,
exchangeable or exercisable securities are not issued after the grant thereof,
the Exercise Rate for each Warrant then outstanding shall be adjusted to be the
Exercise Rate which would then be in effect if no adjustment had been made to
the Exercise Rate for the grant of such convertible, exchangeable or exercisable
securities.
No adjustment shall be made under this paragraph (b) if the application of
the formula stated above in this paragraph (b) would result in a value of E'
that is lower than the value of E.
No adjustment shall be made under this paragraph (b) for any sale of Common
Stock that has been the subject of a previous adjustment pursuant to this
paragraph (b)(unless the terms of the securities on which the basis for such
adjustment was made are changed in a manner that decreases the sale price of the
Common Stock, in which event an adjustment shall be made to reflect such
decrease).
No adjustment shall be made under this paragraph (b) if any convertible,
exchangeable or exercisable securities to which this paragraph (b) would
otherwise apply are distributed to the holders of Warrants pursuant to Section
5.03.
No adjustment in the Exercise Rate shall be made under this paragraph (b)
upon the conversion, exchange or exercise of options to acquire shares of Common
Stock by officers, directors or employees of the Company; PROVIDED that the
exercise price of such options, at the time of issuance thereof, is at least
equal to the then Current Market Value of the Common Stock underlying such
options.
No adjustment in the Exercise Rate shall be made under this paragraph (b)
in connection with or upon the issuance of shares Common Stock to the former
stockholders of 4-Sight Limited, a private limited company organized under the
laws of England and Wales, pursuant to and in accordance with that certain stock
purchase agreement, dated February 10, 1998, between the Company and the
stockholders of 4-Sight Limited.
"INTERESTED PERSON" means (i) any Affiliate of the Company, (ii) any holder
of 10% of more in voting power of the outstanding Capital Stock of the Company
or (iii) any member of the Board of Directors or any executive officer of the
Company.
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(c) NOTICE OF ADJUSTMENT. Whenever the Exercise Rate is adjusted, the
Company shall promptly mail to holders of Warrants then outstanding at the
addresses appearing on the Warrant Register a notice of the adjustment. The
Company shall file with the Warrant Agent and any other Registrar such notice
and a certificate from the Company's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct, absent
manifest error. Neither the Warrant Agent nor any such Registrar shall be under
any duty or responsibility with respect to any such certificate except to
exhibit the same during normal business hours to any holder desiring inspection
thereof.
(d) REORGANIZATION OF COMPANY; SPECIAL DISTRIBUTIONS. (i) If the Company,
in a single transaction or through a series of related transactions, merges,
consolidates or amalgamates with or into any other person or sells, assigns,
transfers, leases, conveys or otherwise disposes of all or substantially all of
its properties and assets to another person or group of affiliated persons or is
a party to a merger or binding share exchange which reclassifies or changes its
outstanding Common Stock (a "FUNDAMENTAL TRANSACTION"), as a condition to
consummating any such transaction the person formed by any such consolidation or
merger (if other than the Company) or the person to whom such transfer has been
made (the "SURVIVING PERSON") shall enter into a supplemental warrant agreement.
The supplemental warrant agreement shall provide (a) that the holder of a
Warrant then outstanding may exercise it for the kind and amount of securities,
cash or other assets which such holder would have received immediately after the
Fundamental Transaction if such holder had exercised the Warrant immediately
before the effective date of the transaction (regardless of whether the Warrants
are then exercisable and without giving effect to the Cashless Exercise option),
assuming (to the extent applicable) that such holder (i) made no election with
respect to the form of consideration payable in such transaction and (ii) was
treated alike with the plurality of non-electing holders, and (b) that the
Surviving Person shall succeed to and be substituted to every right and
obligation of the Company in respect of this Agreement and the Warrants. The
supplemental warrant agreement shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article V. The Surviving Person shall mail to holders of Warrants at the
addresses appearing on the Warrant Register a notice briefly describing the
supplemental warrant agreement. If the issuer of securities deliverable upon
exercise of Warrants is an affiliate of the Surviving Person, that issuer shall
join in the supplemental warrant agreement.
(ii) Notwithstanding the foregoing, if the Company enters into a
Fundamental Transaction with another Person (other than a subsidiary of the
Company) and the consideration payable in such Fundamental Transaction to
holders of the shares of Capital Stock (and other securities or property)
issuable or deliverable upon exercise of the Warrants consists solely of cash,
then the holders of Warrants shall be entitled to receive such cash on the date
of consummation of the Fundamental Transaction on an equal basis with holders of
such shares (or other securities issuable upon exercise of the Warrants) as if
the Warrants had been exercised immediately prior to such event, less the
Exercise Price therefor. Upon receipt of such cash payment the rights of a
holder of a Warrant shall terminate and cease and such holder's Warrants shall
expire.
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(iii) If this paragraph (d) applies, it shall supersede the application of
paragraph (a) of this Section 5.01.
(e) COMPANY DETERMINATION FINAL. Any determination that the Company or the
Board of Directors of the Company make that must be made pursuant to this
Article V shall be conclusive.
(f) WARRANT AGENT'S ADJUSTMENT DISCLAIMER. The Warrant Agent has no duty to
determine when an adjustment under this Article V should be made, how it should
be made or what it should be. The Warrant Agent has no duty to determine whether
a supplemental warrant agreement under paragraph (d) need be entered into or
whether any provisions of any supplemental warrant agreement are correct. The
Warrant Agent shall not be accountable for and makes no representation as to the
validity or value of any securities or assets issued upon exercise of Warrants.
The Warrant Agent shall not be responsible for the Company's failure to comply
with this Article V.
(g) ADJUSTMENT FOR TAX PURPOSES. The Company may make such increases in the
Exercise Rate, in addition to those otherwise required by this Section, as it
considers to be advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to the
recipients.
(h) UNDERLYING SHARES. The Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock or Common Stock held in the treasury of the Company, for the
purpose of effecting the exercise of Warrants, the full number of Shares then
deliverable upon the exercise of all Warrants then outstanding, and the shares
so deliverable shall be fully paid and nonassessable and free from all liens and
security interests.
(i) SPECIFICITY OF ADJUSTMENT. Irrespective of any adjustments in the
number or kind of shares purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
number and kind of Shares per Warrant as are stated on the Warrant Certificates
initially issuable pursuant to this Agreement.
(j) VOLUNTARY ADJUSTMENT. The Company from time to time may increase the
Exercise Rate by any number and for any period of time (PROVIDED that such
period is not less than 20 Business Days). Whenever the Exercise Rate is so
increased, the Company shall mail to holders at the addresses appearing on the
Warrant Register and file with the Warrant Agent a notice of the increase. The
Company shall give the notice at least 15 days before the date the increased
Exercise Rate takes effect. The notice shall state the increased Exercise Rate
and the period it will be in effect.
(k) MULTIPLE ADJUSTMENTS. After an adjustment to the Exercise Rate for
outstanding Warrants under this Article V, any subsequent event requiring an
adjustment under this Article V shall cause an adjustment to the Exercise Rate
for outstanding Warrants as so adjusted.
(l) DEFINITIONS.
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"AFFILIATE" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with such specified Person. For purposes of this definition, "CONTROL"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"AFFILIATED," "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing. None of the Initial Purchasers or any of their Affiliates shall be
deemed to be an Affiliate of the Company or of any of its subsidiaries or
Affiliates.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock, whether
outstanding on the date hereof or issued after the date hereof, and any and all
rights, warrants or options or other securities exchangeable for or convertible
into such capital stock.
"CURRENT MARKET VALUE" per share of Common Stock or any other security at
any date of determination means (i) if the security is not traded on a national
or regional securities exchange, The Nasdaq Stock Market or in a recognized
over-the-counter market (a "Quoted Security"), (a) the fair market value of the
security, as determined in good faith by the Board of Directors of the Company
and certified in a board resolution delivered to the Warrant Agent, which shall
be based on the most recently completed arms-length transaction between the
Company and a person other than an Affiliate of the Company, the closing of
which shall have occurred within the six-month period preceding such
determination, or (b) if no such transaction shall have occurred within such
six-month period, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert (provided that,
in the case of the calculation of Current Market Value solely for determining
the cash value of fractional shares, the last determination of Current Market
Value pursuant to this clause (i), if made within the preceding six months, may
be utilized), which determination shall be set forth in an officers' certificate
delivered to the Warrant Agent, or (ii) (a) if the security is a Quoted
Security, the average of the daily closing sales prices of such security for the
20 consecutive trading days immediately preceding such date, or (b) if the
security has been a Quoted Security for less than 20 consecutive trading days
before such date, then the average of the daily closing sales prices for all of
the trading days before such date for which closing sales prices are available.
The closing sales price of a security for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any United States
national or regional securities exchange or on The Nasdaq Stock Market, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day or (B) in the
case of a security not then listed or admitted to trading on any national or
regional securities exchange or The Nasdaq Stock Market, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
source designated by the Company, or in the case of a security as to which no
such reported bid and asked prices are available on such day, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, City and State
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of New York, customarily published on each business day, designated by the
Company, or, if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than two days prior to the date in question) for which prices have
been so reported; provided, however, that if there are no bid and asked prices
reported for such security during such two-day period, Current Market Value
shall be determined as if the security were not a Quoted Security.
"INDEPENDENT FINANCIAL EXPERT" means a United States investment banking
firm of national or regional standing in the United States (i) which does not,
and whose directors and executive officers or Affiliates do not have a direct or
indirect material financial interest for its or their proprietary account in the
Company or any of its Affiliates and (ii) which, in the judgment of the Board of
Directors of the Company, is otherwise independent with respect to the Company
and its Affiliates and qualified to perform the task for which it is to be
engaged.
"TIME OF DETERMINATION" means, (i) in the case of any distribution of
securities or other property to existing stockholders to which paragraph (b)
applies, the time and date of the determination of stockholders entitled to
receive such securities or property or (ii) in the case of any other issuance
and sale to which paragraph (b) applies, the time and date of such issuance or
sale.
(m) WHEN DE MINIMIS ADJUSTMENT MAY BE DEFERRED. No Adjustment in the
Exercise Rate need be made unless the adjustment would require an increase of at
least 1% in the Exercise Rate. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustments. All
calculations under this Section 5 shall be made to the nearest 1/1000th of a
share, as the case may be.
SECTION 5.02. FRACTIONAL SHARES. The Company will not be required to issue
fractional Shares upon exercise of the Warrants or distribute Share certificates
that evidence fractional Shares. In addition, in no event shall any holder of
Warrants be required to make any payment of a fractional cent. In lieu of
fractional Shares, there shall be paid to the registered holders of Warrant
Certificates at the time Warrants evidenced thereby are exercised as herein
provided an amount in cash (rounded to the nearest cent) equal to the same
fraction of the Current Market Value per Share on the Business Day immediately
preceding the exercise of such Warrants. Such payments will be made by check or
by transfer to an account maintained by such registered holder with a bank in
The City of New York. If any holder surrenders for exercise more than one
Warrant Certificate, the number of Shares deliverable to such holder shall be
computed on the basis of the aggregate amount of all the Warrants exercised by
such holder.
SECTION 5.03. CERTAIN DISTRIBUTIONS. If at any time the Company grants,
issues or sells options, convertible securities or rights to purchase Capital
Stock, warrants or other securities PRO RATA to the record holders of Common
Stock (the "DISTRIBUTION RIGHTS") or, without duplication, makes any dividend or
otherwise makes any distribution, including, subject to applicable law, pursuant
to any plan of liquidation ("DISTRIBUTION") on Common Stock (whether in cash,
property, evidences of indebtedness or otherwise), then the Company shall grant,
issue, sell or make to each
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registered holder of Warrants then outstanding the aggregate Distribution Rights
or Distribution, as the case may be, which such holder would have acquired if
such holder had held the maximum number of Shares acquirable upon complete
exercise of such holder's Warrants (regardless of whether the Warrants are then
exercisable and without giving effect to the Cashless Exercise option)
immediately before the record date for the grant, issuance or sale of such
Distribution Rights or Distribution, as the case may be, or, if there is no such
record date, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Distribution Rights or
Distribution, as the case may be.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. WARRANT AGENT. The Company hereby appoints First Trust
National Association as Warrant Agent of the Company in respect of the Warrants
and the Warrant Certificates upon the terms and subject to the conditions herein
and in the Warrant Certificates set forth, and First Trust National Association
hereby accepts such appointment. The Warrant Agent shall have the powers and
authority specifically granted to and conferred upon it in the Warrant
Certificates and hereby and such further powers and authority to act on behalf
of the Company as the Company may hereafter grant to or confer upon it and it
shall accept in writing. All of the terms and provisions with respect to such
powers and authority contained in the Warrant Certificates are subject to and
governed by the terms and provisions hereof. The Warrant Agent may act through
agents and shall not be responsible for the misconduct or negligence of any such
agent appointed with due care.
SECTION 6.02. CONDITIONS OF WARRANT AGENT'S OBLIGATIONS. The Warrant Agent
accepts its obligations herein set forth upon the terms and conditions hereof
and in the Warrant Certificates, including the following, to all of which the
Company agrees and to all of which the rights hereunder of the holders from time
to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the
Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without gross negligence
or willful misconduct on its part in connection with the services rendered
by it hereunder. The Company also agrees to indemnify the Warrant Agent and
any predecessor Warrant Agent, their directors, officers, affiliates,
agents and employees for, and to hold them and their directors, officers,
affiliates, agents and employees harmless against, any loss, liability or
expense of any nature whatsoever (including, without limitation, reasonable
fees and expenses of counsel) incurred without gross negligence or willful
misconduct on the part of the Warrant Agent, arising out of or in
connection with its acting as such Warrant Agent hereunder and its exercise
of its rights and performance of its obligations hereunder. The
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obligations of the Company under this Section 6.02 shall survive the
exercise and the expiration of the Warrant Certificates and the resignation
and removal of the Warrant Agent.
(b) In acting under this Agreement and in connection with the Warrant
Certificates, the Warrant Agent is acting solely as agent of the Company
and does not assume any obligation or relationship of agency or trust for
or with any of the owners or holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel of its selection and
any advice or written opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice or
opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or
thing suffered by it in reliance upon any Warrant Certificate, notice,
direction, consent, certificate, affidavit, opinion of counsel,
instruction, statement or other paper or document reasonably believed by it
to be genuine and to have been presented or signed by the proper parties.
(e) The Warrant Agent, and its officers, directors, affiliates and
employees ("RELATED PARTIES"), may become the owners of, or acquire any
interest in, Warrant Certificates, shares or other obligations of the
Company with the same rights that it or they would have it if were not the
Warrant Agent hereunder and, to the extent permitted by applicable law, it
or they may engage or be interested in any financial or other transaction
with the Company and may act on, or as depositary, trustee or agent for,
any committee or body of holders of shares or other obligations of the
Company as freely as if it were not the Warrant Agent hereunder. Nothing in
this Agreement shall be deemed to prevent the Warrant Agent or such Related
Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for interest
on, and shall not be required to invest, any monies at any time received by
it pursuant to any of the provisions of this Agreement or of the Warrant
Certificates.
(g) The Warrant Agent shall not be under any responsibility in respect
of the validity of this Agreement (or any term or provision hereof) or the
execution and delivery hereof (except the due execution and delivery hereof
by the Warrant Agent) or in respect of the validity or execution of any
Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication
thereon) shall be taken as the statements of the Company and the Warrant
Agent assumes no responsibility for the correctness of the same. The
Warrant Agent does not make any representation as to the validity or
sufficiency of this Agreement or the Warrant Certificates, except for its
due execution and delivery of
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this Agreement; PROVIDED, HOWEVER, that the Warrant Agent shall not be
relieved of its duty to authenticate the Warrant Certificates as authorized
by this Agreement. The Warrant Agent shall not be accountable for the use
or application by the Company of the proceeds of the exercise of any
Warrant.
(i) Before the Warrant Agent acts or refrains from acting with respect
to any matter contemplated by this Warrant Agreement, it may require:
(1) an Officers' Certificate stating on behalf of the Company
that, in the opinion of the signers, all conditions precedent, if any,
provided for in this Warrant Agreement relating to the proposed action
have been complied with; and
(2) if reasonably necessary in the sole judgment of the Warrant
Agent, an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with provided that such matter is one customarily opined on
by counsel.
Each Officers' Certificate or, if requested, an opinion of counsel with
respect to compliance with a condition or covenant provided for in this Warrant
Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties as are
herein and in the Warrant Certificates specifically set forth and no implied
duties or obligations shall be read into this Agreement or the Warrant
Certificates against the Warrant Agent. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates authenticated by the Warrant Agent and delivered
by it to the Company pursuant to this Agreement. The Warrant Agent shall have no
duty or responsibility in case of any default by the Company in the performance
of its covenants or agreements contained in the Warrant Certificates or in the
case of the receipt of any written demand from a holder of a Warrant Certificate
with
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respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate any
proceedings at law or otherwise or, except as provided in Section 7.02 hereof,
to make any demand upon the Company.
(k) Unless otherwise specifically provided herein, any order, certificate,
notice, request, direction or other communication from the Company made or given
under any provision of this Agreement shall be sufficient if signed by its
Chairman of the Board of Directors, its President, its Treasurer, its Controller
or any Vice President or its Secretary or any Assistant Secretary.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge and
deliver, or cause to be performed, executed, acknowledged and delivered, all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing by the Warrant
Agent of the provisions of this Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept written
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board of Directors, the President, the Treasurer, the
Controller, any Vice President or the Sec retary or any Assistant Secretary of
the Company or any other officer or official of the Company reasonably believed
to be authorized to give such instructions and to apply to such officers or
officials for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions with respect to any matter arising in connection
with the Warrant Agent's duties and obligations arising under this Agreement.
Such application by the Warrant Agent for written instructions from the Company
may, at the option of the Warrant Agent, set forth in writing any action
proposed to be taken or omitted by the Warrant Agent with respect to its duties
or obligations under this Agreement and the date on or after which such action
shall be taken and the Warrant Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on or
after the date specified therein (which date shall be not less than 10 Business
Days after the Company receives such application unless the Company consents to
a shorter period), provided that (i) such application includes a statement to
the effect that it is being made pursuant to this paragraph (n) and that unless
objected to prior to such date specified in the application, the Warrant Agent
will not be liable for any such action or omission to the extent set forth in
such paragraph (n) and (ii) prior to taking or omitting any such action, the
Warrant Agent has not received written instructions objecting to such proposed
action or omission.
(o) Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
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established by a certificate signed on behalf of the Company by any one of the
Chairman of the Board of Directors, the President, the Treasurer, the
Controller, any Vice President or the Secretary or any Assistant Secretary of
the Company or any other officer or official of the Company reasonably believed
to be authorized to give such instructions and delivered to the Warrant Agent;
and such certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its own funds
in the performance of its obligations and duties hereunder.
SECTION 6.03. RESIGNATION AND APPOINTMENT OF SUCCESSOR. (a) The Company
agrees, for the benefit of the holders from time to time of the Warrant
Certificates, that there shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by giving
written notice to the Company of such intention on its part, specifying the date
on which its desired resignation shall become effective; PROVIDED, HOWEVER, that
such date shall be at least 60 days after the date on which such notice is given
unless the Company agrees to accept less notice. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor Warrant Agent,
qualified as provided in Section 6.03(d) hereof, by written instrument in
duplicate signed on behalf of the Company, one copy of which shall be delivered
to the resigning Warrant Agent and one copy to the successor Warrant Agent. As
provided in Section 6.03(d) hereof, such resignation shall become effective upon
the earlier of (x) the acceptance of the appointment by the successor Warrant
Agent or (y) 60 days after receipt by the Company of notice of such resignation.
The Company may, at any time and for any reason, and shall, upon any event set
forth in the next succeeding sentence, remove the Warrant Agent and appoint a
successor Warrant Agent by written instrument in duplicate, specifying such
removal and the date on which it is intended to become effective, signed on
behalf of the Company, one copy of which shall be delivered to the Warrant Agent
being removed and one copy to the successor Warrant Agent. The Warrant Agent
shall be removed as aforesaid if it shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of
its property shall be appointed, or any public officer shall take charge or
control of it or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation. Any removal of the Warrant Agent and any
appointment of a successor Warrant Agent shall become effective upon acceptance
of appointment by the successor Warrant Agent as provided in Section 6.03(d). As
soon as practicable after appointment of the successor Warrant Agent, the
Company shall cause written notice of the change in the Warrant Agent to be
given to each of the registered holders of the Warrants in the manner provided
for in Section 8.04 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the Company shall
fail to appoint a successor Warrant Agent within a period of 60 days after
receipt of such notice of resignation or removal, then the holder of any Warrant
Certificate or the retiring Warrant Agent may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent.
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Pending appointment of a successor to the Warrant Agent, either by the Company
or by such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the Company or by a
court, shall be a bank or trust company in good standing, incorporated under the
laws of the United States of America or any State thereof and having, at the
time of its appointment, a combined capital surplus of at least $50 million.
Such successor Warrant Agent shall execute and deliver to its predecessor and to
the Company an instrument accepting such appointment hereunder and all the
provisions of this Agreement, and thereupon such successor Warrant Agent,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as Warrant Agent hereunder, and such predecessor
shall thereupon become obligated to (i) transfer and deliver, and such successor
Warrant Agent shall be entitled to receive, all securities, records or other
property on deposit with or held by such predecessor as Warrant Agent hereunder
and (ii) upon payment of the amounts then due it pursuant to Section 6.02(a)
hereof, pay over, and such successor Warrant Agent shall be entitled to receive,
all monies deposited with or held by any predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent hereunder may be
merged or converted, or any corporation or bank with which the Warrant Agent may
be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business, shall be the successor
to the Warrant Agent under this Agreement (provided that such corporation or
bank shall be qualified as aforesaid) without the execution or filing of any
document or any further act on the part of any of the parties hereto.
(f) No Warrant Agent under this Warrant Agreement shall be personally
liable for any action or omission of any successor Warrant Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. AMENDMENT. This Agreement and the terms of the Warrants may
be amended by the Company and the Warrant Agent, without the consent of the
holder of any Warrant Certificate, for the purpose of curing any ambiguity, or
of curing, correcting or supplementing any defective or inconsistent provision
contained herein or therein, or to effect any assumptions of the Company's
obligations hereunder and thereunder by a successor corporation under the
circumstances described in Section 5.01(d) hereof or in any other manner which
the Company may deem necessary or desirable and which shall not adversely affect
the interests of the holders of the Warrant Certificates.
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The Company and the Warrant Agent may amend, modify or supplement this
Agreement and the terms of the Warrants, and waivers to departures from the
terms hereof and thereof may be given, with the consent of the Requisite Holders
(as defined below) for the purpose of adding any provision to or changing in any
manner or eliminating any of the provisions of this Agreement or modifying in
any manner the rights of the holders of the outstanding Warrants; PROVIDED,
HOWEVER, that no such modification may be made to a Warrant that increases the
Exercise Price or decreases the Exercise Rate, modifies anti-dilution
adjustments to the Exercise Rate in a manner adverse to the holder, makes any
change to the first paragraph of Section 5.01(d), reduces the period of time
during which such Warrant is exercisable hereunder, or effects any change to
this Section 7.01 without the consent of the holder of such Warrant. "REQUISITE
HOLDERS" means (i), in the case of any amendment, modification or supplement
that does not affect Article IV, the holders of a majority of the outstanding
Warrants or (ii) in the case of any amendment, modification or supplement that
affects Article IV, the holders of a majority of (x) the Shares issued upon
exercise of the Warrants that, at the date of determination, are "restricted
securities" within the meaning of the Securities Act and (y) of the outstanding
Warrants (treating for approval purposes each Warrant as entitling the holder to
a vote in an amount equal to the number of Shares issuable upon exercise of such
Warrant in full). Notwithstanding any other provision of this Agreement, the
Warrant Agent's consent must be obtained regarding any supplement or amendment
which alters the Warrant Agent's rights or duties (it being expressly understood
that the foregoing shall not be in derogation of the right of the Company to
remove the Warrant Agent in accordance with Section 6.03 hereof). For purposes
of any amendment, modification or waiver hereunder, Warrants held by the Company
or any of its Affiliates shall be disregarded.
Any modification or amendment made in accordance with this Agreement will
be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 7.02. NOTICES AND DEMANDS TO THE COMPANY AND WARRANT AGENT. If the
Warrant Agent shall receive any notice or demand addressed to the Company by the
holder of a Warrant Certificate pursuant to the provisions hereof or of the
Warrant Certificates, the Warrant Agent shall promptly forward such notice or
demand to the Company.
SECTION 7.03. ADDRESSES FOR NOTICES TO PARTIES AND FOR TRANSMISSION OF
DOCUMENTS. All notices hereunder to the parties hereto shall be deemed to have
been given when sent by certified or registered mail, postage prepaid, or by
facsimile transmission, confirmed by first class mail, postage prepaid,
addressed to any party hereto as follows:
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To the Company:
WAM!NET Inc.
6100 West 110th Street
Minneapolis, Minnesota 55438
Facsimile No. (612) 885-0687
Attention: Chief Executive Officer
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Daniel D. Rubino, Esq.
To the Warrant Agent:
First Trust National Association
180 East 5th Street
St. Paul, Minnesota 55104
Facsimile No.: (612) 244-0711
Attention: Corporate Trust Department
Principal Corporate Trust Office in New York City:
100 Wall Street, Suite 2000
New York, NY 10005
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.04. NOTICES TO HOLDERS. Notices to holders of Warrants shall be
mailed to such holders at the addresses of such holders as they appear in the
Warrant Register. Any such notice shall be sufficiently given if sent by
first-class mail, postage prepaid.
SECTION 7.05. APPLICABLE LAW; SUBMISSION TO JURISDICTION. THE VALIDITY,
INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND EACH WARRANT CERTIFICATE
ISSUED HEREUNDER AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PROVISIONS THEREOF.
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SECTION 7.06. PERSONS HAVING RIGHTS UNDER AGREEMENT. Nothing in this
Agreement expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Warrant Agent, the
holders of the Warrant Certificates and, with respect to Section 4.03 and 4.04,
the holders of Shares issued pursuant to Warrants, any right, remedy or claim
under or by reason of this Agreement or of any covenant, condition, stipulation,
promise or agreement hereof; and all covenants (except for Sections 4.03 and
4.04, which shall also be for the benefit of all holders of Shares issued
pursuant to Warrants), conditions, stipulations, promises and agreements in this
Agreement contained shall be for the sole and exclusive benefit of the Company
and the Warrant Agent and their successors and of the holders of the Warrant
Certificates.
SECTION 7.07. HEADINGS. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 7.08. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts shall together constitute but one and the same instrument.
SECTION 7.09. INSPECTION OF AGREEMENT. A copy of this Agreement shall be
available during regular business hours at the principal corporate trust office
of the Warrant Agent, for inspection by the holder of any Warrant Certificate.
The Warrant Agent may require such holder to submit his Warrant Certificate for
inspection by it.
SECTION 7.10. AVAILABILITY OF EQUITABLE REMEDIES. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, holders of Warrants shall be entitled, in addition to any other right
or remedy available to them, to an injunction restraining such breach or a
threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to such injunction and to
the ordering of specific performance.
SECTION 7.11. OBTAINING OF GOVERNMENTAL APPROVALS. The Company will from
time to time take all action required to be taken by it which may be necessary
to obtain and keep effective any and all permits, consents and approvals of
governmental agencies and authorities and securities acts filings under United
States Federal and state laws, and the rules and regulations of all stock
exchanges on which the Warrants are listed which may be or become requisite in
connection with the issuance, sale, transfer, and delivery of the Warrant
Certificates, the exercise of the Warrants or the issuance, sale, transfer and
delivery of the Shares issued upon exercise of the Warrants.
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IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the
parties hereto as of the day and year first above written.
WAM!NET INC.
By: /s/ Edward J. Driscoll III
------------------------------
Name: Edward J. Driscoll III
----------------------------
Title: President and CEO
---------------------------
FIRST TRUST NATIONAL ASSOCIATION,
as Warrant Agent
By: /s/ Kathe Barrett
------------------------------
Name: Kathe Barrett
----------------------------
Title: Trust Officer
---------------------------
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EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OF OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECU RITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) AGREES THAT IT WILL
NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS
PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION
THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY
PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF
THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE
LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S, PURSUANT TO
RULE 904 OF REGULATION S OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM IN REGULATION S.
A-1
<PAGE>
REGISTERED No.
CUSIP 933590 11 9 ________ WARRANTS
WARRANT CERTIFICATE
WAM!NET INC.
This Warrant Certificate certifies that ____________, or registered
assigns, is the registered holder of ________ Warrants (the "Warrants") to
purchase shares of Common Stock, par value $0.01 per share (the "Common Stock"),
of WAM!NET INC., a Minnesota corporation (the "Company," which term includes its
successors and assigns). Each Warrant entitles the holder to purchase from the
Company at any time from 9:00 a.m. New York City time on or after the
Exercisability Date until 5:00 p.m., New York City time, on March 1, 2005 (the
"Expiration Date"), 2.01 fully paid, registered and non-assessable shares of
Common Stock, subject to adjustment as provided in Article V of the Warrant
Agreement (the "Exercise Rate"), at the exercise price of $0.01 for each share
purchased (the "Exercise Price") (the shares of Common Stock purchasable upon
exercise of a Warrant being herein referred to as the "Shares" and, unless the
context otherwise requires, such term shall also mean all other securities or
property purchasable and deliverable upon exercise of a Warrant as provided in
the Warrant Agreement), upon surrender of this Warrant Certificate and payment
of the Exercise Price (i) in United States dollars or by certified check or
official bank check, (ii) pursuant to the next sentence or (iii) in any
combination of (i) and (ii), at any office or agency maintained for that purpose
by the Company (the "Warrant Agent Office"), subject to the conditions set forth
herein and in the Warrant Agreement. In addition to payment by cash or check, a
Warrant may be exercised solely by the surrender of the Warrant, and without the
payment of the Exercise Price in cash, for such number of Shares equal to the
product of (1) the number of Shares for which such Warrant is exercisable with
payment of the Exercise Price as in cash of the date of exercise and (2) the
Cashless Exercise Ratio. For purposes of this Warrant, the "Cashless Exercise
Ratio" shall equal a fraction, the numerator of which is the excess of the
Current Market Value per share of the Common Stock on the date of exercise over
the Exercise Price per share as of the date of exercise and the denominator of
which is the Current Market Value per share of the Common Stock on the date of
exercise. An exercise of a Warrant in accordance with the immediately preceding
sentences is herein called a "Cashless Exercise." Upon surrender of a Warrant
Certificate representing more than one Warrant in connection with the Holder's
option to elect a Cashless Exercise, the number of Shares deliverable upon a
Cashless Exercise shall be equal to the Cashless Exercise Ratio multiplied by
the product of (a) the number of Warrants that the holder specifies is to be
exercised pursuant to a Cashless Exercise and (b) the aggregate number of Shares
for which such Warrants are then exercisable (without giving effect to the
Cashless Exercise option). If the Company has not effected the registration
under the Securities Act of the offer and sale of the Shares by the Company to
the holders of the Warrants upon the exercise thereof, the Company may elect to
require that holders of the Warrants effect the exercise of the Warrants solely
pursuant to the
A-2
<PAGE>
Cashless Exercise option and may also amend the Warrants to eliminate the
requirements for payment of the Exercise Price with respect tp such Cashless
Exercise option. A Warrant may not be exercised in part. All provisions of the
Warrant Agreement shall be applicable with respect to an exercise of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby. Capitalized terms used herein without being
defined herein shall have the definitions ascribed to such terms in the Warrant
Agreement.
This Warrant has initially been issued as part of a unit ("Unit"), each
Unit consisting of three Warrants and $1,000 principal amount at maturity of the
Company's 13 1/4% Senior Discount Notes due 2005 (the "Notes"). As set forth in
the Warrant Agreement and the Indenture, dated as of March 5, 1998 (the
"Indenture"), between the Company and First Trust National Association, as
Trustee, pursuant to which the Notes have been issued, the Warrants and the
Notes will not be separately transferable until the "Separability Date", which
means the earliest to occur of: (i) September 1, 1998, (ii) the occurrence of an
Exercise Event (as defined herein), (iii) the occurrence of an Event of Default
(as defined in the Indenture), (iv) the date on which a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to a registered exchange offer for the Notes or covering the sale by
holders of the Notes is declared effective under the Securities Act, (v)
immediately prior to any redemption of Notes by the Company from the net
proceeds of an Initial Public Equity Offering (as defined in the Indenture),
(vi) immediately prior to the occurrence of a Warrant Change of Control (as
defined in the Warrant Agreement) or (v) such earlier date as determined by
Merrill Lynch & Co. in its sole discretion.
"Current Market Value" per share of Common Stock or any other security at
any date of determination means (i) if the security is not traded on a national
or regional securities exchange, The Nasdaq Stock Market or in a recognized
over-the-counter market (a "Quoted Security"), (a) the fair market value of the
security, as determined in good faith by the Board of Directors of the Company
and certified in a board resolution delivered to the Warrant Agent, which shall
be based on the most recently completed arms-length transaction between the
Company and a person other than an Affiliate of the Company, the closing of
which shall have occurred within the six-month period preceding such
determination, or (b) if no such transaction shall have occurred within such
six-month period, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert (provided that,
in the case of the calculation of Current Market Value solely for determining
the cash value of fractional shares, the last determination of Current Market
Value pursuant to this clause (i), if made within the preceding six months, may
be utilized), which determination shall be set forth in an officers' certificate
delivered to the Warrant Agent, or (ii) (a) if the security is a Quoted
Security, the average of the daily closing sales prices of such security for the
20 consecutive trading days immediately preceding such date, or (b) if the
security has been a Quoted Security for less than 20 consecutive trading days
before such date, then the average of the daily closing sales prices for all of
the trading days before such date for which closing sales prices are available.
The closing sales price of a security for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any United States
national or regional securities exchange or on The Nasdaq Stock Market, the
closing sales price, regular way, on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices
A-3
<PAGE>
on such day or (B) in the case of a security not then listed or admitted to
trading on any national or regional securities exchange or The Nasdaq Stock
Market, the average of the closing bid and asked prices on such day, as reported
by a reputable quotation source designated by the Company, or in the case of a
security as to which no such reported bid and asked prices are available on such
day, the average of the reported high bid and low asked prices on such day, as
reported by a reputable quotation service, or a newspaper of general circulation
in the Borough of Manhattan, City and State of New York, customarily published
on each business day, designated by the Company, or, if there shall be no bid
and asked prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than two days prior to the date
in question) for which prices have been so reported; provided, however, that if
there are no bid and asked prices reported for such security during such two-day
period, Current Market Value shall be determined as if the security were not a
Quoted Security.
"Exercisability Date" means, with respect to each Warrant, the date as of
which both of the following shall have occurred (whether before or on such
date): (i) the Separability Date and (ii) an Exercise Event.
"Exercise Event" means, with respect to each Warrant, the date of the
occurrence of the earliest of: (1) immediately prior to the occurrence of a
Warrant Change of Control, (2 )(a) the 90th day (or such earlier date as
determined by the Company in its sole discretion) following an Initial Public
Equity Offering (as defined in the Warrant Agreement) or (b) upon the closing of
the Initial Public Equity Offering but only in respect of Warrants, if any,
required to be exercised to permit the holders thereof to sell Shares pursuant
to their registration rights, (3) a class of equity securities of the Company is
listed on a national securities exchange or authorized for quotation on The
Nasdaq Stock Market or is otherwise registered under the Exchange Act, or (4)
September 1, 2000.
"Independent Financial Expert" means a United States investment banking
firm of national or regional standing in the United States (i) which does not,
and whose directors and executive officers or Affiliates (as defined in the
Warrant Agreement) do not, have a direct or indirect material financial interest
for its or their proprietary account in the Company or any of its Affiliates and
(ii) which, in the judgment of the Board of Directors of the Company, is
otherwise independent with respect to the Company and its Affiliates and
qualified to perform the task for which it is to be engaged.
The Company has initially designated the principal corporate trust office
of the Warrant Agent in the Borough of Manhattan, The City of New York, as the
initial Warrant Agent Office.
Any Warrants not exercised on or prior to 5:00 p.m., New York City time, on
March 1, 2005 shall thereafter be void.
A-4
<PAGE>
If the Company merges, amalgamates or consolidates with or into, or sells
all or substantially all of its property and assets to, another Person solely
for cash, the holders of Warrants shall be entitled to such cash on the date of
consummation of such transaction on an equal basis with holders of Shares (or
other securities issuable upon exercise of the Warrants) as if the Warrants had
been exercised immediately prior to such event, less the Exercise Price. Upon
receipt of such cash the rights of a holder of a Warrant shall terminate and
cease and such holder's Warrants shall expire.
Reference is hereby made to the further provisions on the reverse hereof
which provisions shall for all purposes have the same effect as though fully set
forth at this place.
This Warrant Certificate shall not be valid unless authenticated by the
Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
A-5
<PAGE>
WITNESS the signatures of the Company's duly authorized officers.
Dated:
WAM!NET INC.
By:
----------------------------
Name:
Title:
Attest:
By:
-------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants referred to in the within-mentioned Warrant
Agreement:
FIRST TRUST NATIONAL ASSOCIATION,
as Warrant Agent
By:
------------------------------
Authorized Signatory
A-6
<PAGE>
[REVERSE]
WAM!NET INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at 5:00 p.m., New York City time, on the
Expiration Date, each of which represents the right to purchase, at any time on
or after the Exercisability Date and on or prior to the Expiration Date, 2.01
shares of Common Stock, subject to adjustment as set forth in the Warrant
Agreement. The Warrants are issued pursuant to a Warrant Agreement dated as of
March 5, 1998 (as amended from time to time, the "Warrant Agreement"), duly
executed and delivered by the Company to First Trust National Association, as
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant Agent Office
this Warrant Certificate with the form of Election to Exercise set forth hereon
duly completed and executed and (ii) to the extent such exercise is not being
effected through a Cashless Exercise, by paying in full the Exercise Price for
each Warrant exercised and any other amounts required to be paid pursuant to the
Warrant Agreement.
If all of the items referred to in the preceding paragraph are received by
the Warrant Agent at or prior to 11:00 a.m., New York City time, on a Business
Day, the exercise of the Warrant to which such items relate will be effective on
such Business Day. If all items referred to in the preceding paragraph are not
received until after 11:00 a.m., New York City time, on a Business Day, the
exercise of the Warrants to which such items relate will be deemed to be
effective on the next succeeding Business Day. Notwithstanding the foregoing, in
the case of an exercise of Warrants on the Expiration Date, if all of the items
referred to in the preceding paragraph are received by the Warrant Agent at or
prior to 5:00 p.m., New York City time, on the Expiration Date, the exercise of
the Warrant to which such items relate will be effective on the Expiration Date
and prior to the expiration of such Warrant.
As soon as practicable after the exercise of any Warrant or Warrants, the
Company shall issue or cause to be issued to or upon the written order of the
registered holder of this Warrant Certificate, a certificate or certificates
evidencing the Share or Shares to which such holder is entitled, in fully
registered form, registered in such name or names as may be directed by such
holder pursuant to the form of Election to Exercise, as set forth hereon. Such
certificate or certificates evidencing the Share or Shares shall be deemed to
have been issued and any persons who are designated to be named therein shall be
deemed to have become the holder of record of such Share or Shares as of the
close of business on the date upon which the exercise of this Warrant was deemed
to be effective as provided in the preceding paragraph.
A-7
<PAGE>
The Company will not be required to issue fractional shares of Common Stock
upon exercise of Warrants or distribute Share certificates that evidence
fractional shares of Common Stock. In lieu of fractional shares of Common Stock,
there shall be paid to the holder of this Warrant Certificate at the time such
Warrant Certificate is exercised an amount in cash equal to the same fraction of
the Current Market Value per share of Common Stock on the Business Day preceding
the date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency maintained
by the Company for that purpose by the registered holder thereof in person or by
legal representative or attorney duly authorized in writing, may be exchanged
for a new Warrant Certificate or new Warrant Certificates evidencing in the
aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose of
any exercise hereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in New York
City, (ii) the principal U.S. securities exchange or market, if any, on which
the Common Stock is listed or admitted to trading and (iii) the principal U.S.
securities exchange or market, if any, on which any other securities underlying
the Warrants are listed or admitted to trading are open for business.
The Warrants and the Shares issuable upon exercise thereof are entitled to
the benefits of a registration rights agreement (as amended from time to time,
the "Registration Rights Agreement"), pursuant to which the holders representing
not less than a majority of Registrable Securities (as defined in the
Registration Rights Agreement) have the right under certain circumstances to
require the Company to effect one demand registration of the Registrable
Securities. The Registration Rights Agreement also provides the holders of
Registrable Securities with the right, subject to the conditions and limitations
contained therein, to include the Registrable Securities in certain registration
statements filed by the Company for its account or for the account of any of its
other securityholders. The Registration Rights Agreement further provides, among
other things, that (i) prior to the Triggering Date (as defined in the
Registration Rights Agreement), if WorldCom Inc, a Georgia corporation
("WorldCom") or its Affiliates (as defined in the Registration Rights Agreement)
effect a direct or indirect sale or other disposition of capital stock of the
Company to any proposed purchaser in any transaction or a series of related
transactions resulting
A-8
<PAGE>
in a Warrant Change of Control, the holders of Warrants and Shares will have the
right to sell all of such securities to the proposed purchaser at the same price
as received by WorldCom or its Affiliates and (ii) prior to an Initial Public
Equity Offering, WorldCom or its Affiliates may require the holders of Warrants
and Shares to sell such securities to any person to whom WorldCom and such
Affiliates sell all of their capital stock in the Company in a transaction that
results in a Warrant Change of Control, at the same price as that received by
WorldCom and such Affiliates.
The Company will furnish to any holder of a Warrant upon written request
and without charge a copy of the Warrant Agreement and the Registration Rights
Agreement. Requests may be made to: WAM!NET Inc., 6100 West 110th Street,
Minneapolis, Minnesota 55438; Attention: Secretary.
A-9
<PAGE>
(ELECTION TO EXERCISE)
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise this Warrant
Certificate as to ____ Warrants and to purchase the whole number of Shares
issuable upon exercise thereof and herewith tenders payment for such Shares as
follows:
$ __________________ in cash or by certified or official bank check; or by
surrender of _____ Warrants pursuant to a Cashless Exercise at the current
Cashless Exercise Ratio.
The undersigned requests that a certificate representing such Shares be
registered in the name of ________________________ whose address is
___________________________________________ and that such Shares be delivered to
_________________________ whose address is
___________________________________________. Any cash payments to be paid in
lieu of a fractional Share should be made to _____________________________ whose
address is ___________________________ and the check epresenting payment thereof
should be delivered to _________________________________________ whose address
is ___________________________________________________.
Dated __________________________,
Name of holder of
Warrant Certificate:
------------------------------------
(Please Print)
Tax Identification or
Social Security Number:
----------------------------------
Address:
-------------------------------------------------
-------------------------------------------------
Signature:
-----------------------------------------------
Note: The above signature must correspond with the
name as written upon the face of this Warrant
Certificate in every particular, without
alteration or enlargement or any change
whatever and if the certificate representing
the Shares is to be registered in a name other
than that in which this Warrant Certificate is
registered, or if any cash payment to be paid
in lieu of a fractional share is to be made to
a person other than the registered holder of
this Warrant Certificate, the signature of the
holder hereof must be guaranteed.
A-10
<PAGE>
Dated
-----------------------------
Signature:
-------------------------------------------
Note: The above signature must correspond
with the name as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change whatever.
Signature Guaranteed:
--------------------------------
[FORM OF ASSIGNMENT]
For value received ___________________________ hereby sells, assigns and
transfers unto _________________________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _________________________ attorney, to transfer said
Warrant Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated , 199
------------ --
Signature:
-------------------------------------------
Note: The above signature must correspond
with the name as written upon the
face of this Warrant Certificate in
every particular, without alteration
or enlargement or any change whatever.
Signature Guaranteed:
--------------------------------
In connection with any transfer of Warrants represented by this Warrant
Certificate occurring prior to the date which is the earlier of (i) the date of
the declaration by the Securities and Exchange Commission of the effectiveness
of a registration statement under the Securities Act of 1933, as amended (the
"Securities Act") covering resales of the Warrants (which effectiveness shall
not have been suspended or terminated at the date of the transfer) and (ii) the
Resale Restriction Termination Date, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that:
A-11
<PAGE>
[CHECK ONE]
[ ] (a) the Warrants are being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
OR
[ ] (b) this Warrant Certificate is being transferred other than in accordance
with (a) above and documents are being furnished which comply with the
conditions of transfer set forth in Section 1.08 of the Warrant
Agreement.
If none of the foregoing boxes is checked, the Unit Agent shall not be obligated
to register this Warrant Certificate in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth Section 1.08 of the Warrant Agreement shall have been
satisfied.
Date: Your signature:
---------------- ---------------------------
---------------------------
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:
-------------------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing the Warrants
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 and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
---------------- --------------------------------
--------------------------------
NOTICE: To be executed by
an executive officer
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE AND GLOBAL WARRANTS
The following exchanges made in respect of certified Warrants or another
Global Warrant have been made:
<TABLE>
<CAPTION>
AMOUNT OF DECREASE IN AMOUNT OF INCREASE IN
NUMBER OF WARRANTS NUMBER OF WARRANTS NUMBER OF WARRANTS OF THIS
SUBJECT TO THIS GLOBAL SUBJECT TO THIS GLOBAL GLOBAL WARRANT FOLLOWING SIGNATURE OF AUTHORIZED
DATE OF EXCHANGE WARRANT WARRANT SUCH DECREASE (OR INCREASE) OFFICER OF WARRANT AGENT
- ---------------- ---------------------- ---------------------- --------------------------- ------------------------
<S> <C> <C> <C> <C>
</TABLE>
A-13
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall bear a
legend in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT AGREEMENT
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OF
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-14
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF
TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of WAM!NET INC.
THIS CERTIFICATE relates to __________________ Warrants held in [ ]*
book-entry or [ ]* certificated form by the undersigned transferor (the
"Transferor").
The Transferor:*
[ ] has requested the Warrant Agent by written order to deliver in exchange
for its beneficial interest in the Global Warrant held by the Depositary a
Warrant or Warrants in definitive, registered form of authorized denominations
and an aggregate number equal to its beneficial interest in such Global Warrant
(or the portion thereof indicated above); or
[ ] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and the restrictions on
transfers thereof as provided in Section 1.08 of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "ACT") because*:
[ ] Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.08(a)(y)(A) or Section
1.08(d)(i)(A) of the Warrant Agreement).
[ ] Such Warrant is being transferred to a qualified institutional buyer
(as defined in Rule 144A under the Act), in reliance on Rule 144A.
[ ] Such Warrant is being transferred in reliance on Regulation S under the
Act.
[ ] Such Warrant is being transferred in accordance with Rule 144 under the
Act.
C-1
<PAGE>
[ ] Such Warrant is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Act.
----------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------
Date:
--------------------
*Check applicable box.
C-2
<PAGE>
EXHIBIT D
------------, ------
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION
WITH REGULATION S TRANSFERS
First Trust National Association
Suite 200
100 Wall Street
New York, NY 10005
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of Warrants of WAM!NET Inc. (the
"Company"), we confirm that such sale has been effected pursuant to and in
accordance with Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we represent that:
(1) the offer of the Warrants was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Warrants; and
D-1
<PAGE>
(6) if the circumstance set forth in Rule 904(c) under the Securities
Act are applicable, we have complied with the additional conditions
therein, including (if applicable) sending a confirmation or other notice
stating that the Warrants may be offered and sold during the restricted
period specified in Rule 903(c)(2) or (3), as applicable, in accordance
with the provisions of Regulation S; pursuant to registration of the
Warrants under the Securities Act; or pursuant to an available exemption
from the registration requirements under the Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S under the
Securities Act.
Very truly yours,
[Name of Transferor]
By:
-------------------------------
[Authorized Signature]
Upon transfer the Warrants would be registered in the name of the new
beneficial owner as follows:
Name:
-------------------------------
Address:
----------------------------
Taxpayer ID Number:
-----------------
D-2
<PAGE>
EXHIBIT 10.1
CREDIT AGREEMENT
among
NETCO COMMUNICATIONS CORPORATION
THE LENDING INSTITUTIONS PARTY HERETO, as Lenders,
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent,
dated as of
September 26, 1997
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TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS...................................................................................... 1
ARTICLE II. THE CREDITS...................................................................................... 10
2.1. Commitment........................................................................................ 10
2.2. Required Payments; Termination.................................................................... 10
2.3. Ratable Loans..................................................................................... 10
2.4. Types of Advances................................................................................. 10
2.5. Commitment Fee; Reductions in Aggregate Commitment................................................ 11
2.6. Minimum Amount of Each Advance.................................................................... 11
2.7. Optional Principal Payments....................................................................... 11
2.8. Method of Selecting Types and Interest Periods for New Advances................................... 11
2.9. Conversion and Continuation of Outstanding Advances............................................... 12
2.10. Changes in Interest Rate, etc..................................................................... 12
2.11. Rates Applicable After Default.................................................................... 13
2.12. Method of Payment................................................................................. 13
2.13. Noteless Agreement; Evidence of Indebtedness...................................................... 13
2.14. Telephonic Notices................................................................................ 14
2.15. Interest Payment Dates; Interest and Fee Basis.................................................... 14
2.16. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions........................................................................................ 15
2.17. Lending Installations............................................................................. 15
2.18. Non-Receipt of Funds by the Agent................................................................. 15
ARTICLE III. YIELD PROTECTION; TAXES........................................................................ 16
3.1. Yield Protection.................................................................................. 16
3.2. Changes in Capital Adequacy Regulations........................................................... 17
3.3. Availability of Types of Advances................................................................. 17
3.4. Funding Indemnification........................................................................... 17
3.5. Taxes............................................................................................. 18
3.6. Lender Statements; Survival of Indemnity.......................................................... 19
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ARTICLE IV. CONDITIONS PRECEDENT............................................................................ 20
4.1. Initial Advance................................................................................... 20
4.2. Each Advance...................................................................................... 21
4.3. Advances for Permitted Acquisitions............................................................... 21
ARTICLE V. REPRESENTATIONS AND WARRANTIES.................................................................... 22
5.1. Existence and Standing............................................................................ 22
5.2. Authorization and Validity........................................................................ 22
5.3. No Conflict; Government Consent................................................................... 22
5.4. Financial Statements.............................................................................. 23
5.5. Material Adverse Change........................................................................... 23
5.6. Taxes............................................................................................. 23
5.7. Litigation and Contingent Obligations............................................................. 23
5.8. Subsidiaries...................................................................................... 23
5.9. ERISA............................................................................................. 24
5.10. Accuracy of Information........................................................................... 24
5.11. Regulation U...................................................................................... 24
5.12. Material Agreements............................................................................... 24
5.13. Compliance With Laws.............................................................................. 24
5.14. Ownership of Properties........................................................................... 24
5.15. Plan Assets; Prohibited Transactions.............................................................. 24
5.16. Environmental Matters............................................................................. 25
5.17. Investment Company Act............................................................................ 25
5.18. Public Utility Holding Company Act................................................................ 25
5.19. Insurance......................................................................................... 25
ARTICLE VI. COVENANTS......................................................................................... 26
6.1. Financial Reporting............................................................................... 26
6.2. Use of Proceeds................................................................................... 27
6.3. Notice of Default................................................................................. 28
6.4. Conduct of Business............................................................................... 28
6.5. Taxes............................................................................................. 28
6.6. Insurance......................................................................................... 28
6.7. Compliance with Laws.............................................................................. 28
6.8. Maintenance of Properties......................................................................... 28
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6.9. Inspection........................................................................................ 29
6.10. Merger............................................................................................ 29
6.11. Affiliates........................................................................................ 29
ARTICLE VII. DEFAULTS......................................................................................... 29
ARTICLE VIII. ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES................................................ 32
8.1. Acceleration...................................................................................... 32
8.2. Amendments........................................................................................ 32
8.3. Preservation of Rights............................................................................ 33
ARTICLE IX. GENERAL PROVISIONS.............................................................................. 33
9.1. Survival of Representations....................................................................... 33
9.2. Governmental Regulation........................................................................... 33
9.3. Headings.......................................................................................... 34
9.4. Entire Agreement.................................................................................. 34
9.5. Several Obligations; Benefits of this Agreement................................................... 34
9.6. Expenses; Indemnification......................................................................... 34
9.7. Numbers of Documents.............................................................................. 35
9.8. Accounting........................................................................................ 35
9.9. Severability of Provisions........................................................................ 35
9.10. Nonliability of Lenders........................................................................... 35
9.11. Confidentiality................................................................................... 36
9.12. Nonreliance....................................................................................... 36
ARTICLE X. THE AGENT......................................................................................... 36
10.1. Appointment; Nature of Relationship............................................................... 36
10.2. Powers............................................................................................ 37
10.3. General Immunity.................................................................................. 37
10.4. No Responsibility for Loans, Recitals, etc........................................................ 37
10.5. Action on Instructions of Lenders................................................................. 37
10.6. Employment of Agents and Counsel.................................................................. 38
10.7. Reliance on Documents; Counsel.................................................................... 38
10.8. Agent's Reimbursement and Indemnification......................................................... 38
10.9. Notice of Default................................................................................. 39
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10.10. Rights as a Lender............................................................................... 39
10.11. Lender Credit Decision........................................................................... 39
10.12. Successor Agent.................................................................................. 39
10.13. Agent's Fee...................................................................................... 40
10.14. Delegation to Affiliates......................................................................... 40
ARTICLE XI. SETOFF; RATABLE PAYMENTS.......................................................................... 41
11.1. Setoff............................................................................................ 41
11.2. Ratable Payments.................................................................................. 41
ARTICLE XII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS................................................ 41
12.1. Successors and Assigns............................................................................ 41
12.2. Participations.................................................................................... 42
12.2.1. Permitted Participants; Effect......................................................... 42
12.2.2. Voting Rights.......................................................................... 42
12.2.3. Benefit of Setoff...................................................................... 42
12.3. Assignments....................................................................................... 43
12.3.1. Permitted Assignments.................................................................. 43
12.3.2. Effect; Effective Date................................................................. 43
12.4. Dissemination of Information...................................................................... 44
12.5. Tax Treatment..................................................................................... 44
ARTICLE XIII. NOTICES....................................................................................... 44
13.1. Notices........................................................................................... 44
13.2. Change of Address................................................................................. 45
ARTICLE XIV. COUNTERPARTS................................................................................... 45
ARTICLE XV. CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL............................................................................................ 45
15.1. Choice of Law..................................................................................... 45
15.2. Consent to Jurisdiction........................................................................... 45
15.3. Waiver of Jury Trial.............................................................................. 46
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EXHIBITS
EXHIBIT A - WORLDCOM, INC. GUARANTY................................................................ 48
EXHIBIT B - FORM OF OPINION OF COUNSEL TO BORROWER................................................. 52
EXHIBIT C - FORM OF OPINION OF COUNSEL TO GUARANTOR................................................ 53
EXHIBIT D - COMPLIANCE CERTIFICATE ................................................................ 54
EXHIBIT E - ASSIGNMENT AGREEMENT .................................................................. 56
EXHIBIT F - LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION......................................... 67
EXHIBIT G - NOTE................................................................................... 68
SCHEDULES
SCHEDULE 1 - SUBSIDIARIES.......................................................................... 70
SCHEDULE 2 - INDEBTEDNESS AND LIENS................................................................ 71
SCHEDULE 3 - LITIGATION............................................................................ 72
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<PAGE>
NETCO COMMUNICATIONS CORPORATION
CREDIT AGREEMENT
This Agreement, dated as of September 26, 1997, is among NetCo
Communications Corporation, the Lenders, and The First National Bank of Chicago,
as Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or any
of its Subsidiaries (i) acquires any going business or all or substantially all
of the assets of any firm, corporation or limited liability company, or division
thereof, whether through purchase of assets, merger or otherwise or (ii)
directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding ownership interests of a partnership or limited
liability company.
"Advance" means a borrowing hereunder (or conversion or continuation
thereof) consisting of the aggregate amount of the several Loans made on the
same Borrowing Date (or date of conversion or continuation) by the Lenders to
the Borrower of the same Type and, in the case of Eurodollar Advances, for the
same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as
contractual representative of the Lenders pursuant to Article X, and not in its
individual capacity as a Lender, and any successor Agent appointed pursuant to
Article X.
<PAGE>
"Aggregate Commitment" means the aggregate of the Commitments of all the
Lenders, as reduced from time to time pursuant to the terms hereof, or any
lesser amount to which the Guarantor has limited the principal amount of
"Guaranteed Debt" under (and as that term is defined in) the Guaranty.
"Agreement" means this credit agreement, as it may be amended or modified
and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum
of the Federal Funds Effective Rate for such day plus 1/2% per annum.
"Arranger" means First Chicago Capital Markets, Inc., a Delaware
corporation, and its successors.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the President, Chief Executive Officer,
or Finance Director of the Borrower, acting singly.
"Borrower" means NetCo Communications Corporation, a Minnesota corporation,
and its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
Page 2
<PAGE>
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change in Control" means (i) prior to the effectiveness of an IPO, the
failure of the Guarantor to control a majority of seats on the board of
directors of the Borrower, and (ii) upon and after the effectiveness of an IPO,
either the failure of the Guarantor to own directly or indirectly common stock
or (via warrants or otherwise) the common stock equivalent of at least 30% of
the outstanding shares of voting stock of the Borrower on a fully diluted basis
or the failure of the Guarantor to be the largest single holder of common stock
or common stock equivalents of the Borrower on a fully diluted basis.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans not exceeding the amount set forth opposite its signature below or as set
forth in any Notice of Assignment relating to any assignment that has become
effective pursuant to Section 12.3.2, as such amount may be modified from time
to time pursuant to the terms hereof.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement or take-or-pay contract.
"Conversion/Continuation Notice" is defined in Section 2.9.
"Controlled Group" means all members of a controlled group of corporations
or other business entities and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when and
as said corporate base rate changes.
Page 3
<PAGE>
"Default" means an event described in Article VII.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which bears interest at the
applicable Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the rate determined by the Agent to be the rate at
which First Chicago offers to place deposits in U.S. dollars with first-class
banks in the London interbank market at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period, in the
approximate amount of First Chicago's relevant Eurodollar Loan and having a
maturity approximately equal to such Interest Period.
"Eurodollar Loan" means a Loan which bears interest at the applicable
Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
.55%. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16
of 1% if the rate is not such a multiple.
"Excluded Taxes" means, in the case of each Lender or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Lender or the Agent is incorporated or organized or (ii) the jurisdiction
in which the Agent's or such Lender's principal executive office or such
Lender's applicable Lending Installation is located.
"Exhibit" refers to an exhibit to this Agreement, unless another document
is specifically referenced.
Page 4
<PAGE>
"Facility Termination Date" means September 26, 2000 or any earlier date on
which the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to the terms hereof.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
"Floating Rate" means, for any day, a rate per annum equal to the Alternate
Base Rate for such day, in each case changing when and as the Alternate Base
Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"Guarantor" means WorldCom, Inc., a Georgia corporation, and its successors
and assigns.
"Guaranty" means that certain Guaranty of even date herewith in the form of
Exhibit "A" executed by the Guarantor in favor of the Agent, for the ratable
benefit of the Lenders, as it may be amended or modified and in effect from time
to time.
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of Property or
services (other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade), (iii) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from property now or hereafter owned or acquired by such Person, (iv)
obligations which are evidenced by notes, acceptances, or other instruments, (v)
obligations of such Person to purchase securities or other property arising out
of or in connection with the sale of the same or substantially similar
securities or property, (vi) Capitalized Lease Obligations, (vii) Contingent
Obligations, and (viii) any other obligation for borrowed money or other
financial accommodation which in accordance with Agreement Accounting Principles
would be shown as a liability on the consolidated balance sheet of such Person.
Page 5
<PAGE>
"Interest Period" means, with respect to a Eurodollar Advance, a period of
one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"IPO" means an initial public offering of common stock in the Borrower.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, the
office, branch, subsidiary or affiliate of such Lender or the Agent listed on
the signature pages hereof or on a Schedule or otherwise selected by such Lender
or the Agent pursuant to Section 2.17.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means, with respect to a Lender, such Lender's loan made pursuant to
Article II (or any conversion or continuation thereof).
"Loan Documents" means this Agreement and any Notes issued pursuant to
Section 2.13.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Loan Documents,
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Agent or the Lenders thereunder, or (iv) the
Page 6
<PAGE>
validity or enforceability of the Guaranty or the rights or remedies of the
Agent or the Lenders thereunder.
"Material Borrower Indebtedness" is defined in Section 7.5.
"Material Guarantor Indebtedness" is defined in Section 7.5.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Non-U.S. Lender" is defined in Section 3.5(iv).
"Note" means any promissory note issued by the Borrower at the request of a
Lender pursuant to Section 2.13 in the form of Exhibit G, including any
amendment, modification, renewal or replacement of such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Loans, all accrued and unpaid fees and all expenses, reimbursements,
indemnities and other obligations of the Borrower to the Lenders or to any
Lender, the Agent or any indemnified party arising under the Loan Documents.
"Other Taxes" is defined in Section 3.5(ii).
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each March, June, September, and
December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Acquisition" means an Acquisition which has been approved or
consented to by the board of directors or equivalent governing body of the
Person whose assets or equity interests are to be acquired.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
Page 7
<PAGE>
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Reports" is defined in Section 9.6.
"Required Lenders" means Lenders in the aggregate having at least 662/3% of
the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 662/3% of the aggregate unpaid
principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
Page 8
<PAGE>
"Schedule" refers to a specific schedule to this Agreement, unless another
document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which (i) represents more than 10% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as at
the beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 10% of the
consolidated net sales or of the consolidated net income of the Borrower and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings, and any and all liabilities with respect to
the foregoing, but excluding Excluded Taxes.
"Transferee" is defined in Section 12.4.
"Transaction Documents" means, collectively, the Loan Documents and the
Guaranty.
"Type" means, with respect to any Advance, its nature as a Floating Rate
Advance or a Eurodollar Advance.
"Unfunded Liabilities" means the amount (if any) by which the present value
of all vested and unvested accrued benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most
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<PAGE>
recent valuation date for such Plans using PBGC actuarial assumptions for single
employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1. Commitment. From and including the date of this Agreement and prior to
the Facility Termination Date, each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to make Loans to the Borrower from time
to time in amounts not to exceed in the aggregate at any one time outstanding
the amount of its Commitment. Subject to the terms of this Agreement, the
Borrower may borrow, repay and reborrow at any time prior to the Facility
Termination Date. The Commitments to lend hereunder shall expire on the Facility
Termination Date.
2.2. Required Payments; Termination. Any outstanding Advances and all other
unpaid Obligations shall be paid in full by the Borrower on the Facility
Termination Date.
2.3. Ratable Loans. Each Advance hereunder shall consist of Loans made from
the several Lenders ratably in proportion to the ratio that their respective
Commitments bear to the Aggregate Commitment.
2.4. Types of Advances. The Advances may be Floating Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.8 and 2.9.
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2.5. Commitment Fee; Reductions in Aggregate Commitment. The Borrower
agrees to pay to the Agent for the account of each Lender a commitment fee of
0.25% per annum on the daily unused portion of such Lender's Commitment from the
date hereof to and including the Facility Termination Date, payable on each
Payment Date hereafter and on the Facility Termination Date. The Borrower may
permanently reduce the Aggregate Commitment in whole, or in part ratably among
the Lenders in integral multiples of $1,000,000, upon at least five Business
Days' written notice to the Agent, which notice shall specify the amount of any
such reduction, provided, however, that the amount of the Aggregate Commitment
may not be reduced below the aggregate principal amount of the outstanding
Advances. All accrued commitment fees shall be payable on the effective date of
any termination of the obligations of the Lenders to make Loans hereunder.
2.6. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in
the minimum amount of $1,000,000 (and in multiples of $500,000 if in excess
thereof), and each Floating Rate Advance shall be in the minimum amount of
$500,000 (and in multiples of $500,000 if in excess thereof), provided, however,
that any Floating Rate Advance may be in the amount of the unused Aggregate
Commitment.
2.7. Optional Principal Payments. The Borrower may from time to time pay,
without penalty or premium, all outstanding Floating Rate Advances, or, in a
minimum aggregate amount of $500,000 or any integral multiple of $500,000 in
excess thereof, any portion of the outstanding Floating Rate Advances upon two
Business Days' prior notice to the Agent. The Borrower may from time to time
pay, subject to the payment of any funding indemnification amounts required by
Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances,
or, in a minimum aggregate amount of $1,000,000 or any integral multiple of
$500,000 in excess thereof, any portion of the outstanding Eurodollar Advances
upon three Business Days' prior notice to the Agent.
2.8. Method of Selecting Types and Interest Periods for New Advances. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Advance, the Interest Period applicable thereto from time to time. The Borrower
shall give the Agent irrevocable notice (a "Borrowing Notice") not later than
10:00 a.m. (Chicago time) at least one Business Day before the Borrowing Date of
each Floating Rate Advance and three Business Days before the Borrowing Date for
each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest Period applicable
thereto.
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Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIII. The Agent will make
the funds so received from the Lenders available to the Borrower at the Agent's
aforesaid address.
2.9. Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Eurodollar Advances pursuant to this Section
2.9 or are repaid in accordance with Section 2.7. Each Eurodollar Advance shall
continue as a Eurodollar Advance until the end of the then applicable Interest
Period therefor (except as provided in the next sentence), at which time such
Eurodollar Advance shall be automatically converted into a Floating Rate Advance
unless (x) such Eurodollar Advance is or was repaid in accordance with Section
2.7 or (y) the Borrower shall have given the Agent a Conversion/Continuation
Notice (as defined below) requesting that, at the end of such Interest Period,
such Eurodollar Advance continue as a Eurodollar Advance for the same or another
Interest Period. Subject to the terms of Section 2.6, the Borrower may elect
from time to time to convert all or any part of a Floating Rate Advance into a
Eurodollar Advance, and subject to the terms of Section 3.4, the Borrower may
elect to convert all (but not less than all) of a Eurodollar Advance into a
Floating Rate Advance in the event the Borrower receives a demand for
compensation under Section 3.1. The Borrower shall give the Agent irrevocable
notice (a "Conversion/Continuation Notice") of each conversion of a Floating
Rate Advance into a Eurodollar Advance, permitted conversion of a Eurodollar
Advance into a Floating Rate Advance, or continuation of a Eurodollar Advance
not later than 10:00 a.m. (Chicago time) at least three Business Days prior to
the date of the requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such conversion
or continuation,
(ii) the aggregate amount and Type of the Advance which is to be converted
or continued, and
(iii) the amount of such Advance which is to be converted into or continued
as a Eurodollar Advance and the duration of the Interest Period
applicable thereto.
2.10. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear
interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is automatically converted from a
Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9, to but
excluding the date it is paid or is converted into a Eurodollar Advance pursuant
to Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such
day. Changes in the rate of interest on that portion of any Advance maintained
as a Floating Rate Advance will take effect simultaneously with each change in
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the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the
outstanding principal amount thereof from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined by the Agent as applicable to
such Eurodollar Advance based upon the Borrower's selections under Section 2.8
and 2.9 and otherwise in accordance with the terms hereof. No Interest Period
may end after the Facility Termination Date.
2.11. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.8 or 2.9, during the continuance of a Default or
Unmatured Default the Required Lenders may, at their option, by notice to the
Borrower (which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 8.2 requiring unanimous consent of the
Lenders to changes in interest rates), declare that no Advance may be made as,
converted into or continued as a Eurodollar Advance. During the continuance of a
Default the Required Lenders may, at their option, by notice to the Borrower
(which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 8.2 requiring unanimous consent of the
Lenders to changes in interest rates), declare that (i) each Eurodollar Advance
shall bear interest for the remainder of the applicable Interest Period at the
rate otherwise applicable to such Interest Period plus 2% per annum and (ii)
each Floating Rate Advance shall bear interest at a rate per annum equal to the
Floating Rate in effect from time to time plus 2% per annum, provided that,
during the continuance of a Default under Section 7.6 or 7.7, the interest rates
set forth in clauses (i) and (ii) above shall be applicable to all Advances
without any election or action on the part of the Agent or any Lender.
2.12. Method of Payment. All payments of the Obligations hereunder shall be
made, without setoff, deduction, or counterclaim, in immediately available funds
to the Agent at the Agent's address specified pursuant to Article XIII, or at
any other Lending Installation of the Agent specified in writing by the Agent to
the Borrower, by noon (local time) on the date when due and shall be applied
ratably by the Agent among the Lenders. Each payment delivered to the Agent for
the account of any Lender shall be delivered promptly by the Agent to such
Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Agent is hereby authorized to
charge the account of the Borrower maintained with First Chicago for each
payment of principal, interest and fees as it becomes due hereunder.
2.13. Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of the Borrower to such Lender resulting from each Loan made by
such Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.
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(ii) The Agent shall also maintain accounts in which it will record (a) the
amount of each Loan made hereunder, the Type thereof and the Interest Period
with respect thereto, (b) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (c) the amount of any sum received by the Agent hereunder from the Borrower
and each Lender's share thereof.
(iii) The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Agent or any Lender to maintain such accounts or any error therein shall
not in any manner affect the obligation of the Borrower to repay the Obligations
in accordance with their terms.
(iv) Any Lender may request that its Loans be evidenced by a promissory
note (a "Note"). In such event, the Borrower shall prepare, execute and deliver
to such Lender a Note payable to the order of such Lender in a form supplied by
the Agent. Thereafter, the Loans evidenced by such Note and interest thereon
shall at all times (including after any assignment pursuant to Section 12.3) be
represented by one or more Notes payable to the order of the payee named therein
or any assignee pursuant to Section 12.3, except to the extent that any such
Lender or assignee subsequently returns any such Note for cancellation and
requests that such Loans once again be evidenced as described in paragraphs (i)
and (ii) above.
2.14. Telephonic Notices. The Borrower hereby authorizes the Lenders and
the Agent to extend, convert or continue Advances, effect selections of Types of
Advances and to transfer funds to such account as the Borrower may designate
based on telephonic notices made by any person or persons the Agent or any
Lender in good faith believes to be acting on behalf of the Borrower. The
Borrower agrees to deliver promptly to the Agent a written confirmation, if such
confirmation is requested by the Agent or any Lender, of each telephonic notice
signed by an Authorized Officer. If the written confirmation differs in any
material respect from the action taken by the Agent and the Lenders, the records
of the Agent and the Lenders shall govern absent manifest error.
2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof and at maturity.
Interest accrued on each Eurodollar Advance shall be payable on the last day of
its applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued
on each Eurodollar Advance having an Interest Period longer than three months
shall also be payable on the last day of each three-month interval during such
Interest Period. Interest on Floating Rate Advances and commitment fees shall be
calculated for actual days elapsed on the basis of a 365- or 366-day year, as
appropriate. Interest on Eurodollar Advances shall be calculated for actual days
elapsed on the basis of a 360-day
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year. Interest shall be payable for the day an Advance is made but not for the
day of any payment on the amount paid if payment is received prior to noon
(local time) at the place of payment. If any payment of principal of or interest
on an Advance shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment. The Agent will provide the Borrower
with notice of the amount of interest due from time to time in accordance with
its customary commercial practices.
2.16. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. Promptly after receipt thereof, the Agent will notify each Lender of
the contents of each Aggregate Commitment reduction notice, Borrowing Notice,
Conversion/Continuation Notice, and repayment notice received by it hereunder.
The Agent will notify each Lender of the interest rate applicable to each
Eurodollar Advance promptly upon determination of such interest rate and will
give each Lender prompt notice of each change in the Alternate Base Rate.
2.17. Lending Installations. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Loans and any Notes issued hereunder shall be deemed held
by each Lender for the benefit of such Lending Installation. Each Lender may, by
written notice to the Agent and the Borrower in accordance with Article XIII,
designate replacement or additional Lending Installations through which Loans
will be made by it and for whose account Loan payments are to be made.
2.18. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (x) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (y) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
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ARTICLE III
YIELD PROTECTION; TAXES
3.1. Yield Protection. If, on or after the date of this Agreement, the
adoption of any law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law), or any
change in the interpretation or administration thereof by any governmental or
quasi-governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender or
applicable Lending Installation with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency:
(i) subjects any Lender or any applicable Lending Installation to any
Taxes, or changes the basis of taxation of payments (other than with
respect to Excluded Taxes) to any Lender in respect of its Eurodollar
Loans, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by,
any Lender or any applicable Lending Installation (other than reserves
and assessments taken into account in determining the interest rate
applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation of making,
funding or maintaining its Eurodollar Loans or reduces any amount
receivable by any Lender or any applicable Lending Installation in
connection with its Eurodollar Loans, or requires any Lender or any
applicable Lending Installation to make any payment calculated by
reference to the amount of Eurodollar Loans held or interest received
by it, by an amount deemed material by such Lender,
and the result of any of the foregoing is to increase the cost to such
Lender or applicable Lending Installation of making or maintaining its
Eurodollar Loans or Commitment or to reduce the return received by such Lender
or applicable Lending Installation in connection with such Eurodollar Loans or
Commitment, then, within 15 days of demand by such Lender, the Borrower shall
pay such Lender such additional amount or amounts as will compensate such Lender
for such increased cost or reduction in amount received. No Lender shall be
entitled to demand compensation or be compensated under this Section 3.1 to the
extent that such compensation relates to any period of time more than 180 days
prior to the date upon which such Lender first notified the Borrower of the
occurrence of the event entitling such Lender to such compensation (unless, and
to the extent, that any such compensation so demanded shall relate to the
retroactive application of any event so notified to the Borrower).
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3.2. Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 15 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Lender determines is attributable to this Agreement, its Loans or its
Commitment to make Loans hereunder (after taking into account such Lender's
policies as to capital adequacy), provided that no Lender shall be entitled to
demand compensation or be compensated under this Section 3.2 to the extent that
such compensation relates to any period of time more than 180 days prior to the
date upon which such Lender first notified the Borrower of the Change entitling
such Lender to such compensation (unless, and to the extent, that any such
compensation so demanded shall relate to the retroactive application of any
event so notified to the Borrower). "Change" means (i) any change after the date
of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of
or change in any other law, governmental or quasi-governmental rule, regulation,
policy, guideline, interpretation, or directive (whether or not having the force
of law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or any Lending Installation
or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means
(i) the risk-based capital guidelines in effect in the United States on the date
of this Agreement, including transition rules, and (ii) the corresponding
capital regulations promulgated by regulatory authorities outside the United
States implementing the July 1988 report of the Basle Committee on Banking
Regulation and Supervisory Practices Entitled "International Convergence of
Capital Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
3.3. Availability of Types of Advances. If any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to a Type of Advance does not
accurately reflect the cost of making or maintaining such Advance, then the
Agent shall suspend the availability of the affected Type of Advance and require
any affected Eurodollar Advances to be repaid or converted to Floating Rate
Advances, subject to the payment of any funding indemnification amounts required
by Section 3.4.
3.4. Funding Indemnification. If any payment of a Eurodollar Advance occurs
on a date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not
made on the date specified by the Borrower for any reason other than default by
the Lenders, the Borrower will indemnify each Lender for any loss or cost
incurred by it resulting therefrom, including,
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without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain such Eurodollar Advance.
3.5. Taxes. (i) All payments by the Borrower to or for the account of any
Lender or the Agent hereunder or under any Note shall be made free and clear of
and without deduction for any and all Taxes. If the Borrower shall be required
by law to deduct any Taxes from or in respect of any sum payable hereunder to
any Lender or the Agent, (a) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 3.5) such Lender or the Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (b) the Borrower shall make such deductions, (c) the
Borrower shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (d) the Borrower shall furnish to the Agent
the original or a certified copy of a receipt evidencing payment thereof.
(ii) In addition, the Borrower hereby agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note ("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the Agent and each Lender for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by
the Agent or such Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. Payments due under this
indemnification shall be made within 30 days of the date the Agent or such
Lender makes demand therefor pursuant to Section 3.6.
(iv) At least five Business Days prior to the first date on which interest
or fees are payable hereunder for the account of any Lender, each Lender that is
not incorporated under the laws of the United States of America or a state
thereof (each a "Non-U.S. Lender") agrees that it will deliver to each of the
Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes. Each Non-U.S. Lender
further undertakes to deliver to each of the Borrower and the Agent (i) two
renewals or additional copies of such form (or any successor form) on or before
the date that such form expires or becomes obsolete, and (ii) after the
occurrence of any event requiring a change in the most recent forms so delivered
by it, such additional forms or amendments thereto as may be reasonably
requested by the Borrower or the Agent. All forms or amendments described in the
preceding sentence shall certify that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has
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occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form or amendment with
respect to it and such Lender advises the Borrower and the Agent that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax.
(v) For any period during which a Non-U.S. Lender has failed to provide the
Borrower with an appropriate form pursuant to clause (iv), above (unless such
failure is due to a change in treaty, law or regulation, or any change in the
interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Lender shall not be entitled to indemnification under
this Section 3.5 with respect to Taxes imposed by the United States; provided
that, should a Non-U.S. Lender which is otherwise exempt from or subject to a
reduced rate of withholding tax become subject to Taxes because of its failure
to deliver a form required under clause (iv), above, the Borrower shall take
such steps as such Non-U.S. Lender shall reasonably request to assist such
Non-U.S. Lender to recover such Taxes.
3.6. Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its Eurodollar Loans to reduce any liability of the Borrower to such
Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of
Eurodollar Advances under Section 3.3, so long as such designation is not, in
the judgment of such Lender, disadvantageous to such Lender. Each Lender shall
deliver a written statement of such Lender to the Borrower (with a copy to the
Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such
written statement shall set forth in reasonable detail the calculations upon
which such Lender determined such amount and shall be final, conclusive and
binding on the Borrower in the absence of manifest error. Determination of
amounts payable under such Sections in connection with a Eurodollar Loan shall
be calculated as though each Lender funded its Eurodollar Loan through the
purchase of a deposit of the type and maturity corresponding to the deposit used
as a reference in determining the Eurodollar Rate applicable to such Loan,
whether in fact that is the case or not. Unless otherwise provided herein, the
amount specified in the written statement of any Lender shall be payable on
demand after receipt by the Borrower of such written statement. The obligations
of the Borrower under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of
the Obligations and termination of this Agreement.
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ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Advance. The Lenders shall not be required to make the initial
Advance hereunder unless the Borrower has furnished to the Agent with sufficient
copies for the Lenders:
(i) Copies of the articles or certificate of incorporation of the
Borrower, together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental officer in
its jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of the
Borrower, of its by-laws and of its Board of Directors' resolutions
and of resolutions or actions of any other body authorizing the
execution of the Loan Documents.
(iii) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the Borrower, which shall identify by name and title and
bear the signatures of the Authorized Officers and any other officers
of the Borrower authorized to sign the Loan Documents, upon which
certificate the Agent and the Lenders shall be entitled to rely until
informed of any change in writing by the Borrower.
(iv) A certificate, signed by the chief financial officer, chief executive
officer, or finance director of the Borrower, stating that on the
initial Borrowing Date no Default or Unmatured Default has occurred
and is continuing.
(v) A written opinion of the Borrower's counsel, addressed to the Lenders
in substantially the form of Exhibit B.
(vi) A written opinion of the Guarantor's counsel, addressed to the Lenders
in substantially the form of Exhibit C.
(vii) Any Notes requested by a Lender pursuant to Section 2.13 payable to
the order of each such requesting Lender.
(viii) The Guaranty.
(ix) Written money transfer instructions, in substantially the form of
Exhibit F, addressed to the Agent and signed by an Authorized Officer,
together with such
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other related money transfer authorizations as the Agent may have
reasonably requested.
(x) The insurance certificate described in Section 5.19.
(xiv) Such other documents as any Lender or its counsel may have reasonably
requested.
4.2. Each Advance. The Lenders shall not be required to make any Advance
(other than an Advance that, after giving effect thereto and to the application
of the proceeds thereof, does not increase the aggregate amount of outstanding
Advances), unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are true and
correct as of such Borrowing Date except to the extent any such
representation or warranty is stated to relate solely to an earlier
date, in which case such representation or warranty shall have been
true and correct on and as of such earlier date.
(iii) The Agent has received the written authorization of the Guarantor to
make such Advance.
(iv) All legal matters incident to the making of such Advance shall be
satisfactory to the Lenders and their counsel.
Each Borrowing Notice with respect to each such Advance shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied. Any Lender may require a duly
completed compliance certificate in substantially the form of Exhibit D as a
condition to making an Advance.
4.3. Advances for Permitted Acquisitions. The Lenders shall not be required
to make any Advance the proceeds of which are or are to be used in connection
with a Permitted Acquisition unless, in addition to satisfying the conditions
set forth in Sections 4.1 and 4.2 but solely in the event that the aggregate
consideration for such Acquisition is equal to or greater than $1,000,000, the
Borrower has furnished to the Agent copies, certified by the Secretary or
Assistant Secretary of the Borrower, of the agreements, instruments, and
documents governing such Permitted Acquisition (including the most recent
financial statements of the Acquisition candidate).
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1. Existence and Standing. Each of the Borrower and its Subsidiaries is a
corporation, partnership (in the case of Subsidiaries only) or limited liability
company duly and properly incorporated or organized, as the case may be, validly
existing and (to the extent such concept applies to such entity) in good
standing under the laws of its jurisdiction of incorporation or organization and
has all requisite authority to conduct its business in each jurisdiction in
which its business is conducted.
5.2. Authorization and Validity. The Borrower has the power and authority
and legal right to execute and deliver the Loan Documents and to perform its
obligations thereunder. The execution and delivery by the Borrower of the Loan
Documents and the performance of its obligations thereunder have been duly
authorized by proper corporate proceedings, and the Loan Documents to which the
Borrower is a party constitute legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their terms, except
as enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
5.3. No Conflict; Government Consent. Neither the execution and delivery by
the Borrower of the Loan Documents, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will violate
(i) any law, rule, regulation, order, writ, judgment, injunction, decree or
award binding on the Borrower or any of its Subsidiaries or (ii) the Borrower's
or any Subsidiary's articles or certificate of incorporation, partnership
agreement, certificate of partnership, articles or certificate of organization,
by-laws, or operating or other management agreement, as the case may be, or
(iii) the provisions of any indenture, instrument or agreement to which the
Borrower or any of its Subsidiaries is a party or is subject, or by which it, or
its Property, is bound, or conflict with or constitute a default thereunder, or
result in, or require, the creation or imposition of any Lien in, of or on the
Property of the Borrower or a Subsidiary pursuant to the terms of any such
indenture, instrument or agreement. No order, consent, adjudication, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of any governmental or public
body or authority, or any subdivision thereof, which has not been obtained by
the Borrower or any of its Subsidiaries, is required to be obtained by the
Borrower or any of its Subsidiaries in connection with the execution and
delivery of the Loan Documents, the borrowings under this Agreement, the payment
and performance by the Borrower of the Obligations or the legality, validity,
binding effect or enforceability of any of the Loan Documents.
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5.4. Financial Statements. The December 31, 1996 consolidated financial
statements of the Borrower and its Subsidiaries heretofore delivered to the
Lenders were prepared in accordance with generally accepted accounting
principles in effect on the date such statements were prepared and fairly
present the consolidated financial condition and operations of the Borrower and
its Subsidiaries at such date and the consolidated results of their operations
for the period then ended.
5.5. Material Adverse Change. Since December 31, 1996 there has been no
change in the business, Property, condition (financial or otherwise) or results
of operations of the Borrower and its Subsidiaries which could reasonably be
expected to have a Material Adverse Effect.
5.6. Taxes. The Borrower and its Subsidiaries have filed all United States
federal tax returns and all other tax returns which are required to be filed and
have paid all taxes due pursuant to said returns or pursuant to any assessment
received by the Borrower or any of its Subsidiaries, except such taxes, if any,
as are being contested in good faith and as to which adequate reserves have been
provided in accordance with Agreement Accounting Principles and as to which no
Lien exists. No tax liens have been filed and no claims are being asserted with
respect to any such taxes except such taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided in accordance
with Agreement Accounting Principles. The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries in respect of any taxes or other
governmental charges are adequate.
5.7. Litigation and Contingent Obligations. Except as set forth on Schedule
3, as of the date of this Agreement there is no litigation, arbitration,
governmental investigation, proceeding or inquiry pending or, to the knowledge
of any of their officers, threatened against or affecting the Borrower or any of
its Subsidiaries which could reasonably be expected to have a Material Adverse
Effect or which seeks to prevent, enjoin or delay the making of any Loans. Other
than any liability incident to any litigation, arbitration or proceeding which
(i) could not reasonably be expected to have a Material Adverse Effect or (ii)
is set forth on Schedule 3, the Borrower has no material contingent obligations
not provided for or disclosed in the financial statements referred to in Section
5.4.
5.8. Subsidiaries. Schedule 1, as supplemented or modified by the Borrower
in writing from time to time, contains an accurate list of all of the presently
existing Subsidiaries of the Borrower, setting forth their respective
jurisdictions of organization and the percentage of their respective capital
stock or other ownership interests owned by the Borrower or other Subsidiaries.
All of the issued and outstanding shares of capital stock or other ownership
interests of such Subsidiaries have been (to the extent such concepts are
relevant with respect to such ownership interests) duly authorized and issued
and are fully paid and non-assessable.
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5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do not in
the aggregate exceed $500,000. Neither the Borrower nor any other member of the
Controlled Group has incurred, or is reasonably expected to incur, any
withdrawal liability to Multiemployer Plans in excess of $500,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of law and regulations, no Reportable Event has occurred with
respect to any Plan, neither the Borrower nor any other member of the Controlled
Group has withdrawn from any Plan or initiated steps to do so, and no steps have
been taken to reorganize or terminate any Plan.
5.10. Accuracy of Information. No information, exhibit or report furnished
by the Borrower or any of its Subsidiaries to the Agent or to any Lender in
connection with the negotiation of, or compliance with, the Loan Documents
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein not misleading.
5.11. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of the value of those assets of the Borrower and its Subsidiaries
which are subject to any limitation on sale, pledge, or other restriction
hereunder.
5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect.
5.13. Compliance With Laws. The Borrower and its Subsidiaries have complied
with all applicable statutes, rules, regulations, orders and restrictions of any
domestic or foreign government or any instrumentality or agency thereof having
jurisdiction over the conduct of their respective businesses or the ownership of
their respective Property except for any failure to comply with any of the
foregoing which could not reasonably be expected to have a Material Adverse
Effect.
5.14. Ownership of Properties. Except as set forth on Schedule 2, on the
date of this Agreement, the Borrower and its Subsidiaries will have good title
to all of the Property and assets reflected in the Borrower's most recent
consolidated financial statements provided to the Agent as owned by the Borrower
and its Subsidiaries.
5.15. Plan Assets; Prohibited Transactions. The Borrower is not an entity
deemed to hold "plan assets" within the meaning of 29 C.F.R. ss. 2510.3-101 of
an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject
to Title I of ERISA or any plan (within the meaning of Section 4975 of the
Code), and neither the execution of this
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Agreement nor the making of Loans hereunder gives rise to a prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975 of the
Code.
5.16. Environmental Matters. In the ordinary course of its business, the
officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
concluded that the effect of Environmental Laws upon the Borrower and its
Subsidiaries, if any, cannot reasonably be expected to have a Material Adverse
Effect. Neither the Borrower nor any Subsidiary has received any notice to the
effect that its operations are not in material compliance with any of the
requirements of applicable Environmental Laws or are the subject of any federal
or state investigation evaluating whether any remedial action is needed to
respond to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could reasonably be
expected to have a Material Adverse Effect.
5.17. Investment Company Act. Neither the Borrower nor any Subsidiary is an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
5.18. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.19. Insurance. The certificate signed by the President, Chief Financial
Officer, or Finance Director of the Borrower, that attests to the existence and
adequacy of, and summarizes, the property and casualty insurance program carried
by the Borrower with respect to itself and its Subsidiaries and that has been
furnished by the Borrower to the Agent and the Lenders, is complete and accurate
as of the date of this Agreement. This summary includes the insurer's or
insurers' name(s), policy number(s), expiration date(s), amount(s) of coverage,
type(s) of coverage, exclusion(s), and deductibles. This summary also includes
similar information, and describes any reserves, relating to any self-insurance
program that is in effect.
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ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with generally accepted accounting principles, and furnish to the Lenders:
(i) Within 90 days after the close of each of its fiscal years, an
unqualified (except for qualifications relating to changes in
accounting principles or practices reflecting changes in generally
accepted accounting principles and required or approved by the
Borrower's independent certified public accountants) audit report
certified by independent certified public accountants reasonably
acceptable to the Lenders, prepared in accordance with Agreement
Accounting Principles on a consolidated and consolidating basis
(consolidating statements need not be certified by such accountants)
for itself and its Subsidiaries, including balance sheets as of the
end of such period, related profit and loss and reconciliation of
surplus statements, and a statement of cash flows, accompanied by (a)
any management letter prepared by said accountants, and (b) a
certificate of said accountants addressed to the Borrower that, in the
course of their examination necessary for their certification of the
foregoing, they have obtained no knowledge of any Default or Unmatured
Default, or if, in the opinion of such accountants, any Default or
Unmatured Default shall exist, stating the nature and status thereof.
(ii) Within 45 days after the close of the first three quarterly periods of
each of its fiscal years, for itself and its Subsidiaries,
consolidated and consolidating unaudited balance sheets as at the
close of each such period and consolidated and consolidating profit
and loss and reconciliation of surplus statements and a statement of
cash flows for the period from the beginning of such fiscal year to
the end of such quarter, all certified by its chief financial officer,
chief executive officer, or finance director.
(iii) As soon as available, but in any event within 30 days after the
beginning of each fiscal year of the Borrower, a copy of the plan and
forecast (including a projected consolidated and consolidating balance
sheet, income statement and funds flow statement) of the Borrower for
such fiscal year.
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(iv) Together with the financial statements required under Sections 6.1(i)
and (ii), a compliance certificate in substantially the form of
Exhibit D signed by its chief financial officer, chief executive
officer, or finance director stating that no Default or Unmatured
Default exists, or if any Default or Unmatured Default exists, stating
the nature and status thereof.
(v) Within 270 days after the close of each fiscal year, a statement of
the Unfunded Liabilities of each Single Employer Plan, certified as
correct by an actuary enrolled under ERISA.
(vi) As soon as possible and in any event within 10 days after the Borrower
knows that any Reportable Event has occurred with respect to any Plan,
a statement, signed by the chief financial officer of the Borrower,
describing said Reportable Event and the action which the Borrower
proposes to take with respect thereto.
(vii) As soon as possible and in any event within 10 days after receipt by
the Borrower, a copy of (a) any notice or claim to the effect that the
Borrower or any of its Subsidiaries is or may be liable to any Person
as a result of the release by the Borrower, any of its Subsidiaries,
or any other Person of any toxic or hazardous waste or substance into
the environment, and (b) any notice alleging any violation of any
federal, state or local environmental, health or safety law or
regulation by the Borrower or any of its Subsidiaries, which, in the
case of either clause (a) or (b) hereinabove, could reasonably be
expected to have a Material Adverse Effect.
(viii) Promptly upon the furnishing thereof to all shareholders of the
Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(ix) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports
which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission.
(x) Such other information (including non-financial information) as the
Agent or any Lender may from time to time reasonably request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary to,
use the proceeds of the Advances for capital expenditures, working capital, and
general corporate purposes, and to repay outstanding Advances. The Borrower will
not, nor will it permit any Subsidiary to, use any of the proceeds of the
Advances to purchase or carry any "margin stock" (as defined in Regulation U) or
to make any Acquisition other than a Permitted Acquisition.
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6.3. Notice of Default. The Borrower will, and will cause each Subsidiary
to, give prompt notice in writing to the Lenders of the occurrence of any
Default or Unmatured Default and of any other development, financial or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each Subsidiary
to, carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducted and do
all things necessary to remain duly incorporated or organized, validly existing
and (to the extent such concept applies to such entity) in good standing as a
domestic corporation, partnership or limited liability company in its
jurisdiction of incorporation or organization, as the case may be, and maintain
all requisite authority to conduct its business in each jurisdiction in which
its business is conducted.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, timely
file complete and correct United States federal and applicable foreign, state
and local tax returns required by law and pay when due all taxes, assessments
and governmental charges and levies upon it or its income, profits or Property,
except those which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been set aside in accordance
with Agreement Accounting Principles. At any time that the Borrower or any of
its Subsidiaries is organized as a limited liability company, each such limited
liability company will qualify for partnership tax treatment under United States
federal tax law.
6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject including,
without limitation, all Environmental Laws, the failure to comply with which
could reasnably be expected to have a Material Adverse Effect.
6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Agent and the Lenders, by their respective representatives and
agents, to inspect any of the Property, books and financial records of the
Borrower and each Subsidiary, to examine and
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make copies of the books of accounts and other financial records of the Borrower
and each Subsidiary, and to discuss the affairs, finances and accounts of the
Borrower and each Subsidiary with, and to be advised as to the same by, their
respective officers at such reasonable times and intervals as the Agent or any
Lender may designate, subject, however, to the consent of third parties who may
have possession of the Property of the Borrower.
6.10. Merger. The Borrower will not, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person unless the Borrower (with
respect to mergers or consolidations involving the Borrower) or a Subsidiary
(with respect to mergers or consolidations not involving the Borrower) is the
surviving corporation, except that a Subsidiary may merge into the Borrower or a
Wholly-Owned Subsidiary.
6.11. Affiliates. The Borrower will not, and will not permit any Subsidiary
to, enter into any transaction (including, without limitation, the purchase or
sale of any Property or service) with, or make any payment or transfer to, any
Affiliate (other than the Guarantor) except in the ordinary course of business
and pursuant to the reasonable requirements of the Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or such Subsidiary than the Borrower or such Subsidiary would
obtain in a comparable arms-length transaction.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in
connection with this Agreement, any Loan, or any certificate or information
delivered in connection with this Agreement or any other Loan Document shall be
materially false on the date as of which made.
7.2. Nonpayment of principal of any Loan when due, or nonpayment of
interest upon any Loan or of any commitment fee or other obligations under any
of the Loan Documents within five days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2, 6.10, 6.11, or 6.12.
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7.4. The breach by the Borrower (other than a breach which constitutes a
Default under another Section of this Article VII) of any of the terms or
provisions of this Agreement which is not remedied within ten days after written
notice from the Agent or any Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay when due any
Indebtedness aggregating in excess of $500,000 ("Material Borrower
Indebtedness") or of the Guarantor to pay when due any Indebtedness aggregating
in excess of $50,000,000 ("Material Guarantor Indebtedness"); or the default by
the Borrower or any of its Subsidiaries in the performance (beyond the
applicable grace period with respect thereto, if any) of any term, provision or
condition contained in any agreement under which any such Material Borrower
Indebtedness was created or is governed, or any other event shall occur and be
continuing or condition exist and continue to exist, the effect of which default
or event is to cause, or to permit the holder or holders of such Material
Borrower Indebtedness to cause, such Material Borrower Indebtedness to become
due prior to its stated maturity; or the default by the Guarantor in the
performance (beyond the applicable grace period with respect thereto, if any) of
any term, provision or condition contained in any agreement under which any such
Material Guarantor Indebtedness was created or is governed, or any other event
shall occur and be continuing or condition exist and continue to exist, the
effect of which default or event is to cause, or to permit the holder or holders
of such Material Guarantor Indebtedness to cause, such Material Guarantor
Indebtedness to become due prior to its stated maturity; or any Material
Borrower Indebtedness or any Material Guarantor Indebtedness shall be declared
to be due and payable or required to be prepaid or repurchased (other than by a
regularly scheduled payment) prior to the stated maturity thereof; or the
Borrower or any of its Subsidiaries or the Guarantor shall not pay, or admit in
writing its inability to pay, its debts generally as they become due.
7.6. The Borrower or any of its Subsidiaries or any Guarantor shall (i)
have an order for relief entered with respect to it under the Federal bankruptcy
laws as now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment
of a receiver, custodian, trustee, examiner, liquidator or similar official for
it or any Substantial Portion of its Property, (iv) institute any proceeding
seeking an order for relief under the Federal bankruptcy laws as now or
hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file an
answer or other pleading denying the material allegations of any such proceeding
filed against it, (v) take any corporate or partnership action to authorize or
effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail
to contest in good faith any appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or any of
its Subsidiaries or the Guarantor, a receiver, trustee, examiner, liquidator or
similar official shall
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be appointed for the Borrower or any of its Subsidiaries or the Guarantor or any
Substantial Portion of its Property, or a proceeding described in Section 7.6
shall be instituted against the Borrower or any of its Subsidiaries or the
Guarantor and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 45 consecutive days.
7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of, all or any portion of the
Property of the Borrower and its Subsidiaries or the Guarantor which, when taken
together with all other Property of the Borrower and its Subsidiaries or the
Guarantor so condemned, seized, appropriated, or taken custody or control of,
during the twelve-month period ending with the month in which any such action
occurs, constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge any judgment or order for the payment of money
in excess of $500,000, which is not stayed on appeal or otherwise being
appropriately contested in good faith.
7.10. The Unfunded Liabilities of all Single Employer Plans shall exceed in
the aggregate $500,000 or any Reportable Event shall occur in connection with
any Plan which could reasonably be expected to have a Material Adverse Effect.
7.11. The Borrower or any other member of the Controlled Group shall have
been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan in an amount which, when
aggregated with all other amounts required to be paid to Multiemployer Plans by
the Borrower or any other member of the Controlled Group as withdrawal liability
(determined as of the date of such notification), exceeds $500,000 or requires
payments exceeding $250,000 per annum.
7.12. The Borrower or any of its Subsidiaries shall (i) be the subject of
any proceeding or investigation pertaining to the release by the Borrower, any
of its Subsidiaries or any other Person of any toxic or hazardous waste or
substance into the environment, or (ii) violate any Environmental Law, which, in
the case of an event described in clause (i) or clause (ii), could reasonably be
expected to have a Material Adverse Effect.
7.13. Any Change in Control shall occur.
7.14. The Guaranty shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of the Guaranty, or the Guarantor shall fail to comply with any
of the terms or provisions of the Guaranty to which it is a party, or the
Guarantor shall deny that it has any further liability under the Guaranty, or
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shall give notice to such effect, or any portion of any outstanding Advance is
determined not to be "Guaranteed Debt" under (and as that term is defined in)
the Guaranty.
7.15. The representations and warranties set forth in Section 5.15 (Plan
Assets; Prohibited Transactions") shall at any time not be true and correct.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans
hereunder shall automatically terminate and the Obligations shall immediately
become due and payable without any election or action on the part of the Agent
or any Lender. If any other Default occurs and is continuing, the Required
Lenders (or the Agent with the consent of the Required Lenders) may terminate or
suspend the obligations of the Lenders to make Loans hereunder, or declare the
Obligations to be due and payable, or both, whereupon the Obligations shall
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which the Borrower hereby expressly waives.
If, within 30 days after acceleration of the maturity of the Obligations or
termination of the obligations of the Lenders to make Loans hereunder as a
result of any Default (other than any Default as described in Section 7.6 or 7.7
with respect to the Borrower) and before any judgment or decree for the payment
of the Obligations due shall have been obtained or entered, the Required Lenders
(in their sole discretion) shall so direct, the Agent shall, by notice to the
Borrower, rescind and annul such acceleration and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of all of the Lenders:
(i) Extend the final maturity of any Loan or forgive all or any portion of
the principal amount thereof, or reduce the rate or extend the time of
payment of interest or fees thereon.
(ii) Reduce the percentage specified in the definition of Required Lenders.
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(iii) Extend the Facility Termination Date, or reduce the amount or extend
the payment date for, the mandatory payments required under Section
2.2, or increase the amount of the Commitment of any Lender hereunder,
or permit the Borrower to assign its rights under this Agreement.
(iv) Amend this Section 8.2.
(v) Release any guarantor of any Advance.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fee required under Section 12.3.2 without obtaining the consent of any
other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All representations and warranties of the
Borrower contained in this Agreement shall survive the making of the Loans
herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
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9.3. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
9.4. Entire Agreement. The Transaction Documents embody the entire
agreement and understanding among the Borrower, the Agent and the Lenders and
supersede all prior agreements and understandings among the Borrower, the Agent
and the Lenders relating to the subject matter thereof other than the fee letter
described in Section 10.13.
9.5. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and assigns, provided, however, that the parties
hereto expressly agree that the Arranger shall enjoy the benefits of the
provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth
therein and shall have the right to enforce such provisions on its own behalf
and in its own name to the same extent as if it were a party to this Agreement.
9.6. Expenses; Indemnification. (i) The Borrower shall reimburse the Agent
and the Arranger for any costs, internal charges and out-of-pocket expenses
(including attorneys' fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent) paid or incurred by the Agent or the
Arranger in connection with the preparation, negotiation, execution, delivery,
syndication, review, amendment, modification, and administration of the
Transaction Documents; provided, however, that the Borrower shall not be
obligated to reimburse the Agent and the Arranger for more than $30,000 of the
time charges of attorneys for the Agent in connection with the preparation,
negotiation, and execution of this commitment letter, the fee letter of even
date herewith, and the Loan Documents. The limitation set forth in the
immediately preceding sentence shall not apply to any costs of amendment,
modification, or enforcement incurred by First Chicago. The Borrower also agrees
to reimburse the Agent, the Arranger and the Lenders for any costs, internal
charges and out-of-pocket expenses (including attorneys' fees and time charges
of attorneys for the Agent, the Arranger and the Lenders, which attorneys may be
employees of the Agent, the Arranger or the Lenders) paid or incurred by the
Agent, the Arranger or any Lender in connection with the collection and
enforcement of the Transaction Documents. Expenses being reimbursed by the
Borrower under this Section include, without limitation, costs and expenses
incurred in connection with the Reports described in the following sentence. The
Borrower acknowledges that from time to time First Chicago may prepare and may
distribute to the Lenders (but shall have no obligation or duty to prepare or to
distribute to the Lenders) certain audit reports (the "Reports") pertaining to
the Borrower's assets for internal use by First Chicago from information
furnished to it by or on behalf of the
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Borrower, after First Chicago has exercised its rights of inspection pursuant to
this Agreement.
(ii) The Borrower hereby further agrees to indemnify the Agent, the
Arranger and each Lender, its directors, officers and employees against all
losses, claims, damages, penalties, judgments, liabilities and expenses
(including, without limitation, all expenses of litigation or preparation
therefor whether or not the Agent, the Arranger or any Lender is a party
thereto) which any of them may pay or incur arising out of or relating to this
Agreement, the other Transaction Documents, the transactions contemplated hereby
or the direct or indirect application or proposed application of the proceeds of
any Loan hereunder except to the extent that they are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of the party seeking
indemnification. The obligations of the Borrower under this Section 9.6 shall
survive the termination of this Agreement.
9.7. Numbers of Documents. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
9.8. Accounting. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles.
9.9. Severability of Provisions. Any provision in any Loan Document that is
held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as
to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.10. Nonliability of Lenders. The relationship between the Borrower on the
one hand and the Lenders and the Agent on the other hand shall be solely that of
borrower and lender. Neither the Agent, the Arranger nor any Lender shall have
any fiduciary responsibilities to the Borrower. Neither the Agent, the Arranger
nor any Lender undertakes any responsibility to the Borrower to review or inform
the Borrower of any matter in connection with any phase of the Borrower's
business or operations. The Borrower agrees that neither the Agent, the Arranger
nor any Lender shall have liability to the Borrower (whether sounding in tort,
contract or otherwise) for losses suffered by the Borrower in connection with,
arising out of, or in any way related to, the transactions contemplated and the
relationship established by the Transaction Documents, or any act, omission or
event occurring in connection therewith, unless it is determined in a final
non-appealable judgment by a court of competent jurisdiction that such losses
resulted from the gross negligence or
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willful misconduct of the party from which recovery is sought. Neither the
Agent, the Arranger nor any Lender shall have any liability with respect to, and
the Borrower hereby waives, releases and agrees not to sue for, any special,
indirect or consequential damages suffered by the Borrower in connection with,
arising out of, or in any way related to the Transaction Documents or the
transactions contemplated thereby.
9.11. Confidentiality. The Agent and each Lender agrees to hold any
confidential information which it may receive from the Borrower pursuant to this
Agreement in confidence, except for disclosure (i) to its Affiliates and to
other Lenders and their respective Affiliates with a reason to know, each of
whom shall be made aware of the terms of this Section 9.11 and shall be deemed
bound thereby, (ii) to legal counsel, accountants, and other professional
advisors to that Lender or to a Transferee, each of whom shall be made aware of
the terms of this Section 9.11 and shall be deemed bound thereby, (iii) to
regulatory officials having the authority to require such disclosure, (iv) to
any Person as requested pursuant to or as required by law, regulation, or legal
process, (v) to the extent reasonably required in connection with any legal
proceeding involving the Borrower or any of its Subsidiaries to which the Agent,
any Lender or their respective Affiliates may be party, (vi) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Transaction Document, and (vii) permitted by Section 12.4.
9.12. Nonreliance. Each Lender hereby represents that it is not relying on
or looking to any margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) for the repayment of the Loans provided
for herein.
ARTICLE X
THE AGENT
10.1. Appointment; Nature of Relationship. The First National Bank of
Chicago is hereby appointed by each of the Lenders as its contractual
representative (herein referred to as the "Agent") hereunder and under each
other Loan Document, and each of the Lenders irrevocably authorizes the Agent to
act as the contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this Article X. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the contractual representative
of the Lenders with only those duties as are expressly set forth in this
Agreement and the other Loan Documents. In its capacity as the Lenders'
contractual
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representative, the Agent (i) does not hereby assume any fiduciary duties to any
of the Lenders, (ii) is a "representative" of the Lenders within the meaning of
Section 9-105 of the Uniform Commercial Code and (iii) is acting as an
independent contractor, the rights and duties of which are limited to those
expressly set forth in this Agreement and the other Loan Documents. Each of the
Lenders hereby agrees to assert no claim against the Agent on any agency theory
or any other theory of liability for breach of fiduciary duty, all of which
claims each Lender hereby waives.
10.2. Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is determined in a final non-appealable
judgment by a court of competent jurisdiction to have arisen from the gross
negligence or willful misconduct of such Person.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into, or verify (a) any statement, warranty or
representation made in connection with any Loan Document or any borrowing
hereunder; (b) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered solely to the Agent; (d) the existence
or possible existence of any Default or Unmatured Default; (e) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Loan Document
or any other instrument or writing furnished in connection therewith; (f) the
value, sufficiency, creation, perfection or priority of any Lien in any
collateral security; or (g) the financial condition of the Borrower or any
guarantor of any of the Obligations or of any of the Borrower's or any such
guarantor's respective Subsidiaries. The Agent shall have no duty to disclose to
the Lenders information that is not required to be furnished by the Borrower to
the Agent at such time, but is voluntarily furnished by the Borrower to the
Agent (either in its capacity as Agent or in its individual capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of
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the Lenders. The Lenders hereby acknowledge that the Agent shall be under no
duty to take any discretionary action permitted to be taken by it pursuant to
the provisions of this Agreement or any other Loan Document unless it shall be
requested in writing to do so by the Required Lenders. The Agent shall be fully
justified in failing or refusing to take any action hereunder and under any
other Loan Document unless it shall first be indemnified to its satisfaction by
the Lenders pro rata against any and all liability, cost and expense that it may
incur by reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrower for which the Agent is entitled to reimbursement by
the Borrower under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents
(including, without limitation, for any expenses incurred by the Agent in
connection with any dispute between the Agent and any Lender or between two or
more of the Lenders) and (iii) for any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of the Loan
Documents or any other document delivered in connection therewith or the
transactions contemplated thereby (including, without limitation, for any such
amounts incurred by or asserted against the Agent in connection with any dispute
between the Agent and any Lender or between two or more of the Lenders), or the
enforcement of any of the terms of the Loan Documents or of any such other
documents, provided that no Lender shall be liable for any of the foregoing to
the extent any of the foregoing is found in a final non-appealable judgment by a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of the
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Agent. The obligations of the Lenders under this Section 10.8 shall survive
payment of the Obligations and termination of this Agreement.
10.9. Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Unmatured Default hereunder unless
the Agent has received written notice from a Lender or the Borrower referring to
this Agreement describing such Default or Unmatured Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders.
10.10. Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document with respect to its Commitment and its Loans as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of trust, debt, equity or other transaction, in addition to those
contemplated by this Agreement or any other Loan Document, with the Borrower or
any of its Subsidiaries in which the Borrower or such Subsidiary is not
restricted hereby from engaging with any other Person.
10.11. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent, the Arranger or any other
Lender and based on the financial statements prepared by the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent, the Arranger or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
10.12. Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, such resignation to be effective
upon the appointment of a successor Agent or, if no successor Agent has been
appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Lenders shall have
the right to appoint, on behalf of the Borrower and the Lenders, a successor
Agent with the consent of the Borrower (which consent shall not be unreasonably
withheld or delayed). The Borrower's consent shall not be deemed to be withheld
unreasonably if the proposed successor Agent is a competitor of the Borrower or
the Guarantor in the telecommunications industry. If no successor Agent shall
have been so appointed by the Required Lenders within thirty days after the
resigning Agent's giving notice of its intention to resign, then the resigning
Agent may appoint, on behalf of the Borrower
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and the Lenders, a successor Agent. Notwithstanding the previous sentence, the
Agent may at any time without the consent of the Borrower or any Lender, appoint
any of its Affiliates which is a commercial bank as a successor Agent hereunder.
If the Agent has resigned and no successor Agent has been appointed, the Lenders
may perform all the duties of the Agent hereunder and the Borrower shall make
all payments in respect of the Obligations to the applicable Lender and for all
other purposes shall deal directly with the Lenders. No successor Agent shall be
deemed to be appointed hereunder until such successor Agent has accepted the
appointment. Any such successor Agent shall be a commercial bank having capital
and retained earnings of at least $100,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Agent. Upon the effectiveness of the resignation of
the Agent, the resigning Agent shall be discharged from its duties and
obligations hereunder and under the Loan Documents. After the effectiveness of
the resignation of an Agent, the provisions of this Article X shall continue in
effect for the benefit of such Agent in respect of any actions taken or omitted
to be taken by it while it was acting as the Agent hereunder and under the other
Loan Documents. In the event that there is a successor to the Agent by merger,
or the Agent assigns its duties and obligations to an Affiliate pursuant to this
Section 10.12, then the term "Corporate Base Rate" as used in this Agreement
shall mean the prime rate, base rate or other analogous rate of the new Agent.
10.13. Agent's Fee. The Borrower agrees to pay to the Agent, for its own
account, the fees agreed to by the Borrower and the Agent pursuant to that
certain letter agreement dated September 8, 1997, or as otherwise agreed from
time to time.
10.14. Delegation to Affiliates. The Borrower and the Lenders agree that
the Agent may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents
and employees) which performs duties in connection with this Agreement shall be
entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Agent is entitled under Articles IX and X.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs and is continuing, any and all deposits
(including all account balances, whether
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provisional or final and whether or not collected or available) and any other
Indebtedness at any time held or owing by any Lender or any Affiliate of any
Lender to or for the credit or account of the Borrower may be offset and applied
toward the payment of the Obligations owing to such Lender, whether or not the
Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to their Loans. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may
at any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and any Note to a Federal Reserve
Bank; provided, however, that no such assignment to a Federal Reserve Bank shall
release the transferor Lender from its obligations hereunder. The Agent may
treat the Person which made any Loan or which holds any Note as the owner
thereof for all purposes hereof unless and until such Person complies with
Section 12.3 in the case of an assignment thereof or, in the case of any other
transfer, a written notice of the transfer is filed with the Agent. Any assignee
or transferee of the rights to any Loan or any Note agrees by acceptance of such
transfer or assignment to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the owner of the
rights to any Loan (whether or not a Note has been issued in evidence thereof),
shall be conclusive and binding on any subsequent holder, transferee or assignee
of the rights to such Loan.
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12.2. Participations.
12.2.1 Permitted Participants; Effect. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time
sell to one or more banks or other entities other than competitors of the
Borrower or the Guarantor in the telecommunications industry
("Participants") participating interests in any Loan owing to such Lender,
any Note held by such Lender, any Commitment of such Lender or any other
interest of such Lender under the Transaction Documents. In the event of
any such sale by a Lender of participating interests to a Participant, such
Lender's obligations under the Transaction Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain
the owner of its Loans and the holder of any Note issued to it in evidence
thereof for all purposes under the Transaction Documents, all amounts
payable by the Borrower under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrower and the
Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under the Transaction
Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Transaction Documents other
than any amendment, modification or waiver with respect to any Loan or
Commitment in which such Participant has an interest which forgives
principal, interest or fees or reduces the interest rate or fees payable
with respect to any such Loan or Commitment, extends the Facility
Termination Date, postpones any date fixed for any regularly-scheduled
payment of principal of, or interest or fees on, any such Loan or
Commitment, releases any guarantor of any such Loan or releases all or
substantially all of the collateral, if any, securing any such Loan.
12.2.3. Benefit of Setoff. The Borrower agrees that each Participant
shall be deemed to have the right of setoff provided in Section 11.1 in
respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under the Loan Documents, provided
that each Lender shall retain the right of setoff provided in Section 11.1
with respect to the amount of participating interests sold to each
Participant. The Lenders agree to share with each Participant, and each
Participant, by exercising the right of setoff provided in Section 11.1,
agrees to share with each Lender, any amount received pursuant to the
exercise of its right of setoff, such amounts to be shared in accordance
with Section 11.2 as if each Participant were a Lender.
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12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary course
of its business and in accordance with applicable law, at any time assign
to one or more banks or other entities other than competitors of the
Borrower or the Guarantor in the telecommunications industry ("Purchasers")
all or any part of its rights and obligations under the Loan Documents.
Such assignment shall be substantially in the form of Exhibit E or in such
other form as may be agreed to by the parties thereto. The consent of the
Borrower and the Agent shall be required prior to an assignment becoming
effective with respect to a Purchaser which is not a Lender or an Affiliate
thereof; provided, however, that if a Default has occurred and is
continuing, the consent of the Borrower shall not be required. Such consent
shall not be unreasonably withheld or delayed. Each such assignment shall
(unless each of the Borrower and the Agent otherwise consents) be in an
amount not less than the lesser of (i) $5,000,000 or (ii) the remaining
amount of the assigning Lender's Commitment (calculated as at the date of
such assignment).
12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a
notice of assignment, substantially in the form attached as Exhibit I to
Exhibit E (a "Notice of Assignment"), together with any consents required
by Section 12.3.1, and (ii) payment by the transferor Lender, the
Purchaser, or both, of a $4,000 fee to the Agent for processing such
assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. The Notice of Assignment shall
contain a representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment and Loans under
the applicable assignment agreement are "plan assets" as defined under
ERISA and that the rights and interests of the Purchaser in and under the
Loan Documents will not be "plan assets" under ERISA. On and after the
effective date of such assignment, such Purchaser shall for all purposes be
a Lender party to this Agreement and any other Loan Document executed by or
on behalf of the Lenders and shall have all the rights and obligations of a
Lender under the Loan Documents, to the same extent as if it were an
original party hereto, and no further consent or action by the Borrower,
the Lenders or the Agent shall be required to release the transferor Lender
with respect to the percentage of the Aggregate Commitment and Loans
assigned to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent
and the Borrower shall, if the transferor Lender or the Purchaser desires
that its Loans be evidenced by Notes, make appropriate arrangements so that
new Notes or, as appropriate, replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting
their respective Commitments, as adjusted pursuant to such assignment.
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12.4. Dissemination of Information. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries, including
without limitation any information contained in any Reports; provided that each
Transferee and prospective Transferee agrees to be bound by Section 9.11 of this
Agreement.
12.5. Tax Treatment. If any interest in any Loan Document is transferred to
any Transferee which is organized under the laws of any jurisdiction other than
the United States or any State thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer, to comply with
the provisions of Section 3.5(iv).
ARTICLE XIII
NOTICES
13.1. Notices. Except as otherwise permitted by Section 2.13 with respect
to borrowing notices, all notices, requests and other communications to any
party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Agent, at its address or facsimile number set
forth on the signature pages hereof, (y) in the case of any Lender, at its
address or facsimile number set forth below its signature hereto or (z) in the
case of any party, at such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower in
accordance with the provisions of this Section 13.1. Each such notice, request
or other communication shall be effective (i) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (ii) if given by mail, three Business
Days after such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid, or (iii) if given by any other means, when
delivered (or, in the case of electronic transmission, received) at the address
specified in this Section; provided that notices to the Agent under Article II
shall not be effective until received.
13.2. Change of Address. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
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ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by facsimile transmission or telephone
that it has taken such action.
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.2. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER
HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A
COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT
THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER
IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN
CHICAGO, ILLINOIS.
Page 45
<PAGE>
15.3. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
Page 46
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
NETCO COMMUNICATIONS
CORPORATION
By: /s/ Edward J. Driscoll III
--------------------------------
Edward J. Driscoll III
President
333 North Washington Avenue
Minneapolis, Minnesota 55401
Attention: Mark Marlow
Finance Director
Telecopier: (612) 204-3101
Commitments
-----------
$25,000,000 THE FIRST NATIONAL BANK OF
CHICAGO, Individually and as Agent
By: /s/ Michael P. King
--------------------------------
Michael P. King
Assistant Vice President
One First National Plaza
Chicago, Illinois 60670
Attention: Communications Division
Telecopier: (312) 732-8587
===========
$25,000,000
Page 47
<PAGE>
EXHIBIT A
WORLDCOM, INC. GUARANTY
The undersigned hereby requests the Lenders party to that certain Credit
Agreement dated as of September 26, 1997 (as it may be amended or modified from
time to time with the consent of the undersigned the "Credit Agreement") by and
among NetCo Communications Corporation (the "Borrower"), The First National Bank
of Chicago individually and as agent (in such capacity the "Agent") and the
Lenders party thereto (the "Lenders"), through any of their respective branches,
offices, subsidiaries or affiliates, to extend credit or to permit credit to
remain outstanding to the Borrower under the Credit Agreement as the Borrower
may desire and as each Lender may extend or permit under the Credit Agreement
from time to time in its sole discretion, and, in consideration of any credit
granted or continued under the Credit Agreement, the undersigned hereby
absolutely and unconditionally guarantees prompt payment when due, whether at
stated maturity, upon acceleration or otherwise, and at all times thereafter, of
any and all existing and future indebtedness and liability of every kind, nature
and character, direct or indirect, absolute or contingent of the Borrower to the
Lenders arising under the Credit Agreement (including all attorneys' fees
incurred by the Lenders in connection with the collection or enforcement
thereof) (the "Guaranteed Debt").
The undersigned waives notice of the acceptance of this Guaranty. The
undersigned further waives presentment, protest, notice, the benefit of any
statutes of limitations, demand or action on delinquency in respect of the
Guaranteed Debt or any part thereof, including any right to require the Lenders
to sue the Borrower, any other guarantor or any other person obligated with
respect to the Guaranteed Debt or any part thereof, or otherwise to enforce
payment thereof against any collateral securing the Guaranteed Debt or any part
thereof. The undersigned hereby agrees that, if at any time any payment of any
portion of the Guaranteed Debt is rescinded or must otherwise be restored or
returned upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, the undersigned's obligations hereunder with respect to such payment
shall be reinstated at such time as though such payment had not been made and
whether or not the Lenders are in possession of this Guaranty.
This Guaranty shall continue in effect until receipt by the Lenders of
written notice of its termination and, notwithstanding such receipt, thereafter
as to Guaranteed Debt incurred or arising as to advances made or approved by the
undersigned prior to receipt by the Lenders of such notice of termination,
including any extensions, modifications, renewals or indulgences with respect
to, or substitutions for, such Guaranteed Debt or any part thereof as to which
the undersigned has received prior written notice.
Page 48
<PAGE>
The validity and enforceability of this Guaranty shall not be impaired or
affected by any of the following, whether occurring before or after receipt by
the Lenders of notice of termination of this Guaranty: (a) any extension,
modification or renewal of, or indulgence with respect to, or substitutions for,
the Guaranteed Debt or any part thereof or any agreement relating thereto at any
time as to which the undersigned has received prior written notice; (b) any
change in the interest rate payable on, or fees, commissions or other amounts
payable with respect to, the Guaranteed Debt; (c) any failure or omission to
enforce any right, power or remedy with respect to the Guaranteed Debt or any
part thereof or any agreement relating thereto, or any collateral securing the
Guaranteed Debt or any part thereof; (d) any waiver of any right, power or
remedy or of any default with respect to the Guaranteed Debt or any part thereof
or any agreement relating thereto or with respect to any collateral securing the
Guaranteed Debt or any part thereof; (e) any release, surrender, compromise,
settlement, waiver, subordination or modification, with or without
consideration, of any collateral securing the Guaranteed Debt or any part
thereof, any other guaranties with respect to the Guaranteed Debt or any part
thereof, or any other obligation of any person or entity with respect to the
Guaranteed Debt or any part thereof; (f) the enforceability or validity of the
Guaranteed Debt or any part thereof or the genuineness, enforceability or
validity of any agreement relating thereto or with respect to any collateral
securing the Guaranteed Debt or any part thereof; (g) the application of
payments received from any source other than the undersigned to the payment of
indebtedness other than the Guaranteed Debt, any part thereof or amounts which
are not covered by this Guaranty even though the Lenders might lawfully have
elected to apply such payments to any part or all of the Guaranteed Debt or to
amounts which are not covered by this Guaranty; (h) any change of ownership of
the Borrower or the insolvency, bankruptcy or any other change in the legal
status of the Borrower (or the retirement or death of any partner or the
introduction of any further partner); (i) the change in or the imposition of any
law, decree, regulation or other governmental act which does or might impair,
delay or in any way affect the validity, enforceability or the payment when due
of the Guaranteed Debt; (j) the failure of the Borrower or the undersigned to
maintain in full force, validity or effect or to obtain or renew when required
all governmental and other approvals, licenses or consents required in
connection with the Guaranteed Debt or this Guaranty, or to take any other
action required in connection with the performance of all obligations pursuant
to the Guaranteed Debt or this Guaranty; or (k) the existence of any claim,
setoff or other rights which the undersigned may have at any time against the
Borrower in connection herewith or an unrelated transaction, all whether or not
the undersigned shall have had notice or knowledge of any act or omission
referred to in the foregoing clauses (a) through (k) of this paragraph. It is
agreed that the undersigned's liability hereunder is several and independent of
any other guaranties or other obligations at any time in effect with respect to
the Guaranteed Debt or any part thereof and that the undersigned's liability
hereunder may be enforced regardless of the existence, validity, enforcement or
non-enforcement of any such other guaranties or other obligations or any
provision of any applicable law or regulation purporting to prohibit payment by
the
Page 49
<PAGE>
Borrower of the Guaranteed Debt in the manner agreed upon between the Lenders
and the Borrower.
Credit may be granted or continued from time to time by the Lenders to the
Borrower without notice to or authorization from the undersigned regardless of
the Borrower's financial or other condition at the time of any such grant or
continuation, provided that no such credit shall be deemed to be Guaranteed Debt
unless authorized by the undersigned. The Lenders shall have no obligation to
disclose or discuss with the undersigned their respective internal assessments
of the financial condition of the Borrower.
Until the Guaranteed Debt is paid in full, the undersigned shall not
exercise any right of subrogation with respect to payments made by the
undersigned pursuant to this Guaranty. The undersigned waives any benefit of the
collateral, if any, which may from time to time secure the Guaranteed Debt or
any part thereof and authorizes the Lenders to take any action or exercise any
remedy with respect thereto, which the Lenders in their sole discretion shall
determine, without notice to the undersigned. In the event the Lenders in their
sole discretion elect to give notice of any action with respect to the
collateral, if any, securing the Guaranteed Debt or any part thereof, ten days
written notice mailed to the undersigned by ordinary mail at the address shown
hereon shall be deemed reasonable notice of any matters contained in such
notice.
In the event that acceleration of the time for payment of any of the
Guaranteed Debt is stayed, upon the insolvency, bankruptcy or reorganization of
the Borrower, or otherwise, all such amounts shall nonetheless be payable by the
undersigned forthwith upon demand by the Lenders.
Without limiting the rights of the Lenders under applicable law, the
undersigned authorizes each Lender to apply or offset any sums standing to the
credit of the undersigned with any office, branch, subsidiary or affiliate of
such Lender to the payment when due of any amount owing by the undersigned under
this Guaranty.
No provision of this Guaranty may be amended, supplemented or modified, or
any of the terms and provisions hereof waived, except by a written instrument
executed by the requisite number of Lenders under the Credit Agreement (or the
Agent with the consent of the requisite number of Lenders under the Credit
Agreement) and the undersigned. No failure on the part of a Lender to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Page 50
<PAGE>
The undersigned shall pay all costs, fees and expenses (including
attorneys' fees) incurred by the Agent and the Lenders in collecting or
enforcing the undersigned's obligations under this Guaranty.
The provisions of this Guaranty are severable, and in any action or
proceeding involving any state corporate law, or any state or federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of the undersigned hereunder would
otherwise be held or determined to be avoidable, invalid or unenforceable on
account of the amount of the undersigned's liability under this Guaranty, then,
notwithstanding any other provision of this Guaranty to the contrary, the amount
of such liability shall, without any further action by the undersigned, the
Agent, or the Lenders be automatically limited and reduced to the highest amount
which is valid and enforceable as determined in such action or proceeding.
This Guaranty shall (i) bind the undersigned and the heirs, personal
representatives, successors and assigns of the undersigned, (ii) inure to the
benefit of the Agent and the Lenders and their respective successors and assigns
and (iii) be governed by the internal laws of the State of Illinois. The
undersigned hereby irrevocably submits to the non-exclusive jurisdiction of any
United States federal or Illinois state court sitting in Chicago in any action
or proceeding arising out of or relating to this Guaranty, and the undersigned
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court. THE UNDERSIGNED HEREBY
WAIVES ANY RIGHT TO A JURY TRIAL IN ANY ACTION ARISING HEREUNDER.
WORLDCOM, INC.
By
--------------------------------
Chicago, Illinois
September 26, 1997
Address: 515 East Amite Street
Jackson, Mississippi 39201
Page 51
<PAGE>
EXHIBIT B
FORM OF OPINION
OF COUNSEL TO BORROWER
Page 52
<PAGE>
EXHIBIT C
FORM OF OPINION
OF COUNSEL TO GUARANTOR
Page 53
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Credit Agreement Described Below
This Compliance Certificate is furnished pursuant to that certain Credit
Agreement dated as of September 26, 1997 (as amended, modified, renewed or
extended from time to time, the "Agreement") among NetCo Communications
Corporation (the "Borrower"), the lenders party thereto and The First National
Bank of Chicago, as Agent for the Lenders. Unless otherwise defined herein,
capitalized terms used in this Compliance Certificate have the meanings ascribed
thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Borrower and its Subsidiaries during the accounting period
covered by the attached financial statements; and
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Default or Unmatured Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Page 54
<PAGE>
The foregoing certifications, together with the financial statements
delivered with this Certificate in support hereof, are made and delivered this
____ day of __________, ____.
---------------------------------
Page 55
<PAGE>
EXHIBIT E
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
______________ (the "Assignor") and _________________ (the "Assignee") is dated
as of _______________, 19__. The parties hereto agree as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement
(which, as it may be amended, modified, renewed or extended from time to time is
herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached
hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement such that after giving effect to such assignment the Assignee shall
have purchased pursuant to this Assignment Agreement the percentage interest
specified in Item 3 of Schedule 1 of all outstanding rights and obligations
under the Credit Agreement relating to the facilities listed in Item 3 of
Schedule 1 and the other Loan Documents. The aggregate Commitment (or Loans, if
the applicable Commitment has been terminated) purchased by the Assignee
hereunder is set forth in Item 4 of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 or two Business Days (or such shorter period agreed to by the Agent) after a
Notice of Assignment substantially in the form of Exhibit "I" attached hereto
has been delivered to the Agent. Such Notice of Assignment must include any
consents required to be delivered to the Agent by Section 12.3.1 of the Credit
Agreement. In no event will the Effective Date occur if the payments required to
be made by the Assignee to the Assignor on the Effective Date under Sections 4
and 5 hereof are not made on the proposed Effective Date. The Assignor will
notify the Assignee of the proposed Effective Date no later than the Business
Day prior to the proposed Effective Date. As of the Effective Date, (i) the
Assignee shall have the rights and obligations of a Lender under the Loan
Documents with respect to the rights and obligations assigned to the Assignee
hereunder and (ii) the Assignor shall relinquish its rights and be released from
its corresponding obligations under the Loan Documents with respect to the
rights and obligations assigned to the Assignee hereunder.
4. PAYMENT OBLIGATIONS. On and after the Effective Date, the Assignee shall
be entitled to receive from the Agent all payments of principal, interest and
fees with respect to the interest assigned hereby. The Assignee shall advance
funds directly to the Agent with
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<PAGE>
respect to all Loans and reimbursement payments made on or after the Effective
Date with respect to the interest assigned hereby. ** In the event that either
party hereto receives any payment to which the other party hereto is entitled
under this Assignment Agreement, then the party receiving such amount shall
promptly remit it to the other party hereto.
**Each Assignor may insert its standard payment provisions.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor a
fee on each day on which a payment of interest or commitment fees is made under
the Credit Agreement with respect to the amounts assigned to the Assignee
hereunder (other than a payment of interest or commitment fees for the period
prior to the Effective Date or, in the case of Fixed Rate Loans, the Payment
Date, which the Assignee is obligated to deliver to the Assignor pursuant to
Section 4 hereof). The amount of such fee shall be the difference between (i)
the interest or fee, as applicable, paid with respect to the amounts assigned to
the Assignee hereunder and (ii) the interest or fee, as applicable, which would
have been paid with respect to the amounts assigned to the Assignee hereunder if
each interest rate was of 1% less than the interest rate paid by the Borrower or
if the commitment fee was of 1% less than the commitment fee paid by the
Borrower, as applicable. In addition, the Assignee agrees to pay % of the
recordation fee required to be paid to the Agent in connection with this
Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It is
understood and agreed that the assignment and assumption hereunder are made
without recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the Assignor nor
any of its officers, directors, employees, agents or attorneys shall be
responsible for (i) the due execution, legality, validity, enforceability,
genuineness, sufficiency or collectability of any Loan Document, including
without limitation, documents granting the Assignor and the other Lenders a
security interest in assets of the Borrower or any guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or any guarantor, (iv) the performance of or compliance with any of the
terms or provisions of any of the Loan Documents, (v) inspecting any of the
Property, books or records of the Borrower, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any collateral securing
or purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the Loan
Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it has
received a copy of the Credit Agreement, together with copies of the financial
statements requested by the Assignee and such other documents and information as
it has deemed
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<PAGE>
appropriate to make its own credit analysis and decision to enter into this
Assignment Agreement, (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information at it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents, (iii) appoints and authorizes the Agent to take such action as agent
on its behalf and to exercise such powers under the Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, (iv) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Documents
are required to be performed by it as a Lender, (v) agrees that its payment
instructions and notice instructions are as set forth in the attachment to
Schedule 1, (vi) confirms that none of the funds, monies, assets or other
consideration being used to make the purchase and assumption hereunder are "plan
assets" as defined under ERISA and that its rights, benefits and interests in
and under the Loan Documents will not be "plan assets" under ERISA, **[and (vii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying that the Assignee is entitled to receive payments under the
Loan Documents without deduction or withholding of any United States federal
income taxes]**.**
**to be inserted if the Assignee is not incorporated under the laws of the
United States, or a state thereof.
8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor
in connection with or arising in any manner from the Assignee's non-performance
of the obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall
have the right pursuant to Section 12.3.1 of the Credit Agreement to assign the
rights which are assigned to the Assignee hereunder to any entity or person,
provided that (i) any such subsequent assignment does not violate any of the
terms and conditions of the Loan Documents or any law, rule, regulation, order,
writ, judgment, injunction or decree and that any consent required under the
terms of the Loan Documents has been obtained and (ii) unless the prior written
consent of the Assignor is obtained, the Assignee is not thereby released from
its obligations to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under Sections 4, 5 and 8 hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate
Commitment occurs between the date of this Assignment Agreement and the
Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall
remain the
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<PAGE>
same, but the dollar amount purchased shall be recalculated based on the reduced
Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice of
Assignment embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings between the parties
hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Illinois.
13. NOTICES. Notices shall be given under this Assignment Agreement in the
manner set forth in the Credit Agreement. For the purpose hereof, the addresses
of the parties hereto (until notice of a change is delivered) shall be the
address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
**[NAME OF ASSIGNOR]**
By:
----------------------------------
Title:
----------------------------------
----------------------------------
----------------------------------
**[NAME OF ASSIGNEE]**
By:
----------------------------------
Title:
----------------------------------
----------------------------------
----------------------------------
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<PAGE>
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement: Credit Agreement dated as of
September 26, 1997 by and among NetCo Communications Corporation, The First
National Bank of Chicago individually and as Agent, and the Lenders party
thereto
2. Date of Assignment Agreement: _____________, 19__
3. Amounts (As of Date of Item 2 above):
a. Total of Commitments
(Loans)* under
Credit Agreement $__________
b. Assignee's Percentage
of Facility purchased
under the Assignment
Agreement** __________%
c. Amount of Assigned
Share in Facility
purchased under
the Assignment
Agreement $__________
4. Assignee's Aggregate
(Loan Amount)* Commitment
Amount Purchased Hereunder: $__________
5. Proposed Effective Date: ___________
Accepted and Agreed:
**[NAME OF ASSIGNOR]** **[NAME OF ASSIGNEE]**
By: By:
----------------------- -----------------------
Title: Title:
----------------------- -----------------------
* If a Commitment has been terminated, insert outstanding Loans in place of
Commitment
** Percentage taken to 10 decimal places
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<PAGE>
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
ADMINISTRATIVE INFORMATION SHEET
Attach Assignor's Administrative Information
Sheet, which must include notice addresses for
the Assignor and the Assignee
(Sample form shown below)
ASSIGNOR INFORMATION
Contact:
Name: Telephone No.:
---------------------------- --------------------------
Fax No.: Telex No.:
-------------------------- -------------------------------
Answerback:
---------------------------------------
Payment Information:
- -------------------
Name & ABA # of Destination Bank:
-----------------------------------------------
-----------------------------------------------
Account Name & Number for Wire Transfer:
----------------------------------------
----------------------------------------
Other Instructions:
-------------------------------------------------------------
- --------------------------------------------------------------------------------
Address for Notices for Assignor:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
ASSIGNEE INFORMATION
Credit Contact:
Name: Telephone No.:
---------------------------- --------------------------
Fax No.: Telex No.:
-------------------------- -------------------------------
Answerback:
---------------------------------------
Key Operations Contacts:
Booking Installation: Booking Installation:
------------- --------------------
Name: Name:
----------------------------- ------------------------------------
Telephone No.: Telephone No.:
-------------------- ---------------------------
Fax No.: Fax No.:
-------------------------- ---------------------------------
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<PAGE>
Telex No.: Telex No.:
------------------------ -------------------------------
Answerback: Answerback:
----------------------- ------------------------------
Payment Information:
Name & ABA # of Destination Bank:
-----------------------------------------------
-----------------------------------------------
Account Name & Number for Wire Transfer:
----------------------------------------
----------------------------------------
Other Instructions:
-------------------------------------------------------------
- --------------------------------------------------------------------------------
Address for Notices for Assignee:
----------------------------------------------
----------------------------------------------
----------------------------------------------
Page 62
<PAGE>
FNBC INFORMATION
Assignee will be called promptly upon receipt of the signed agreement.
Initial Funding Contact: Subsequent Operations Contact:
Name: John Loizzo Name:
----------------------------------------- -----------------------
Telephone No.: (312) 732-4118 Telephone No.: (312)
-------------------------------- ---------------
Fax No.: (312) 732-7455 Fax No.: (312)
------------------------ --------------------
FNBC Telex No.: 190201 (Answerback: FNBC UT)
-----------------------------
Initial Funding Standards:
- --------------------------
Libor - Fund 2 days after rates are set.
FNBC Wire Instructions: The First National Bank of Chicago, ABA # 071000013
- ---------------------- BNF = 7521-7653/DES, Ref:
Address for Notices for FNBC: One First National Plaza, Chicago, IL 60670
- ---------------------------- Attn: Agency/Compliance Division, Suite 0353
Fax No. (312) 732-2038 or (312) 732-4339
Page 63
<PAGE>
EXHIBIT "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
_________________, 19__
To: NETCO COMMUNICATIONS CORPORATION
333 North Washington Avenue
Minneapolis, Minnesota 55401
THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza
Mail Suite 0629
Chicago, Illinois 60670
From: **[NAME OF ASSIGNOR]** (the "Assignor")
**[NAME OF ASSIGNEE]** (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement") described in
Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed to
them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and delivered to the
Borrower and the Agent pursuant to Section 12.3.2 of the Credit Agreement.
3. The Assignor and the Assignee have entered into an Assignment Agreement,
dated as of _________________, 19__ (the "Assignment"), pursuant to which, among
other things, the Assignor has sold, assigned, delegated and transferred to the
Assignee, and the Assignee has purchased, accepted and assumed from the Assignor
the percentage interest specified in Item 3 of Schedule 1 of all outstandings,
rights and obligations under the Credit Agreement relating to the facility
listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be
the later of the date specified in Item 5 of Schedule 1 or two Business Days (or
such shorter period as agreed to by the Agent) after this Notice of Assignment
and any consents and fees required by Sections 12.3.1 and 12.3.2 of the Credit
Agreement have been delivered to the Agent, provided that the Effective Date
shall not occur if any condition precedent agreed to by the Assignor and the
Assignee has not been satisfied.
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<PAGE>
4. The Assignor and the Assignee hereby give to the Borrower and the Agent
notice of the assignment and delegation referred to herein. The Assignor will
confer with the Agent before the date specified in Item 5 of Schedule 1 to
determine if the Assignment Agreement will become effective on such date
pursuant to Section 3 hereof, and will confer with the Agent to determine the
Effective Date pursuant to Section 3 hereof if it occurs thereafter. The
Assignor shall notify the Agent if the Assignment Agreement does not become
effective on any proposed Effective Date as a result of the failure to satisfy
the conditions precedent agreed to by the Assignor and the Assignee. At the
request of the Agent, the Assignor will give the Agent written confirmation of
the satisfaction of the conditions precedent.
5. The Assignor or the Assignee shall pay to the Agent on or before the
Effective Date the processing fee of $4,000 required by Section 12.3.2 of the
Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor and the
Assignee request and direct that the Agent prepare and cause the Borrower to
execute and deliver new Notes or, as appropriate, replacement notes, to the
Assignor and the Assignee. The Assignor and, if applicable, the Assignee each
agree to deliver to the Agent the original Note received by it from the Borrower
upon its receipt of a new Note in the appropriate amount.
7. The Assignee advises the Agent that notice and payment instructions are
set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the funds,
monies, assets or other consideration being used to make the purchase pursuant
to the Assignment are "plan assets" as defined under ERISA and that its rights,
benefits, and interests in and under the Loan Documents will not be "plan
assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent under the Loan
Documents in accordance with the terms thereof. The Assignee acknowledges that
the Agent has no duty to supply information with respect to the Borrower or the
Loan Documents to the Assignee until the Assignee becomes a party to the Credit
Agreement.*
*May be eliminated if Assignee is a party to the Credit Agreement prior to the
Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: By:
------------------------------- --------------------------------------
Title: Title:
---------------------------- -----------------------------------
Page 65
<PAGE>
ACKNOWLEDGED AND CONSENTED TO BY ACKNOWLEDGED AND CONSENTED TO BY
THE FIRST NATIONAL BANK OF CHICAGO NETCO COMMUNICATIONS CORPORATION
By: By:
------------------------------- --------------------------------------
Title: Title:
---------------------------- -----------------------------------
**[Attach photocopy of Schedule 1 to Assignment]**
Page 66
<PAGE>
EXHIBIT F
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
To The First National Bank of Chicago, as Agent (the "Agent")
under the Credit Agreement described below
Re: Credit Agreement, dated September 26. 1997 (as it may be amended or
modified, the "Credit Agreement"), among NetCo Communications Corporation
(the "Borrower"), the Lenders named therein and the Agent. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned thereto in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the following
standing money transfer instructions with respect to the proceeds of Advances or
other extensions of credit from time to time until receipt by the Agent of a
specific written revocation of such instructions by the Borrower, provided,
however, that the Agent may otherwise transfer funds as hereafter directed in
writing by the Borrower in accordance with Section 13.1 of the Credit Agreement
or based on any telephonic notice made in accordance with Section 2.14 of the
Credit Agreement.
Facility Identification Number(s)
-----------------------------------------------
Customer/Account Name
-----------------------------------------------------------
Transfer Funds To
---------------------------------------------------------------
---------------------------------------------------------------
For Account No.
-----------------------------------------------------------------
Reference/Attention To
----------------------------------------------------------
Authorized Officer (Customer Representative) Date
--------------------
- ---------------------------------- ------------------------
(Please Print) Signature
Bank Officer Name Date
--------------------
- ---------------------------------- ------------------------
(Please Print) Signature
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
Page 67
<PAGE>
EXHIBIT G
NOTE
$_______________ ____________, _____
NetCo Communications Corporation, a Minnesota corporation (the "Borrower"),
promises to pay to the order of ____________________________________ (the
"Lender") the lesser of the principal sum of ______________________________
Dollars or the aggregate unpaid principal amount of all Loans made by the Lender
to the Borrower pursuant to Article II of the Agreement (as hereinafter
defined), in immediately available funds at the main office of The First
National Bank of Chicago in Chicago, Illinois, as Agent, together with interest
on the unpaid principal amount hereof at the rates and on the dates set forth in
the Agreement. The Borrower shall pay the principal of and accrued and unpaid
interest on the Loans in full on the Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment hereunder.
This Note is one of the Notes issued pursuant to, and is entitled to the
benefits of, the Credit Agreement dated as of September 26, 1997 (which, as it
may be amended or modified and in effect from time to time, is herein called the
"Agreement"), among the Borrower, the lenders party thereto, including the
Lender, and The First National Bank of Chicago, as Agent, to which Agreement
reference is hereby made for a statement of the terms and conditions governing
this Note, including the terms and conditions under which this Note may be
prepaid or its maturity date accelerated. This Note is guaranteed pursuant to
the Guaranty, as more specifically described in the Agreement, and reference is
made thereto for a statement of the terms and provisions thereof. Capitalized
terms used herein and not otherwise defined herein are used with the meanings
attributed to them in the Agreement.
NETCO COMMUNICATIONS CORPORATION
By:
-------------------------------------
Print Name:
------------------------------
Title:
-----------------------------------
Page 68
<PAGE>
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF NETCO COMMUNICATIONS CORPORATION,
DATED ____________, _____
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Paid Balance
---- --------- ----------- --------- -------
Page 69
<PAGE>
SCHEDULE 1
SUBSIDIARIES
(See Section 5.8)
Investment Jurisdiction of Owned Percent
In Organization By Ownership
---------- --------------- ----- ---------
WAM!Net, Inc. MN Borrower 100%
Netco
Communications
of Canada, Inc. Ontario, Canada Borrower 100%
Page 70
<PAGE>
SCHEDULE 2
INDEBTEDNESS AND LIENS
(See Section 5.14)
<TABLE>
<CAPTION>
Maturity
Indebtedness Indebtedness Property and Amount
Incurred By Owed To Encumbered (If Any) of Indebtedness
- ------------ ------------ ------------------- ---------------
<S> <C> <C> <C>
Borrower LTI Leasing Various equipment 9/30/98
Technologies as set forth in Amount of
Incorporated Financing Statement Indebtedness is
(some of the approximately
equipment is leased $125,000.00 as of
through a sale 9/22/97
leaseback program)
Borrower Midwest Forklift, Forklift and $400 per month
Inc. miscellaneous lease payments.
equipment (lease) Lease is an annul
Lease
</TABLE>
OTHER INDEBTEDNESS
<TABLE>
<CAPTION>
Principle Maturity of Unpaid Balance
Date of Loan Lender Amount of Loan Interest Period (as of 9/22/97)
- ------------ ------ -------------- --------------- ---------------
<S> <C> <C> <C> <C>
9/18/96 WorldCom, Inc. $5,000,000 9/30/99 $5,212,500.00
12/23/96 WorldCom, Inc. $19,000,000 12/31/03 $19,945,933.95
6/30/96 WorldCom, Inc. $10,000,000 9/30/97 $10,136,683.34
3/29/95 Gene Bier, $75,000 Convertible $89,616.63
John Steinberg,
Patrick Dirk
9/4/95 James Ecker $ 50,000 Convertible $ 52,700.00
----------- --------------
Total $34,125,000 $35,437,433.92
</TABLE>
Page 71
<PAGE>
SCHEDULE 3
LITIGATION
(See Section 5.7)
1. Arbitration proceedings filed by Piper Jaffray, Inc. with National
Association of Securities Dealers, Inc. on or about June 30, 1997.
2. On or about September 25, 1997, the Borrower served a complaint against
Piper Jaffray, Inc. The claim will be filed in Hennepin County District
Court, Fourth Judicial District, Minneapolis, Minnesota. The complaint
requests, among other things, that the contract referred to in the
arbitration proceeding referenced in number one above be declared
unenforceable and void.
3. On or about September 25, 1997, the Borrower served a complaint against
Joseph V. Caruso, an employee of Piper Jaffray, Inc., alleging fraud,
misrepresentation, breach of fiduciary duty, and other matters. The claim
will be filed in Hennepin County District Court, Fourth Judicial District,
Minneapolis, Minnesota. The Borrower is claiming damages in excess of
$50,000.
Page 72
<PAGE>
EXHIBIT 10.2
CONVERTIBLE NOTE PURCHASE AGREEMENT
NETCO COMMUNICATIONS CORPORATION
and
WORLDCOM INC.
SEPTEMBER 12, 1996
<PAGE>
CONVERTIBLE NOTE PURCHASE AGREEMENT
Agreement made this 12th day of September 1996, by and between NETCO
COMMUNICATIONS CORPORATION, a Minnesota corporation, having its principal place
of business at 102 Union Plaza, 333 North Washington Avenue. Minneapolis,
Minnesota 55401 ("NETCO") and WORLDCOM INC., a Georgia corporation, having its
principal place of business at 515 East Amite Street, Jackson, Mississippi 39201
("WCOM").
WITNESSETH:
Whereas, NETCO is engaged in the development and implementation of a
high speed, digital data transportation delivery and ancillary data storage and
remote proofing services addressed initially to the printing and prepress
industries, and requires significant permanent financing to accomplish such
development and implementation; and
Whereas, WCOM is engaged in the sale and marketing of voice and data
transmission over its multinational communications infrastructure; and
Whereas, NETCO and WCOM are considering a strategic association,
including a possible acquisition by WCOM of a majority ownership of NETCO, to
finance and facilitate the deployment and implementation of NETCO's services
over WCOM's communications infrastructure; and
Whereas, NETCO is alternatively considering other sources of permanent
financing, including a possible public offering of its common stock to finance
the deployment and implementation of its services; and
Whereas, NETCO currently requires financing to continue its
development and deployment activities pending the receipt of additional
permanent financing; and
Whereas, WCOM is agreeable to lending NETCO the sum
1
<PAGE>
of Five Million Dollars ($5,000,000) in consideration of NETCO's issuance to
WCOM of NETCO's Convertible Subordinated Note upon the terms and conditions,
and for the additional consideration, provided herein;
NOW THEREFORE, in consideration of the foregoing premises, and of the
consideration provided herein, the parties agree as follows:
1. Purchase and Sale of the Note. (a) Subject to the terms and conditions
-----------------------------
set forth in this Agreement, WCOM hereby purchases from NETCO, and NETCO hereby
sells to WCOM for the principal amount of Five Million Dollars ($5,000,000)
NETCO's 10% Convertible Promissory Note (the "Note") of equivalent principal
amount in form appended to this Agreement as Exhibit 1.
(b) Delivery of the Note shall be made against receipt of payment
("Closing") to occur no later than September 20, 1996, failing which payment,
this Agreement shall be null and void and of no further force and effect.
2. Representation, Warranties and Covenants of NETCO. NETCO hereby
-------------------------------------------------
represents, warrants and covenants to WCOM that:
(a) Corporate Organization and Power; Qualification. NETCO is duly
-----------------------------------------------
organized, validly existing and in good standing as a corporation under the laws
of its state of incorporation, has all corporate power and authority to own its
properties and to carry on its businesses as now being and hereafter proposed
to be conducted and is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in all jurisdictions in which the
character of its properties or the nature of its businesses requires such
qualification or authorization, except for qualifications and authorizations the
lack of which, singly or in the aggregate, has not had and will not have a
materially adverse effect on NETCO.
(b) Subsidiaries. NETCO does not own, directly or indirectly, any
------------
capital stock or other equity securities of any corporation nor does NETCO have
any direct or
2
<PAGE>
indirect ownership interest, including interests in partnerships and joint
ventures, in any other entity or business, with the sole exceptions of WAMNET,
Inc., a Minnesota corporation and Netco Communications Corporation of Canada,
Inc., a Canadian corporation that are each a wholly owned subsidiary of NETCO.
(c) Authorization; Enforceability. NETCO has the power, and has
-----------------------------
taken, or will take prior to closing, all necessary action (including any
necessary stockholder action) to authorize it, to execute, deliver and perform
in accordance with their respective terms this Agreement and the Convertible
Subordinated Note ("Note") in the form appended to this Agreement as Exhibit 1.
This Agreement has been, and the Note contemplated hereby to which NETCO is a
party when delivered to WCOM will have been, duly executed and delivered by
NETCO and is, or when so delivered will be, a legal, valid and binding
obligation of NETCO, enforceable against NETCO in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(d) No Violations; Consent. The execution, delivery and performance
----------------------
in accordance with their respective terms by NETCO of this Agreement and of the
Note, do not and will not as of closing or thereafter (a) require any
Governmental Approval or any other consent or approval, including any consent or
approval of the stockholders of NETCO, other than Governmental Approvals and
other consents and approvals that have been obtained, are final and not subject
to review on appeal or to collateral attack, are in full force and effect or
(b) violate, conflict with, result in a breach of, constitute a default under,
or result in or require the creation of any lien upon any assets of NETCO under,
any contract to which NETCO is a party or by which NETCO or any of its
properties may be bound.
(e) Litigation. There are not, in any court or before any arbitrator
----------
of any kind or before or by any governmental or non-governmental body, any
actions, suits or proceedings pending or threatened (nor, to the knowledge of
NETCO, is there any basis therefor) against or in any other way relating to or
affecting (a) NETCO or (b) any of its businesses or properties.
(f) Taxes. NETCO has filed (or obtained extensions of the time by
-----
which it is required to file)
3
<PAGE>
all United States federal, state and local income tax returns and all other
material tax returns required to be filed by it and has paid all taxes shown due
on the returns so filed as well as the other taxes, assessments and governmental
charges which have become due, except such taxes, if any, as are being contested
in good faith and as to which adequate reserves have been provided. NETCO will
continue to make all such filings in a timely manner and pay all such taxes,
assessments and other governmental charges required of it.
(g) Capitalization. (i) As of the date hereof, the authorized capital
--------------
stock of NETCO consists of 10,000,000 shares of which 5,000,000 are Common
Shares and 5,000,000 are undesignated shares, and of which 1,295,971 Common
Shares are issued and outstanding. NETCO does not hold any of its shares in
treasury.
(ii) All such issued and outstanding shares of capital stock of
NETCO have been validly issued and are fully paid and nonassessable and are not
subject to preemptive rights.
(iii) Except as contemplated by this Agreement and as disclosed
on Schedule 1, there are no outstanding subscriptions, options, warrants or
----------
other rights of any kind to acquire any additional shares of capital stock of
NETCO, or securities convertible into or exchangeable for, or which otherwise
confer on the holder thereof any right to acquire, any such additional shares,
nor is NETCO committed to issue any such option, warrant, right or security.
(iv) There are no agreements relating to voting, purchase or
sale of capital stock between NETCO and any of its stockholders or affiliates,
and to the best of NETCO's knowledge, among any of its stockholders.
(h) (i) NETCO has delivered to WCOM copies of its financial
statements (including balance sheets, income statements, changes in stockholders
equity and statements of cash flow) for the period from inception [September
1994] through December 31, 1995, and for the six month period ended June 30,
1996. Such financial statements (i) fairly present the financial condition,
assets and liabilities of NETCO at their respective dates and the results of its
operations and changes in its cash flows for the periods covered thereby, (ii)
were prepared in accordance with generally accepted
4
<PAGE>
accounting principles except as may be noted therein, and (iii) were prepared
from the books and records of NETCO, which books and records are complete and
correct and fairly reflect all material transactions of NETCO's business.
(ii) Within 30 days following the end of each of its first three
fiscal quarters and within 75 days following the end of its fourth fiscal
quarter during the term of the Note, NETCO will furnish WCOM with a copy of its
financial statements, (including balance sheets, income statements, changes in
stockholders equity and statements of cash flow) for each of such quarters and
fiscal year, respectively. In addition, NETCO will furnish WCOM with such
additional financial and business information, including monthly or other
periodic financial statements as NETCO may prepare from time to time, upon the
reasonable request of WCOM.
(i) NETCO shall use the loan proceeds of for reasonable and
necessary capital expenditures and operating expenses in accordance with its
usual and past practices, except as may be approved by WCOM.
(j) NETCO has provided WCOM access to full and complete information
regarding NETCO and shall continue to provide such information as WCOM may
reasonably request.
3. Representation and Warranties of WCOM. WCOM hereby represents
-------------------------------------
and warrants to NETCO that:
(a) WCOM has been given access to full and complete information
regarding the Company and has utilized such access to his or her satisfaction
for the purpose of obtaining information WCOM desires or deems relevant to the
decision to purchase the Note; and particularly, WCOM has had the opportunity
to ask questions of, and receive answers from, representatives of the Company
concerning the terms and conditions of the Note and to obtain any additional
information WCOM desires or deems relevant; and
(b) WCOM is aware that the Company is a development stage
company; that the success of the Company is dependent upon the Company's ability
to secure appropriate employees, switching equipment, telephone carriage,
integrating software; also upon the Company's ability to provide adequate
installation and
5
<PAGE>
maintenance services; and upon the Company's ability to successfully market its
data transportation technology and services to appropriate customers; and that
the Company can give no assurances that it will be able to successfully
obtain, provide or accomplish any such matters.
(c) WCOM has obtained, to the extent it has deemed necessary,
professional advice with respect to the risks inherent in the investment in the
Note; and
(d) WCOM, being a corporation with total assets in excess of
$5,000,000 that was not formed for the purpose of acquiring the Note, is an
"accredited investor" within the meaning of Rule 501(a) of the General Rules and
Regulations under the Securities Act of 1933.
4. Future Negotiations. (a) NETCO hereby agrees that it will defer
-------------------
filing, but not the preparation of, a registration statement in connection with
a contemplated public offering of NETCO's common stock for a period of thirty
days from the date of Closing. During such period, NETCO and WCOM will negotiate
in good faith for purposes of ascertaining whether a mutually agreeable
arrangement contemplating WCOM's acquisition of majority ownership of NETCO may
be concluded between NETCO and WCOM. NETCO and WCOM agree that, upon conclusion
of that initial 30 day period, they will negotiate in good faith for a period
not exceeding 10 days regarding the terms and conditions that might be mutually
agreeable for an extension of time during which to continue negotiations for the
purpose of ascertaining whether a mutually agreeable arrangement contemplating
WCOM's acquisition of majority ownership of NETCO may be concluded between
NETCO and WCOM.
(b) NETCO shall not, during the time(s) provided in subparagraph 4(a)
of this Agreement for negotiations with WCOM, directly or indirectly, solicit,
entertain or encourage inquiries or proposals to enter into an agreement or
negotiate with any other party, to invest in or purchase, or enter into any
merger or consolidation with respect to the business, securities or assets of,
NETCO, and will not engage in any transaction not in the ordinary course of
business which could adversely affect the value of such business or assets,
excepting only (i) negotiations ancillary to the preparation of a registration
statement for a public offering, or (ii) negotiations with current holders of
promissory notes aggregating $5,600,000 for the exchange
6
<PAGE>
of such notes for NETCO stock.
5. WCOM Consent. During the term of the Note, WCOM shall have a
------------
right of prior approval over the following corporate actions which could affect
the status of the Common Stock into which the Note is convertible:
a. changes in NETCO's articles or bylaws, with the exception of an
amendment to NETCO's articles of incorporation increasing its
authorized capital stock to 20,000,000 shares of which
15,000,000 will be Common Shares and 5,000,000 will be
undesignated shares.
b. changes in the rights granted to the Common Stock and
undesignated shares, except the designation of undesignated
shares as common stock having the same rights as currently
authorized Common Stock.
c. the authorization, offering, incurring or issuance of
indebtedness (other than conventional bank or other institutional
indebtedness incurred in the ordinary course of business with
the approval of a majority of the members of the Board of
Directors of NETCO), additional common stock, preferred stock,
convertible securities, shares of any other class of stock,
other securities or options, warrants, or rights with respect
thereto, except the prior approval of WCOM shall not be required
for (i) stock options granted to officers, directors, employees
or consultants of NETCO in aggregate amount not to exceed options
for 2,000,000 shares or (ii) shares which may be offered to the
public in a registered public offering.
d. acts involving a substantial sale of assets, merger,
consolidation, reorganization, recapitalization, liquidation, or
dissolution of NETCO.
e. the declaration or payment of dividends on, or making other
distributions with respect to, any securities, excluding (i)
interest on indebtedness to banks or other institutional
indebtedness incurred in the ordinary course of business with the
approval of a majority of
7
<PAGE>
the members of the Board of Directors, (ii) interest on
indebtedness incurred in connection with the leasing of capital
equipment, and (iii) interest on currently owed debt,
f. increasing or decreasing the number of Directors constituting the
Board of Directors.
g. engaging in any other business other than the business currently
engaged in or under development by NETCO.
h. the appointment of an Executive Committee or committee performing
similar functions; and
i. entering into any contracts or transactions with NETCO's
officers, Directors, shareholders or their affiliates, excepting
the prior approval of WCOM shall not be required for (i) stock
options granted to officers, directors, employees or consultants
of NETCO in aggregate amount not to exceed options for 2,000,000
shares or (ii) the exchange of shares for existing indebtedness
owed to holders of notes in aggregate principal amount of
$5,600,000 in anticipation a registered public offering.
6. WCOM's Right to Nominate a Director.
-----------------------------------
During (i) the term of the Note, and for so long as any amount of
principal or interest remains unpaid thereunder and/or (ii) the period of three
(3) years following WCOM's conversion of at least fifty percent (50%) of the
initial principal balance of the Note into NETCO Common Stock, WCOM shall have
the right to nominate a representative to serve on NETCO's Board of Directors,
and NETCO shall use its best efforts to secure the prompt appointment or
election of such representative to its Board of Directors.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day
and year first above written.
"NETCO"
NETCO COMMUNICATIONS CORPORATION
By: /s/ Edward J. Driscoll, III
---------------------------
Edward J Driscoll, III
Its: Pesident and Secretary
"WCOM"
WORLDCOM INC.
By: /s/ K. William Grothe, Jr
---------------------------
K. William Grothe, Jr
Its: Vice President
9
<PAGE>
Netco Communications Corporation
Common Stock & CSE listing
(Schedule 1)
Common Stock O/S
----------------
# of shares
Common Stock: 1,295,791
Options Analysis
----------------
Employment Contracts: Price # of options
Options at $ 2.25 76,500
Options at $ 5.00 18,000
Options at $ 7.50 90,280
Options at $ 10.00 89,000
-------------------------------------------------
Cat. Total 273,780
-------------------------------------------------
Board of Directors: Price # of options
Options at $ 2.25 62,000
-------------------------------------------------
Cat. Total 62,000
-------------------------------------------------
Officers: Price # of options
Options at 2.25 75,500
-------------------------------------------------
Cat. Total 75,500
-------------------------------------------------
Warrant & Convertible Debt Analysis
-----------------------------------
Bridge Financing: Price # of warrants
Warrants at $ 5.00 220,000
Warrants at $ 7.50 1,012,000
--------------------------------------------------
Cat. Total 1,232,000
--------------------------------------------------
Convertible Debt: Price # of warrants
$125,000 at $ 1.90 65,789
--------------------------------------------------
Cat. Total 65,789
--------------------------------------------------
Other: Price # of warrants
Warrants at $ 3.00 113,333
Warrants at $ 10.00 9,000
--------------------------------------------------
Cat. Total 122,333
--------------------------------------------------
Total Common Stock & Equivalents 3,127,193
10
<PAGE>
EXHIBIT 1
Registered Holder: WorldCom Inc.
$5,000,000
NETCO COMMUNICATIONS CORPORATION
102 UNION PLAZA
333 NORTH WASHINGTON AVENUE
MINNEAPOLIS, MINNESOTA 55401
10% Convertible Subordinated Note
Due September 30, 1999
For Value Received, NETCO COMMUNICATIONS CORPORATION, a Minnesota
corporation, (hereinafter called the "Issuer") hereby promises to pay to the
order of WorldCom Inc., or the registered holder (hereinafter referred to as the
"Holder") principal amount of Five Million Dollars ($5,000,000), upon
presentation of this certificate, in legal tender of the United States of
America at the time of payment hereof, to the account of holder according to
Holder's written instructions, on September 30, 1999, or sooner as hereinafter
provided.
The Issuer further agrees to pay interest on the principal amount
remaining unpaid from time to time thereon from the date hereof at the rate of
ten percent (10%) per annum. Interest shall accrue from the date of purchase of
this Convertible Subordinated Note (hereinafter, the "Note"), and be payable on
March 30 and September 30 of each year, commencing with the first interest
payment on March 30, 1997. The Issuer shall, upon request of the registered
Holder, mail a check or draft representing such interest to the registered
holder at the address designated by the registered holder and appearing on the
books of registration maintained by the Issuer. No interest shall accrue or be
paid on this Note after September 30, 1999.
If any payment due hereunder is not received by the Holder within 15
days from the date due, Issuer shall pay a late payment charge of Five Dollars
($5.00) or four percent (4%) of the amount of the delinquency, whichever is
greater.
<PAGE>
The following terms, covenants, statements of Holders' rights and
conditions shall apply to this Convertible Subordinated Note.
ARTICLE 1
SUBORDINATION
1.1) The Issuer and the Holder of this Note, by acceptance hereof,
agree that the payment of the principal and interest on this Note is, to the
extent stated herein, expressly subordinated to the prior payment of the
principal and interest on all existing or future obligations of the Issuer for
money borrowed from a bank, trust, insurance, or other financial institution
engaged in the business of lending money, which is hereinafter referred to as
"Senior Indebtedness." In the event of any receivership, insolvency, assignment
for the benefit of creditors, bankruptcy, reorganization, or arrangement with
creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale
of all or substantially all of the assets, dissolution, liquidation, or any
other marshaling of the assets and liabilities of the Issuer, or in the event
the Note shall be declared due and payable upon the occurrence of an event of
default (as specified herein), (1) no amount shall be paid by the Issuer in
respect of the principal or interest on this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall have been paid in full, and (2) no claim or proof of claim
shall be filed with the Issuer by or on behalf of the holder of this Note which
shall assert any right to receive any payments in respect of the principal of
and interest on this Note except subject to the payment in full of the principal
and interest of all of the Senior Indebtedness then outstanding.
ARTICLE 2
EVENT OF DEFAULT
2.1) Each of the following shall constitute an Event of Default:
(a) Failure to pay interest when due, continued for thirty (30) days;
(b) Failure to pay principal or premium when due;
2
<PAGE>
(c) An assignment for the benefit of creditors of the Issuer,
adjudication of Issuer as a bankrupt, or petition for the reorganization of the
Issuer pursuant to Chapter X or XI of the United States Bankruptcy Act, as the
same may be amended.
2.2) Upon the occurrence of any Event of Default specified in (c)
above, the entire unpaid principal balance hereof, together with all accrued and
unpaid interest thereon and all other sums owing hereunder, shall become
immediately due and payable, without presentation, demand or further action of
any kind. Upon the occurrence of any Event of Default specified in (a) or (b)
above, the holder of this Note shall have the sole option of declaring the
unpaid principal balance hereof together with all other sums owing hereunder
immediately due and payable, without presentation, demand or further action of
any kind.
2.3) Upon the occurrence of any Event or Default and before and after
acceleration of the entire unpaid principal balance of this Note, interest shall
continue to accrue thereafter at a rate equal to two percent (2%) per annum in
excess of the then applicable rate of interest under this Note until this Note
is paid in full, including the period following entry of any judgment. Both
before and after any default, interest shall be calculated on the basis of a
360-day year but charged on the basis of actual number of days elapsed in any
calendar year of part thereof.
2.4) Holder may waive any default before of after the same has been
declared without impairing the Holder's right to declare a subsequent default
hereunder, this right being a continuing right.
2.5) Upon an Event of Default, Holder shall not be deemed, by any act
of omission or commission to have waived any of its rights or remedies unless
such waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. A waiver as to one event shall not be
construed as continuing or as a bar to or waiver of any right or remedy as to a
subsequent event.
ARTICLE 3
REDEMPTION BY ISSUER
3.1) This Note is redeemable at any time commencing January 1, 1998,
in whole or in part, prior to maturity at the option of the Issuer, on
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<PAGE>
sixty days' written notice by registered mail by the Issuer to the Holder, upon
payment of all, or such lesser portion of the principal amount as specified in
the notice, together with interest accrued to the date fixed for redemption. If
the Holder hereof fails or neglects to present this Note for payment at the time
and place specified in such notice, this Note shall cease to bear interest
unless payment hereof is refused upon the presentation of the same at or after
the time specified in such notice.
ARTICLE 4
CONVERSION OF NOTE TO COMMON STOCK
4.1) The holder of this Note shall have the right, at its option, at
any time between the date hereof and September 30, 1999, to convert the then
outstanding principal amount of this Note, or any portion thereof into shares of
Common Stock, par value $.01, of the Issuer ("Common Stock") at a price per
share determined as hereinafter described (such price hereinafter referred to as
the "Conversion Price"), upon surrender of this Note at the principal office of
the Issuer, together with written notice (hereinafter referred to as the
"Conversion Notice"), in form appended hereto, of the election executed by the
Holder and specifying the name or names in which the shares of stock deliverable
upon such conversion shall be registered, along with the addresses of the
persons so named and, if required by the Issuer, accompanied by a written
instrument of transfer in form satisfactory to the Issuer duly executed by the
Holder; provided, however, that if this Note shall be called for redemption
according to the terms of Article 3, the right of the Holder to convert this
Note shall terminate on the date fixed for redemption.
4.2) Common Stock issued on conversion of this Note shall be delivered
as follows:
(a) Within fifteen days after the surrender of this Note for
conversion and the receipt of the Conversion Notice, the Issuer
shall deliver to the Holder, or to such person or persons so
designated by the Holder in the Conversion Notice, a certificate
or certificates representing the number of fully paid and non-
assessable shares of Common Stock into which this Note or portion
thereof is to be converted in such name or names as are specified
in the Conversion Notice, together with any cash payable in
respect of a fractional share and all interest accrued through
the date of conversion. Such
4
<PAGE>
conversion shall be deemed to have been effected at the close of
business on the date when this Note shall have been surrendered
for conversion together with the Conversion Notice, so that the
person entitled to receive the shares of Common Stock upon
conversion shall be treated for all purposes as having become the
record holder of such shares of Common Stock at such time and the
conversion shall be at the Conversion Price in effect at time.
(b) In the event less than the entire outstanding principal balance
of this Note shall be converted hereunder this Note shall not be
surrendered for cancellation but shall have the fact and amount
of conversion recorded on the face of this Note by writing
acknowledged by the holder and the Issuer.
4.3) Subject to adjustment as hereinafter provided, the Conversion
Price per share of Common Stock shall be Five Dollars ($5.00) (the "Conversion
Price").
4.4) The per share Conversion Price and the number of Shares
deliverable hereunder shall be adjusted as hereinafter set forth; however, no
adjustment shall be made under this Article 4.4 as a result of the exercise of
any options or the conversions of any convertible securities outstanding on the
date hereof:
(a) If after the date hereof, the Issuer shall:
(1) take a record of the holders of its Common Stock for the purposes
of entitling them to receive a dividend payable in, or other
distribution of, Common Stock; or
(2) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock; or
(3) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock; or
(4) issue by reclassification of its shares of Common Stock any other
shares of common stock;
then the Conversion Price shall be adjusted to that price determined by
multiplying the Conversion Price in effect immediately prior to such event by a
fraction (i) the numerator of which shall be the total number of
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<PAGE>
outstanding shares of Common Stock of the Issuer immediately prior to such
event, and (ii) the denominator of which shall be the total number of
outstanding shares of Common Stock of the Issuer immediately after such event.
4.5) In the case of any consolidation or merger of the Issuer with
another corporation, or the sale of all or substantially all of its assets to
another person, or any reorganization or reclassification of the capital stock
of the Issuer (except a split-up or combination provision for which is made in
Article 4.4):
(a) as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of the
Common Stock immediately theretofore subject to acquisition hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
so subject to acquisition hereunder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Conversion Price) shall thereafter be
applicable as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of the conversion option.
The Issuer shall not effect any such consolidation, merger or sale, unless prior
to or simultaneously with the consummation thereof, the successor person or
persons purchasing such assets or succeeding or resulting from such
consolidation, merger, reorganization or reclassification shall assume by
written instrument executed and mailed or delivered to the Holder, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
receive.
(b) In the event that the Issuer shall make any distribution of its
assets upon or with respect to its Common Stock, as a liquidating or partial
liquidation dividend, or other than as a dividend payable out of earnings or any
surplus legally available for dividends under the laws of the State of
Minnesota, the Holder shall, upon the exercise of its right to convert after
the record date for such distribution or, in the absence of a
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<PAGE>
record date, after the date of such distribution, receive in addition to the
shares subscribed for, the amount of such assets (or, at the option of the
Issuer, a sum equal to the value thereof at the time of distribution as
determined in good faith by the Board of Directors in its sole discretion) which
would have been distributed to the Holder if it had exercised its rights to
convert immediately prior to the record date for such distribution or, in the
absence of a record date, immediately prior to the date of such distribution.
4.6) Fractional shares shall not be issued upon the exercise of any
conversion option but in any case where the Holder would, except for the
provisions of this Article, be entitled under the terms hereof to receive a
fractional share, the Issuer shall, upon the exercise of any conversion option
for the largest number of whole shares then called for, pay a sum in cash equal
to the sum of (a) the excess, if any, of the fair market value of such
fractional share, as determined in good faith by the Issuer's board of
directors, over the proportional part of the per share Conversion Price
represented by such fractional share plus (b) the proportional part of the per
share Conversion Price represented by such fractional share.
ARTICLE 5
REGISTRATION RIGHT
5.1) (a) If, commencing one (1) year after the date hereof, the
Issuer proposes to claim an exemption under Section 3(b) for a public
offering of any of its securities or to register under the Securities Act of
1933 (except by a claim of exemption or registration statement on a form that
does not permit the inclusion of shares by its security holders) any of its
securities, it will give written notice to the registered Holder of this Note,
and all registered Holders of shares of common stock acquired upon the
conversion of this Note, of its intention to do so and, on the written request
of any such registered holders given within twenty (20) days after receipt of
any such notice (which request must be made within five (5) years from the date
of this Note and which notice shall specify the shares of common stock intended
to be sold or disposed of by such registered holder and describe the nature of
any proposed sale or other disposition thereof), the Issuer will use its best
efforts to cause all such shares, the registered holders of which shall have
requested the registration or qualification thereof, to be included in such
notification or registration statement proposed to be filed by the Issuer;
provided, however, that nothing herein shall prevent the Issuer from, at any
time, abandoning or
7
<PAGE>
delaying any such registration initiated by it. If any such registration shall
be underwritten in whole or in part, the Issuer may require that the shares
requested for inclusion pursuant to this section be included in the underwriting
on the same terms and conditions as the securities otherwise being sold through
the underwriters. If in the good faith judgment, as expressed in writing
delivered to the registered holder(s), of the managing underwriter of such
public offering the inclusion of all of the shares originally covered by a
request for registration would reduce the number of shares to be offered by the
Issuer or interfere with the successful marketing of the shares of stock offered
by the Issuer, the number of shares otherwise to be included pursuant to this
Section in the underwritten public offering may be reduced; provided, however,
that any such required reduction shall be pro rata among all persons (other than
the Issuer) who are participating in such offering. Those shares which are thus
excluded from the underwritten public offering shall be withheld from the
market for a period, not to exceed 90 days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering. All expenses of such offering, except the fees of special counsel to
such holders and brokers' commissions or underwriting discounts payable by such
holders, shall be borne by the Issuer.
(b) Further, on one occasion only, commencing one (1) year after the
date hereof, upon request by the holder of the Note and/or the holders of shares
issued upon the conversion of the Note who collectively have the right to
purchase at least 500,000 shares or hold directly at least 500,000 shares
purchased hereunder or have the right to purchase and hold directly an aggregate
of at least 500,000 shares purchasable or purchased hereunder, the Issuer will
promptly use its reasonable best efforts to register or qualify the Note or such
shares under Section 3(b) or Section 5 of the Securities Act of 1933 (and, upon
the request of such holders, under Rule 415 thereunder) and such state laws as
such holders may reasonably request; provided that (i) such request must be made
within five (5) years from the date of this Note; and (ii) the Issuer may delay
the filing of any registration statement requested pursuant to this section to a
date not more than ninety (90) days following the date of such request if in the
opinion of the Issuer's principal investment banker at the time of such request
such a delay is necessary in order not to adversely affect financing efforts
then underway at the Issuer or if in the opinion of the Issuer such a delay is
necessary or advisable to avoid disclosure of material nonpublic information.
The costs and expenses directly related to any registration requested pursuant
to this section, including but not limited to legal fees of the Issuer's
counsel, audit fees,
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<PAGE>
printing expense, filing fees and fees and expenses relating to qualifications
under state securities or blue sky laws incurred by the Issuer shall be borne
entirely by the Issuer; provided, however, that the persons for whose account
the securities covered by such registration are sold shall bear the expenses of
underwriting commissions applicable to their shares and fees of their legal
counsel. If the holder of Note and the holders of shares of Common Stock
underlying the Note are the only persons whose shares are included in the
registration pursuant to this section, such holders shall bear the expense of
inclusion of audited financial statements in the registration statement which
are not dated as of the Issuer's normal fiscal year or are not otherwise
prepared by the Issuer for its own business purposes. The Issuer shall keep
effective and maintain any registration, qualification, notification or approval
specified in this paragraph for such period as may be necessary for the holders
of the Note and such common stock to dispose thereof, and from time to time
shall amend or supplement, at the holder's expense, the prospectus or offering
circular used in connection therewith to the extent necessary in order to comply
with applicable law; provided, that the Issuer shall not be obligated to
maintain any registration for a period of more than nine (9) months.
If, at the time any written request for registration is received by the
Issuer pursuant to this Section 5.1(b) the Issuer has determined to proceed with
the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 5.1(a) rather than to this
Section 5.1(b), and the rights of the holders of the Note and/or shares issued
upon the conversion of the Note covered by such written request shall be
governed by Section 5.1 (a) hereof.
(c) If and whenever the Issuer is required by the provisions of Sections
5.1(a) or 5.1(b) hereof to effect the registration of shares issued upon the
exercise of the Note under the Securities Act, the Issuer will:
(i) Prepare and file with the Commission a registration statement
with respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to
exceed nine (9) months;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus
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<PAGE>
contained therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the sale of
such securities, not to exceed nine (9) months;
(iii) furnish to the security holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities;
(iv) use its best efforts to register or qualify the securities covered
by such registration statement under such state securities or blue sky laws of
such jurisdictions as such participating holders may reasonably request in
writing within 30 days following the original filing of such registration
statement, except that the Issuer shall not for any purpose be required to
execute a general consent to service of process or to qualify to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed;
(vi) notify such holders promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus or
for additional information;
(vii) prepare and file with the Commission, promptly upon the request of
any such holders, any amendments or supplements to such registration statement
or prospectus which, in the opinion of counsel for such holders (and concurred
in by counsel for the Issuer), is required under the Securities Act or the
rules and regulations thereunder in connection with the distribution of the Note
or shares by such holder;
(viii) prepare and promptly file with the Commission and promptly notify
such holders of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be
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<PAGE>
delivered under the Securities Act, any event shall have occurred as the result
of which any such prospectus or any other prospectus as then in effect would
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
in which they were made, not misleading;
(ix) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(x) not file any amendment or supplement to such registration statement
or prospectus to which a majority in interest of such holders shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
thereof at least five business days prior to the filing thereof, unless in the
opinion of counsel for the Issuer the filing of such amendment or supplement is
reasonably necessary to protect the Issuer from any liabilities under any
applicable federal or state law and such filing will not violate applicable law;
and
(xi) at the request of any such holder, furnish on the effective date of
the registration statement and, if such registration includes an underwritten
public offering, at the closing provided for in the underwriting agreement: (i)
opinions, dated such respective dates, of the counsel representing the Issuer
for the purposes of such registration, addressed to the underwriters, if any,
and to the holder or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii) letters,
dated such respective dates, from the independent certified public accountants
of the Issuer, addressed to the underwriters, if any, and to the holder or
holders making such request, covering such matters as such underwriters and
holder or holders may reasonably request, in which letter such accountants shall
state (without limiting the generality of the foregoing) that they are
independent certified public accountants within the meaning of the Securities
Act and that in the opinion of such accountants the
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<PAGE>
financial statements and other financial data of the Issuer included in the
registration statement or the prospectus or any amendment or supplement
thereto comply in all material respects with the applicable accounting
requirements of the Securities Act.
(d) The Issuer hereby indemnifies the holder of this Note and of any
common stock issued or issuable hereunder, its officers, directors, employees
and agents, and any person who controls such Note holder or such holder of
common stock within the meaning of Section 15 of the Securities Act of 1933,
against all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in any registration statement,
prospectus, notification or offering circular (and as amended or supplemented if
the Issuer shall have furnished any amendments or supplements thereto) or any
preliminary prospectus or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission contained in information furnished in
writing to the Issuer by such Note holder or such holder of common stock
expressly for use therein, and each such holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Issuer and each
of its officers who signs such registration statement and each of its directors
and each person, if any, who controls the Issuer within the meaning of Section
15 of the Securities Act of 1933 with respect to losses, claims, damages or
liabilities which are caused by any untrue statement or omission contained in
information furnished in writing to the Issuer by such holder expressly for use
therein.
(e) If the indemnification provided for in this Article 5 is unavailable
to an indemnified party as provided herein in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then the Issuer, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Issuer on the one hand and the holder of this Note on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses as well as any other relevant
equitable considerations. The relative fault of the Issuer on the one hand and
of the holder of this Note of the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statements of a
material fact of the omission or alleged omission to state a material fact
relates to information supplied by the Issuer or by the holder of this Note
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<PAGE>
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, without limitation, any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.
The Issuer and the holder of this Note agree that it would not be just and
equitable if contribution pursuant to this Section 5(e) were determined by a pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(e), the holder of
this Note shall not be required to contribute any amount in excess of the amount
by which the total price which such holder's registerable securities were sold
to the public. No person guilty of fraudulent misrepresentations (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.
ARTICLE 6
REGISTRY
6.1) Books for the registry hereof are kept at the office of the Issuer. No
transfer hereof shall be valid unless made on the Issuer's books at the office
of the Issuer, by the Holder, in person, or by attorney duly authorized in
writing, similarly noted hereon.
ARTICLE 7
PAYMENT
7.1) Payment to the Holder of principal and interest shall be a complete
discharge of the Issuer's liability with respect to such payment, but the Issuer
may, at any time, require the presentation hereof as a condition precedent to
such payment.
7.2) No recourse shall be had for the payment of the principal, or
interest, or for any claim based thereof, or otherwise, against any
incorporator, shareholder, officer, director, or agent, past, present, or
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<PAGE>
future, of the Issuer, whether by virtue of any constitution, statute, rule of
law, enforcement of any assessment, or penalty, or by reason of any matter prior
to delivery of this Note, or otherwise. All such liability, by the acceptance
hereof, is a part of the consideration to the Issuer hereof, and is expressly
waived.
ARTICLE 8
DIVIDENDS
8.1) Until payment in full or conversion of this Note, the Issuer may
not declare any dividend payable in cash or property on its Common Stock, with
the sole exception of any stock split in the form of a dividend payable in share
of common stock to which the provisions of Article IV hereof apply.
ARTICLE 9
OWNERSHIP
9.1) The Issuer may treat the person(s) in whose name this Note is issued
as the absolute owner(s) hereof for all purposes, whether or not this Note is
overdue and the Issuer shall not be affected by any notice to the contrary.
ARTICLE 10
NOTICE
10.1) All notices, requests, demands and other communications under this
Note shall be writing and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day after mailing if mailed to the party to whom notice is to be given
by first class mail, registered or certified, postage prepaid to the Issuer at
its address stated on the front page of this Note and to the Holder at its
address as listed in the register of the Issuer. Either party may change its
address for purposes of this Article 6.5 by giving the other party written
notice of the new address in the manner set forth above.
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<PAGE>
ARTICLE 11
MISCELLANEOUS
11.1) All parties liable for the payment of this Note agree to pay on
demand, all costs of collection and to cure any default under this Note
including, but not limited to, reasonable attorneys' fees actually incurred.
11.2) The undersigned and all endorsers, sureties and guarantors of this
Note, jointly and severally waive notice of and consent to any and all
extensions of this Note or any part hereof without notice, and each hereby
waives presentment, demand for payment, protest and notice of dishonor, demand,
protest and nonpayment.
11.3) The remedies of Holder as provided herein shall be cumulative
and concurrent, and may be pursued singly, successively or together against
Issuer at the sole discretion of Holder, and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release of the
same.
11.4) Issuer's obligations hereunder shall extend to and bind Issuer's
successors and assigns. This Note may be amended only by an instrument in
writing signed by both Issuer and Holder.
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed by
its President and Secretary.
Dated: September 17, 1996 NETCO COMMUNICATIONS CORPORATION
By: /s/ Edward J. Driscoll, III
----------------------------
Edward J. Driscoll, III
President and Secretary
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<PAGE>
CONVERSION NOTICE
To Netco Communications Corporation:
The undersigned holder of this Note hereby irrevocably exercises the option
to convert this Note into shares of Common Stock of Netco Communications
Corporation, in accordance with the terms of this Note, and directs that the
shares issuable and deliverable upon the conversion be issued and delivered to
the undersigned unless a different name has been indicated below. Additionally,
as a condition to such conversion privilege, the undersigned holder of this Note
agrees to execute a letter stating its investment intent is to hold the shares
issuable upon conversion for investment and not for resale, except in accordance
with the requirements of Rule 144 of the General Rules and Regulations under the
Securities Act of 1933, or any successor Rule together with applicable state
securities law, and agrees that the certificates representing the shares
issuable and deliverable upon conversion may be imprinted with a legend in
customary form reciting the restrictions on transfer mandated by such laws.
The undersigned holder elects to convert $____________ in principal of this
Note into shares of Common Stock of Netco Communications Corporation.
Dated: ___________________________ NOTE HOLDER:
_____________________________
Name (Please Print)
_____________________________
Address
_____________________________
City, State and Zip
_____________________________
Signature
If shares are to be issued otherwise than to owner please provide name
and address of person or persons to whom shares are to be issued:
_____________________________
Name (Please Print)
_____________________________
Address
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EXHIBIT 10.3
PREFERRED STOCK,
SUBORDINATED NOTE AND
WARRANT
PURCHASE AGREEMENT
NETCO COMMUNICATIONS CORPORATION
and
WORLDCOM INC.
November 14, 1996
<PAGE>
PREFERRED STOCK, SUBORDINATED NOTE AND
WARRANT PURCHASE AGREEMENT
Preferred Stock, Subordinated Note and Warrant Purchase Agreement (herein
"Agreement") made this fourteenth day of November 1996, by and between NETCO
COMMUNICATIONS CORPORATION, a Minnesota corporation, having its principal place
of business at 102 Union Plaza, 333 North Washington Avenue. Minneapolis,
Minnesota 55401 ("NETCO") and WORLDCOM INC., a Georgia corporation, having its
principal place of business at 515 East Amite Street, Jackson, Mississippi 39201
("WCOM").
WITNESSETH:
Whereas, NETCO is engaged in the development and implementation of high
speed, digital data transportation delivery and ancillary data storage and
remote proofing services addressed initially to the printing and prepress
industries, and requires significant permanent financing to accomplish such
development and implementation; and
Whereas, WCOM is engaged in the sale and marketing of voice and data
transmission over its multinational communications infrastructure; and
Whereas, WCOM and NETCO are parties to a certain Convertible Note Purchase
Agreement dated September 12, 1996 (the "Convertible Note Agreement") pursuant
to which WCOM purchased from NETCO a 10% Convertible Subordinated Note due
September 30, 1999, (the "Convertible Note") in principal amount of Five Million
Dollars ($5,000,000); and
Whereas, NETCO and WCOM each desire that WCOM increase its investment in
NETCO to finance and facilitate the deployment and implementation of NETCO's
services over WCOM's communications infrastructure; and
Whereas, NETCO and WCOM each desire that NETCO secure the continued
employment of certain key managerial employees of NETCO and that NETCO provide
for appropriate incentives for other current and future employees of NETCO; and
<PAGE>
Whereas, NETCO and WCOM each desire that WCOM have temporary majority
control of NETCO's board of directors in order to secure NETCO's repayment of
obligations incurred pursuant to this Agreement; and
Whereas, NETCO and WCOM each desire to provide for the possible future
acquisition by WCOM of a majority ownership interest in NETCO, and that the
number of Warrants provided for herein, subject to the provisions and conditions
of this Agreement, shall be sufficient for that purpose until the time those
Warrants shall be exercised or expire; and
Whereas, NETCO and WCOM each desire to provide, in the event of WCOM's
future acquisition of a majority ownership interest in NETCO, for the future
liquidity of other owners of minority ownership interests in NETCO;
Whereas, NETCO is agreeable to selling to WCOM, and WCOM is agreeable to
purchasing from NETCO, pursuant to the terms and conditions of this Agreement,
the Preferred Stock, the Subordinated Promissory Note and the Common Stock
Purchase Warrants as provided in this Agreement;
NOW THEREFORE, in consideration of the foregoing premises, and of the
consideration provided herein, the parties agree as follows:
I. PURCHASE AND SALE OF PREFERRED STOCK
1.01 Purchase and Sale of the Preferred Stock. Subject to the terms and
----------------------------------------
conditions set forth in this Agreement, WCOM hereby purchases from NETCO, and
NETCO hereby sells to WCOM for the price of Ten Dollars ($10) per share, One
Hundred Thousand Shares of NETCO's newly authorized Class A Preferred Shares
(the "Preferred Stock") having a par value of Ten Dollars ($10) per share.
1.02 Duration, Rights and Preferences of the Preferred Stock. The Preferred
-------------------------------------------------------
Stock shall have a duration continuing until December 31, 1999, at which time
the Preferred Stock shall be redeemed by NETCO for par value together with any
accumulated and then unpaid dividends, and shall be thereafter retired by NETCO.
The Preferred Stock shall have and enjoy for its duration the rights and
preferences, including the right to elect a majority of NETCO's board of
directors, as are set forth in the "Statement of Rights and Preferences of Class
A Preferred Shares" appended to this Agreement as Exhibit 1 and incorporated
herein by this reference.
II. LOAN AGREEMENT
2.01 The Loan. (a) Subject to the terms and conditions set forth in this
--------
Agreement, WCOM will loan to NETCO an amount not exceeding Twenty Eight Million
Five Hundred Thousand Dollars ($28,500,000) (the "Loan"). The Loan will
----
2
<PAGE>
be made in an initial disbursement ("Initial Disbursement") of Nineteen Million
Dollars ($19,000,000) at Closing, and, upon request of NETCO, in subsequent
disbursements ("Future Disbursements") not exceeding Five Hundred Fifty Four
Thousand One Hundred Sixty Seven Dollars ($554,167) on the first of the Funding
Dates (as hereinafter defined) and not exceeding Three Hundred Thirty Two
Thousand Dollars ($332,500) on each of the subsequent Funding Dates.
(b) The Funding Dates for Future Disbursements of the Loan shall
occur not more frequently than once each calendar quarter, commencing with the
calendar quarter ending March 31, 1997. Each Future Disbursement shall be made
by WCOM to NETCO upon receipt of a notice (the "Funding Notice") from NETCO,
--------------
signed by an officer of NETCO authorized by the board, requesting the Future
Disbursement. The amount of each such Future Disbursement shall be delivered by
WCOM to NETCO in immediately available funds by wire transfer to an account
designated by NETCO in the Funding Notice. Each Funding Notice shall be in form
of the Funding Notice attached to this Agreement as Exhibit 2.
2.02. 7% Subordinated Note. The Loan shall be evidenced by the 7%
--------------------
Subordinated Note ("Subordinated Note") attached to this Agreement as Exhibit 3.
The Loan shall be governed by the terms of the Subordinated Note, and shall
bear interest and be repayable in accordance therewith in the principal amount
of the sum of the Initial Disbursement and all Future Disbursements made by WCOM
to NETCO.
III. PURCHASE AND SALE OF WARRANTS
3.01 Purchase and Sale of the Warrants. Subject to the terms and
---------------------------------
conditions set forth in this Agreement, WCOM hereby purchases from NETCO, and
NETCO hereby sells to WCOM for price of One Cent ($.01) each, Common Stock
Purchase Warrants entitling WCOM to purchase until December 31, 2000, up to Four
Million One Hundred Fifty Seven Thousand Five Hundred (4,157,500) shares of
NETCO's authorized and unissued Common Stock, par value $.01 per share, at an
initial exercise price of Four Dollars Eighty One Cents ($4.81) per share,
subject to adjustment, and upon the additional terms and conditions, set forth
in the "Common Stock Purchase Warrant" in form appended to this Agreement as
Exhibit 4 and incorporated herein by this reference.
IV. CONTEMPLATED FUTURE TRANSACTION
4.01 Intentions. NETCO and WCOM intend to provide, in accordance with the
----------
terms of this Agreement, for the liquidity of investment by minority
shareholders of NETCO and by others who hold interests exercisable or
convertible into shares of NETCO's common Stock. In view of that intention,
NETCO and WCOM desire to provide alternatives that will allow, in light of
future
3
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circumstances as they may now be foreseen, for the liquidity of investment by
such minority interest holders of NETCO. Provided, however, nothing herein
contained shall be deemed to create any obligation by WCOM to purchase any
securities, rights or interests of any kind in NETCO, or to assure a market or
value thereafter, except as may be expressly stated herein.
4.02 Tender or Buy-Back. (a) Unless NETCO shall be a publicly held company
------------------
then required to file periodic reports under Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 with its Common Stock listed for trading on the
NASDAQ Small Cap Market, the NASDAQ Stock Market or on a national securities
exchange, then, during calendar year 2000, WCOM, in accordance with the
provisions of this Section 4.02, shall either (i) tender for the purchase of all
outstanding shares of NETCO Common Stock and all outstanding options, warrants,
convertible securities and other rights or interests to purchase shares of NETCO
Common Stock, or (ii) sell to NETCO the Common Stock Purchase Warrants and/or
the shares acquired upon exercise thereof or upon conversion of the Convertible
Note as may be then owned by WCOM.
(b) NETCO's management and Board of Directors shall obtain during
calendar year 2000 from a nationally recognized investment banking firm a
valuation of the fair market value per share of NETCO's Common Stock without a
premium allocated for any controlling ownership of NETCO. Provided, however, if
such valuation has not been obtained by NETCO's management and Board of
Directors by June 30, 2000, holders of at least Eight Hundred Thousand (800,000)
shares of NETCO's Common Stock may apply jointly to the Chief Judge of the
Hennepin County District Court, Hennepin County Minnesota, for appointment of a
nationally recognized investment banking firm to promptly determine and report
such valuation, and all fees, costs and expenses incurred in connection with
such application, including fees and expenses of counsel chosen by such
shareholders to make the application and the fees and expenses of the investment
banking firm chosen by the Court, shall be borne by NETCO. The Court shall
retain jurisdiction until such valuation shall have been reported, and the Court
shall be empowered to order any party to this Agreement, its officers, agents
and employees to furnish any information necessary to establish and report such
valuation. For purposes hereof, the valuation established pursuant to this
Section 4.02(b) shall be referred to as the "Tender Valuation."
(c) Upon receipt of the Tender Valuation, WCOM may tender (the "First
Tender") to purchase (i) all outstanding shares of Common Stock of NETCO and
(ii) all outstanding options, warrants, convertible securities and other rights
or interests to purchase shares of NETCO Common Stock held by persons other than
WCOM or any of its affiliates (excluding only such affiliates of WCOM whose
affiliation with WCOM arise solely from their affiliation with NETCO). The First
Tender may be in the form of cash, unrestricted WCOM common stock issued
pursuant to an effective registration statement under the Securities Act of
1933, or a combination thereof. The First Tender for each share of Common Stock
shall be at a price at least equal to
4
<PAGE>
the per share valuation obtained pursuant to Section 4.02(b) hereof; and the
First Tender for all other rights or interests to purchase NETCO Common Stock
shall be the same price offered for each share of NETCO Common Stock less the
amount payable pursuant to such right or interest to purchase a share of NETCO
Common Stock. The First Tender shall remain open for acceptance for at least
thirty (30) days but not longer than sixty (60) days. For purposes hereof,
"affiliate" shall have the meaning ascribed in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934.
(d) WCOM shall sell, and NETCO shall purchase for the price ("NETCO
Purchase Price") specified below, the Common Stock Purchase Warrants and/or
shares of Common Stock theretofore issued to WCOM upon exercise thereof or upon
conversion of the Convertible Note upon occurrence of the following
circumstances:
(i) WCOM fails to make the First Tender within ninety (90) days
following receipt of the Tender Valuation provided in section
4.02(b) hereof; or
(ii) owners of a majority of the then outstanding shares of NETCO
Common Stock (excluding shares which may be owned by WCOM or its
affiliates) reject WCOM's First Tender, and WCOM makes no Second
Tender as provided hereinafter; or
(iii) owners of a majority of the then outstanding shares of NETCO
Common Stock (excluding shares which may be owned by WCOM or its
affiliates) reject WCOM's Second Tender as provided hereinafter.
In the event owners of a majority of the then outstanding shares of NETCO
(excluding shares which may be owned by WCOM and its affiliates) reject WCOM's
First Tender, WCOM shall have sixty (60) days following such rejection to again
tender (the "Second Tender") to purchase the same outstanding shares, options,
warrants, convertible securities and other rights or interests to acquire NETCO
shares. During such sixty (60) day period, NETCO shall make a good faith effort
to determine what price might be acceptable to the owners of such shares, and
shall communicate such information to WCOM. The Second Tender may be in the form
of cash, unrestricted WCOM common stock issued pursuant to an effective
registration statement under the Securities Act of 1933, or a combination
thereof. The Second Tender for each share of Common Stock shall be at a price
per share determined by WCOM; and the Second Tender for all other rights or
interests to purchase NETCO Common Stock shall be the same price offered for
each share of NETCO Common Stock less the amount payable pursuant to such right
or interest to purchase a share of NETCO Common Stock. The Second Tender shall
remain open for acceptance for at least thirty (30) days but not longer than
sixty (60) days.
5
<PAGE>
(e) The purchase price payable by NETCO for all shares of the Common
Stock theretofore purchased by WCOM and for the Common Stock Purchase Warrants
shall be calculated as follows;
(1) In the event that WCOM fails to Tender, the NETCO Purchase Price
shall be an amount equal to (m) the Tender Valuation for all shares
of Common Stock theretofore purchased by WCOM upon exercise of the
Common Stock Purchase Warrants and/or conversion of the Convertible
Note, and (n) the difference between the Tender Valuation and the
exercise price or conversion price, respectively, for the shares of
Common Stock remaining purchasable upon exercise or conversion,
respectively, of the Common Stock Purchase Warrants and/or
Convertible Note.
(2) In the event that WCOM's First Tender has been rejected and WCOM
has not made a Second Tender, the NETCO Purchase Price shall be an
amount equal to (o) the purchase price offered by WCOM in its
rejected First Tender for all shares of Common Stock theretofore
purchased by WCOM upon exercise of the Common Stock Purchase
Warrants and/or conversion of the Convertible Note, and (p) the
difference between the purchase price offered by WCOM in its
rejected First Tender and the exercise price or conversion price,
respectively, for the shares of Common Stock remaining purchasable
upon exercise or conversion, respectively, of the Common Stock
Purchase Warrants and/or Convertible Note.
(3) In the event that WCOM's Second Tender has been rejected, the NETCO
Purchase Price shall be an amount equal to (o) the purchase price
offered by WCOM in its rejected Second Tender for all shares of
Common Stock theretofore purchased by WCOM upon exercise of the
Common Stock Purchase Warrants and/or conversion of the Convertible
Note, and (p) the difference between the purchase price offered by
WCOM in its rejected Second Tender and the exercise price or
conversion price, respectively, for the shares of Common Stock
remaining purchasable upon exercise or conversion, respectively, of
the Common Stock Purchase Warrants and/or Convertible Note.
(f) NETCO shall have nine (9) months (the "Payment Period") to pay WCOM
the full NETCO Purchase Price for the Common Stock Purchase Warrants and shares
of Common Stock previously issued upon exercise thereof or upon conversion of
the Convertible Note, which shall be computed (i) beginning on the day following
the last day the First Tender or Second Tender may have been accepted, as the
case may be, if WCOM has made a First Tender or Second Tender, or (ii) if WCOM
has not made a First Tender, then beginning on the ninety-first day following
the receipt of the Tender Valuation. For the duration of the Payment Period,
WCOM hereby irrevocably grants to Edward J. Driscoll III and Allen L.
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<PAGE>
Witters, jointly and with powers of substitution, the limited proxy in form
attached hereto as Exhibit 5, which shall be deemed an irrevocable proxy coupled
with an interest, to vote in the place and stead of WCOM, any and all shares of
NETCO Common Stock acquired by WCOM upon exercise of the Common Stock Purchase
Warrants or conversion of the Convertible Note. Payment shall be made by NETCO
in good and immediately available funds against assignment and delivery of the
Common Stock Purchase Warrants at NETCO's principal business office at 9:00
A.M., Minneapolis, Minnesota local time, on the tenth (10th) day following
notice from NETCO to WCOM. Should NETCO fail for any reason to timely pay such
purchase price in full during the Payment Period, then, in such event, (i) WCOM
shall be relieved of all further obligations to sell and transfer the Common
Stock Purchase Warrants, or shares previously issued upon exercise thereof or
conversion of the Convertible Note, to NETCO, (ii) NETCO shall have no further
right to require WCOM to sell or convey any of the Common Stock Purchase
Warrants, or shares previously issued upon exercise thereof or conversion of the
Convertible Note, to NETCO, and (iii) NETCO shall not be obligated to pay, and
WCOM shall have no right to receive in payment, any amount determined with
reference to the rights of either party under this Section 4.02.
4.03 Alternative to Tender or Buy-Back. The provisions of Section 4.02
---------------------------------
notwithstanding, NETCO and WCOM may in the future agree upon an alternative
method to provide for and accomplish the intentions expressed in Section 4.01 of
this Agreement; and, upon such future agreement, both NETCO and WCOM shall be
relieved, respectively, of their obligations set forth in Section 4.02. It is
also expressly understood and agreed that, notwithstanding the rejection of
either the First Tender or Second Tender contemplated by Section 4.02(f) and
4.02(e), NETCO and WCOM may nonetheless agree to waive WCOM's and NETCO's
respective obligations of sale and purchase under Section 4.02(d) upon NETCO's
determination to become, and its thereafter becoming, required to file periodic
reports under Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with
its Common Stock listed for trading on the NASDAQ Small Cap Market, the NASDAQ
Stock Market or on a national securities exchange.
V. CREDIT FACILITIES
5.01 Provision of Credit Facilities. As further consideration for the
------------------------------
purchase of the Preferred Stock and Common Stock Purchase Warrants, WCOM agrees
to use reasonable efforts to assist NETCO in obtaining commercially reasonable
credit facilities ("Credit Facilities") at commercially reasonable rates in the
approximate amount of Twenty Five Million Dollars ($25,000,000) during calendar
year 1997 to finance the acquisition and installation of NETCO customer site
equipment and/or the acquisition and installation of telephony equipment
necessary to interconnect NETCO customers. Such Credit Facilities are expressly
in addition to the Subordinated Note.
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<PAGE>
5.02 Form of Credit Facilities. The Credit Facilities may be in the form
-------------------------
of equipment lease financing, secured debt, or other commercially reasonable
credit instrument in form and substance acceptable to WCOM and NETCO for which
the equipment and/or income stream generated by the equipment serves as security
for the repayment thereof.
5.03 Nature of Assistance. The assistance to be rendered by WCOM may
--------------------
take the form of recommendation to a commercial lender with whom WCOM does
business, WCOM's guaranty, or partial guaranty, of such Credit Facility, a
secured loan or loans by WCOM, or other assistance reasonably calculated to
assist NETCO to obtain the financing necessary to acquire and install customer
site equipment and/or telephony equipment interconnecting such customer sites;
provided, however, WCOM shall not be required to guaranty such Credit Facility
or itself to make such loan, in whole or in part, but may do so in its sole
discretion.
VI. REPRESENTATIONS, WARRANTIES AND COVENANTS OF NETCO
6.01 NETCO hereby represents, warrants and covenants to WCOM that, as
of the date hereof and as of the Closing provided for in Section 8 hereof:
(a) Corporate Organization and Power; Qualification. NETCO is duly
-----------------------------------------------
organized, validly existing and in good standing as a corporation under the laws
of the state of Minnesota, has all corporate power and authority to own its
properties and to carry on its businesses as now being and hereafter proposed to
be conducted and is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in all jurisdictions in which the
character of its properties or the nature of its businesses requires such
qualification or authorization, except for qualifications and authorizations the
lack of which, singly or in the aggregate, has not had and will not have a
materially adverse effect on NETCO.
(b) Subsidiaries. NETCO does not own, directly or indirectly, any capital
------------
stock or other equity securities of any corporation nor does NETCO have any
direct or indirect ownership interest, including interests in partnerships and
joint ventures, in any other entity or business, with the sole exceptions of
WAMNET, Inc., a Minnesota corporation and Netco Communications Corporation of
Canada, Inc., a Canadian corporation that are each a wholly owned subsidiary of
NETCO.
(c) Authorization; Enforceability. NETCO has the power, and has taken,
-----------------------------
or will take prior to closing, all necessary action (including any necessary
stockholder action) to authorize it, to execute, deliver and perform in
accordance with their respective terms this Agreement, the Subordinated Note
and the Common Stock Purchase Warrant, and to issue and deliver the Preferred
Stock to WCOM. This Agreement has been, and the Preferred Stock, the
Subordinated Note and the Common Stock Purchase Warrant contemplated hereby to
which NETCO is a party when delivered to WCOM will have been, duly executed and
delivered by NETCO
8
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and is, or when so delivered will be, a legal, valid and binding obligation of
NETCO, enforceable against NETCO in accordance with its terms.
(d) No Violations; Consent. The execution, delivery and performance in
----------------------
accordance with their respective terms by NETCO of this Agreement, and of the
Subordinated Note and the Common Stock Purchase Warrant, do not and will not as
of closing or thereafter (i) require any Governmental Approval or any other
consent or approval, including any consent or approval of the stockholders of
NETCO, other than Governmental Approvals and other consents and approvals that
have been obtained, are final and not subject to review on appeal or to
collateral attack, are in full force and effect or (ii) violate, conflict with,
result in a breach of, constitute a default under, or result in or require the
creation of any lien upon any assets of NETCO under, any contract to which NETCO
is a party or by which NETCO or any of its properties may be bound.
(e) Litigation. There are not, in any court or before any arbitrator of
----------
any kind or before or by any governmental or non-governmental body, any actions,
suits or proceedings pending or threatened (nor, to the knowledge of NETCO, is
there any basis therefor) against or in any other way relating to or affecting
(a) NETCO or (b) any of its businesses or properties.
(f) Taxes. NETCO has filed (or obtained extensions of the time by which
-----
it is required to file) all United States federal, state and local income tax
returns and all other material tax returns required to be filed by it and has
paid all taxes shown due on the returns so filed as well as the other taxes,
assessments and governmental charges which have become due, except such taxes,
if any, as are being contested in good faith and as to which adequate reserves
have been provided. NETCO will continue to make all such filings in a timely
manner and pay all such taxes, assessments and other governmental charges
required of it.
(g) Capitalization. (i) As of the date hereof, the authorized capital
--------------
stock of NETCO consists of 20,000,000 shares of which 15,000,000 are Common
Shares and 5,000,000 are undesignated shares. NETCO does not hold any of its
shares in treasury.
(ii) 1,295,971 Common Shares are issued and outstanding and have
been validly issued and are fully paid and nonassessable and are not subject to
preemptive rights.
(iii) 100,000 of the undesignated shares have been designated as
the Preferred Stock having the rights and preferences set forth on 1 hereof, and
will be duly authorized and may be validly issued prior to the Closing provided
in Section 8 of this Agreement.
(iv) Except as contemplated by this Agreement and as disclosed
on Schedule 1 to this Agreement, there are no outstanding subscriptions,
----------
options,
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<PAGE>
warrants or other rights of any kind to acquire any additional shares of capital
stock of NETCO, or other instruments or securities convertible into or
exchangeable for, or which otherwise confer on the holder thereof any right to
acquire, any such additional shares, nor is NETCO committed to issue any such
option, warrant, right, or security, or any other instrument convertible into a
security.
(v) Except as expressly provided for in this Agreement, there
are no agreements relating to voting, purchase or sale of capital stock between
NETCO and any of its stockholders or affiliates, and to the best of NETCO's
knowledge, among any of its stockholders.
Provided, that a total of 190,280 options having exercise prices of 7.50 or
$10.00 per share respectively that were granted in connection with employment
agreements as disclosed on Schedule 1 may be reissued on identical terms but at
----------
an exercise price of $4.81 per share.
(h) (i) NETCO has delivered to WCOM copies of its financial statements
(including balance sheets, income statements, changes in stockholders equity and
statements of cash flow) for the period from inception [September 1994] through
December 31, 1995, and for the nine month period ended September 30, 1996. Such
financial statements (x) fairly present the financial condition, assets and
liabilities of NETCO at their respective dates and the results of its operations
and changes in its cash flows for the periods covered thereby, (y) were prepared
in accordance with generally accepted accounting principles except as may be
noted therein, and (z) were prepared from the books and records of NETCO, which
books and records are complete and correct and fairly reflect all material
transactions of NETCO's business.
(ii) Within 30 days following the end of each of its first three
fiscal quarters and within 75 days following the end of its fourth fiscal
quarter during the term of the Note, NETCO will furnish WCOM with a copy of its
financial statements, (including balance sheets, income statements, changes in
stockholders equity and statements of cash flow) for each of such quarters and
fiscal year, respectively. In addition, NETCO will furnish WCOM with such
additional financial and business information, including monthly or other
periodic financial statements as NETCO may prepare from time to time, upon the
reasonable request of WCOM.
(i) NETCO has provided WCOM access to full and complete information
regarding NETCO and shall continue to provide such information as WCOM may
reasonably request.
(j) NETCO shall not, during the Payment Period defined in Section
4.02(e):
(i) declare any dividend; or
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(ii) increase the compensation of any Officer or Director,
provided that the salaries of Officers may be adjusted in
accordance with NETCO's prior practices in the ordinary
course of business; or
(iii) borrow against, or pledge, any of its assets otherwise than
in the ordinary course of business unless a principal
purpose of such borrowing or pledge is to finance the
amounts payable to WCOM pursuant to Section 4,02(d) hereof.
VII. REPRESENTATIONS, WARRANTIES AND COVENANTS OF WCOM
7.01 WCOM hereby represents, warrants and covenants to NETCO that:
(a) WCOM has been given access to full and complete information
regarding the Company and has utilized such access to its satisfaction for the
purpose of obtaining information WCOM desires or deems relevant to the decision
to purchase the Preferred Stock, the Subordinated Note and the Common Stock
Purchase Warrants; and particularly, WCOM has had the opportunity to ask
questions of, and receive answers from, representatives of the Company
concerning the terms and conditions of the Note and to obtain any additional
information WCOM desires or deems relevant; and
(b) WCOM is aware that the Company is a development stage company; that
the success of the Company is dependent upon the Company's ability to secure
appropriate employees, switching equipment, telephone carriage, integrating
software; also upon the Company's ability to provide adequate installation and
maintenance services; and upon the Company's ability to successfully market its
data transportation technology and services to appropriate customers; and upon
the Company's ability to obtain adequate financing, as contemplated by the
Credit Facilities, to finance its development and operations; and that the
Company can give no assurances that it will be able to successfully obtain,
provide or accomplish any such matters.
(c) WCOM has obtained, to the extent it has deemed necessary,
professional advice with respect to the risks inherent in the investment in the
Preferred Stock, the Subordinated Note and the Common Stock Purchase Warrants.
(d) WCOM, being a corporation with total assets in excess of $5,000,000
that was not formed for the purpose of acquiring the Note, is an "accredited
investor" within the meaning of Rule 501(a) of the General Rules and Regulations
under the Securities Act of 1933.
11
<PAGE>
(e) WCOM will not use its majority control of NETCO's board of directors
to cause NETCO to waive or fail to enforce any provision of this Agreement for
purposes of frustrating or preventing the intentions of the parties as set
forth in Section 4.01 hereof. Provided, however, that this covenant shall not be
deemed to require any current or future director of NETCO to take, or refrain
from taking, any action which such director reasonably believes, in the exercise
of reasonable business judgment, to be in the best interest of NETCO, or of its
shareholders, in light of the circumstances then prevailing, including any
actions (i) which modify or alter the terms of, or reasonably delay, the
implementation of, the Tender contemplated by Section 4.02 of this Agreement, or
(ii) which relieve WCOM of its obligation to sell the Common Stock Purchase
Warrants, or shares issued upon exercise thereof, to NETCO.
VIII. CLOSING
8.01 Closing. Closing shall occur at the offices of NETCO, at 9:00 A.M.,
-------
local Minneapolis time, on the fourteenth (14th) full business day after the
date of this Agreement, or at such other time and place as may be agreed by
NETCO and WCOM.
8.02 Conditions to Closing. The Closing shall be conditioned upon
---------------------
satisfaction of all of the following requirements;
(a) The approval of this Agreement by NETCO's Board of Directors and by
WCOM;
(b) The due authorization and approval by NETCO's Board of Directors of
the Preferred Stock, the Subordinated Note and the Common Stock Purchase
Warrants;
(c) Any necessary corporate filings by NETCO to validly authorize the
Preferred Stock;
(d) The full approval, execution and delivery by WCOM to Edward J.
Driscoll and Allen L. Witters of the Irrevocable, Limited Proxy Coupled With An
Interest in form appended to this Agreement as Exhibit 5.
(e) The full execution, and due approval by NETCO's Board of Directors,
of each of the employment agreements between NETCO and Edward J. Driscoll, III
and Allen Witters, respectively, substantially in form appended to this
Agreement as Exhibits 6 and 7, respectively;
(f) Resignations, effective on Closing of three (3) members of NETCO's
current Board of Directors, and the election, effective on Closing, of three (3)
new directors nominated by WCOM;
12
<PAGE>
(g) Such certificates, dated as of the Closing, from officers of NETCO as
WCOM may reasonably request relating to the representations, warranties and
covenants given by NETCO herein or to the satisfaction of these conditions of
closing;
(h) The full execution by WCOM, Edward J. Driscoll, III and Allen Witters
of the Refusal Option Agreement attached hereto as Exhibit 8; and
(i) The opinion of NETCO counsel, in form and substance as that attached
hereto as Exhibit 9, addressed to WCOM.
8.03 Payment and Delivery. At Closing, NETCO shall deliver the Preferred
--------------------
Stock, the Subordinated Note and the Common Stock Purchase Warrants to WCOM
against WCOM's payment of the aggregate purchase price therefor of Twenty
Million Forty One Thousand Five Hundred Seventy Five Dollars ($20,041,575) by
wire transfer in immediately available funds to a depository account specified
by NETCO.
IX. TERMINATION
9.01 Termination. Either party may terminate this Agreement prior to
-----------
Closing upon any failure, including its own failure, to satisfy any of the
Conditions to Closing set forth in Section 8.02 hereof.
9.02 Consequences of Termination. Neither party shall be liable to the
---------------------------
other upon any termination in accordance with Section 9.01 hereof.
X. PARTIAL AND TEMPORARY SUPERCESSION
10.1 Abeyance of Certain Provisions of Convertible Note Purchase
-----------------------------------------------------------
Agreement. For the duration of the Preferred Stock as set forth in Section 1.02
- ---------
of this Agreement, the following identified provisions of the Convertible Note
Purchase Agreement shall be deemed to be waived by WCOM and without force and
effect:
(a) Paragraph 5(a) through and including Paragraph 5(i) of the
Convertible Note Purchase Agreement requiring WCOM's consent to the taking of
certain actions requiring, in each case, the approval of NETCO's board of
directors; and
(b) Paragraph 6 of the Convertible Note Purchase Agreement relating to
WCOM's right to nominate one director to NETCO's board of directors.
10.2 Reinstatement of Certain Provisions of Convertible Note Purchase
----------------------------------------------------------------
Agreement. Immediately upon the expiration of the duration of the Preferred
- ---------
Stock
13
<PAGE>
as set forth in section 1.02 of this Agreement, and without further action of
any kind each provision of the Convertible Note Purchase Agreement identified
in Section 10.1 hereof, to the extent then applicable, shall immediately become
again effective and enforceable in accordance with their respective terms.
XI. MISCELLANEOUS
-------------
11.1. Amendments, Waivers and Consents. No provision in this Agreement
--------------------------------
may be altered or amended, and compliance with any covenant or provision set
forth herein may not be omitted or waived, except by an instrument in writing
duly executed by WCOM and NETCO. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
11.2. Notices. All notices required or permitted by this Agreement shall
-------
be in writing, and shall be hand delivered, sent by facsimile or sent by
nationally recognized overnight delivery service or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to WCOM:
WorldCom. Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
Telephone: (601) 360-8051
Telecopy. (601) 974-8233
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: William Anderson
General Counsel
Telephone: (601) 360-8977
Telecopy: (601) 360-8282
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(b) If to the NETCO
Netco Communications Corporation
102 Union Plaza
333 North Washington Ave.
Minneapolis, MN 55401
Attention: Edward J. Driscoll, III
President
Telephone: (612) 204-3100
Telecopy: (612) 204-3101
with a copy to:
George H. Frisch
5030 Woodlawn Boulevard
Minneapolis, Minnesota 55417
Telephone: (612) 724-2929
Telecopy: (612) 724-8387
or to such other person or address as any party hereto shall specify by notice
in writing to the other parties. All such notices and other communications shall
be effective when received.
11.3. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the NETCO and WCOM. No assignment of rights or
delegation of duties arising under this Agreement may be made by any party
hereto without the prior written consent of the other parties.
11.4. Third-Party Beneficiaries. This Agreement is for the sole benefit
-------------------------
of the parties hereto and their permitted assigns and, except as expressly set
forth in Section 4.02(b) herein relating to the right to petition for a
valuation, nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
11.5. Entire Agreement; Savings. This Agreement, the Subordinated Note and
-------------------------
the Common Stock Purchase Warrants constitute the entire agreement between the
parties hereto with respect to the subject matter contained herein and therein
and supersedes all other prior understandings or agreements, both written and
oral, between the parties with respect to the matters contained herein and
therein; provided, however, that nothing in this Agreement shall be deemed in
any way to affect the Convertible Note Agreement or the Convertible Note, which
shall each continue in accordance with their respective terms and, except as
expressly provided in Section 10 of this Agreement, be unaffected by this
Agreement.
15
<PAGE>
11.6 Severability. The provisions of this Agreement are severable and, in
------------
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement; but this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of a provision, had never been contained herein, and such
provisions or part reformed so that it would be valid, legal and enforceable to
the maximum extent possible.
11.7 Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the law of the State of Minnesota without regard to its
principles of conflicts of laws.
11.8 Headings. Article, Section and subsection headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
11.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart by original or facsimile signature.
11.10 Expenses. Each of the parties hereto shall pay the fees and expenses
--------
of its respective counsel, accountants and other experts (including any broker,
finder, advisor or intermediary) and shall pay all other expenses incurred by it
in connection with the negotiation, preparation and execution of this Agreement
and the consummation of the transactions contemplated hereby.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day
and year first above written.
"NETCO"
NETCO COMMUNICATIONS CORPORATION
BY: /s/ Edward J. Driscoll, III
________________________________
Edward J. Driscoll, III
Its: President and Secretary
"WCOM"
WORLDCOM INC.
By: /s/ K. William Grothe, Jr.
________________________________
K. William Grothe, Jr.
Its: Vice President
17
<PAGE>
Index of Schedules and Exhibits
-------------------------------
Schedules
---------
Schedule
- --------
1. Schedule of Outstanding Common Stock and Common Stock Equivalents
Exhibits
--------
Exhibit
- -------
1 Statement of Rights and Preferences of Class A Preferred Shares
2 Funding Notice
3 Subordinated Note
4 Common Stock Purchase Warrant
5 Limited Irrevocable Proxy Coupled With An Interest
6 Employment Agreement between NETCO and Edward J. Driscoll, III
7 Employment Agreement between NETCO and Allen Witters
8 Refusal Option
9 Opinion of Counsel
18
<PAGE>
SCHEDULE 1
Common Stock & Common Stock Equivalents
Common Stock O/S
----------------
# of shares
Common Stock: 1,295,791
<TABLE>
<CAPTION>
Options Granted
---------------
Employment Contracts: Price # of options
<S> <C> <C>
Options at $ 2.25 76,500
Options at $ 5.00 18,000
Options at $ 7.50 90,280
0ptions at $ 10.00 117,500
-----------------------------------------------------------
Cat. Total 302,280
-----------------------------------------------------------
Board of Directors: Price # of options
Options at $ 2.25 62,000
-----------------------------------------------------------
Cat. Total 62,000
-----------------------------------------------------------
Officers: Price # of options
Options at 2.25 75,500
-----------------------------------------------------------
Cat. Total 75,500
-----------------------------------------------------------
Warrant & Convertible Debt Outstanding
--------------------------------------
Bridge Financing: Price # of warrants
Warrants at $ 5.00 220,000
Warrants at $ 7.50 1,012,000
-----------------------------------------------------------
Cat. Total 1,232,000
-----------------------------------------------------------
Convertible Debt: Price Convertible to
$ 5,000,000 at $ 5.00 1,000,000
$ 125,000 at $ 1.90 65,789
-----------------------------------------------------------
Cat. Total 1,065,789
-----------------------------------------------------------
Other: Price # of warrants
Warrants at $ 3.00 113,333
Warrants at $ 10.00 9,000
-----------------------------------------------------------
Cat. Total 122,333
-----------------------------------------------------------
Total Common Stock & Equivalents 4,155,693
=========
</TABLE>
<PAGE>
Exhibit 1
Statement of Rights and Preferences
of Class A Preferred Shares
Series A Preferred Stock
------------------------
Section 1. Designation and Amount. The shares of the Preferred Stock shall
----------------------
be designated as "Series A Preferred Stock." The number of shares constituting
the Series A Preferred Stock shall be One Hundred Thousand (100,000). Each share
of Series A Preferred Stock shall have a par value of Ten Dollars ($10.00) per
share. The number of shares of Series A Preferred Stock may be increased or
decreased by resolution of the Board of Directors; provided, that, no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding, plus the number of shares, if any,
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Company convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions. (A) The holders of shares of
---------------------------
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company, shall be entitled to
receive, when, as and if declared by the Board of Directors of the Company (the
"Directors") a dividend (the "Quarterly Dividend") in the amount of One Dollar
and Seventy Five Cents ($1.75) per share payable out of the net earnings of
the Company constituting funds legally available for the purpose. The Quarterly
Dividend shall begin to accrue on January 1, 1997, and shall be payable in cash
on the first day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock. If the net
earnings in any year are not sufficient to pay the Quarterly Dividend, either in
whole or in part, then any unpaid portion of such dividend will become a charge
against the net earnings of the Company, and will be paid in full out of the net
earnings of the Company in subsequent years before any dividends are paid on the
Common Stock of the Company in those years. No dividends will be paid or set
apart for payment on the Common Stock, no distribution will be made on the
Common Stock, and no shares of Common Stock will be redeemed, retired or
otherwise acquired for valuable consideration unless all theretofore unpaid
Quarterly Dividends have been declared, and the
Exhibit 1-1
<PAGE>
Company has paid those dividends or has set aside a sum sufficient to pay them.
(B) Dividends shall begin to accrue and accumulate on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive Quarterly Dividends and before such Quarterly Dividend
Payment Date, in either of which events such Quarterly Dividends shall begin to
accrue and accumulate from such Quarterly Dividend Payment Date. Accrued but
unpaid Quarterly Dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of Quarterly
Dividends then accrued and payable shall be allocated pro rata on a share-by-
share basis among all such shares of Series A Preferred Stock then outstanding.
The Directors may fix a record date for the determination of holders of shares
of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than sixty
(60) days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights.
(A) Each share of Series A Preferred Stock shall entitle the holder
thereof to one vote for each share of Series A Preferred Stock standing in the
name of the holder on the books of the Company. The holders of Series A
Preferred Stock, voting separately as a class, shall be entitled to elect a
majority of the Directors. The right to elect Directors may be exercised at any
annual meeting of the stockholders of the Company, at any special meeting held
in place of an annual meeting, or at a special meeting called to elect
directors. The right to elect directors shall continue until December 31, 1999,
and then expire. The directors elected by the Series A Preferred Stock shall
serve until the next annual or special meeting of the stockholders of the
Company and until their respective successors have been elected by the holders
of Series A Preferred Stock and have been qualified. The term of office of any
person elected as a director by the holders of Series A Preferred Stock shall
terminate on December 31, 1999. The vacancies created thereby may be filled by
resolution of the remaining Directors who shall have been elected by a vote of
the holders of the Common Stock of the Company. If the office of a director
elected by the holders of Series A Preferred Stock is vacant prior to December
31, 1999, due to resignation, removal or death, the vacancy shall be filled by
the majority vote of the directors then in office, even if less than a
Exhibit 1-2
<PAGE>
quorum, upon the recommendation of the remaining director or directors who were
elected by the holders of the Series A Preferred Stock. If the office of a
director who was elected by the holders of Common Stock is vacant prior to
December 31, 1999, due to resignation, removal or death, the vacancy shall be
filled by the majority vote of the directors then in office, even if less than a
quorum, upon the recommendation of the remaining director or directors who were
elected by the holders of the Common Stock. If the vacancy is not so filled
within forty (40) days after the creation of the vacancy, a special meeting of
the holders of Preferred Stock and/or Common Stock shall be called and the
vacancy or vacancies shall be filled at that meeting.
(B) In addition to the right to elect a majority of the Directors as
provided in Section 3(A), the holder of each share of the Series A Preferred
Stock shall be entitled to one vote, voting together with the holders of Common
Stock as a single class, on all matters, excluding the election of Directors,
submitted to the vote of shareholders of the Company.
(C) Except as otherwise provided in Section 3(A) or in Section 10
hereof, or in any other Certificate of Designations creating a series of
Preferred Stock, or in any similar stock of the Company hereafter created, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Company having general voting
rights shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.
(D) Except as expressly set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions. (A) Whenever Quarterly Dividends or
--------------------
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid Quarterly Dividends
and distributions, whether or not declared, on shares of Series A Preferred
Stock, outstanding shall have been paid in full, the Company shall not, without
the express affirmative unanimous approval of the Directors elected by holders
of the Series A Preferred Stock:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred stock;
Exhibit 1-3
<PAGE>
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that
the Company may at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of any stock of the Company
ranking junior (as to dividends and upon dissolution, liquidation and
winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board) to all
holders of such shares upon such terms as the Board, after consideration of
the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Liquidation, Dissolution or Winding up. Upon any voluntary
--------------------------------------
or involuntary liquidation, dissolution or winding up of the affairs of the
Company, no distribution shall be made (a) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock, or (b) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock unless each holder
of Preferred Stock has received in cash out of the assets of the Company,
whether from capital or earnings, available for distribution to the shareholders
of the Company, before any amount is paid to the holders of Common Stock, the
sum of Ten Dollars ($10.00) per
Exhibit 1-4
<PAGE>
share for each share of Preferred Stock held by the holder, plus an amount
equal to the sum of all accumulated and unpaid dividends to the date affixed for
the payment of the distribution on the shares of Preferred Stock held by the
holder. The sale or transfer by the Company of all or substantially all of its
assets shall not, for the purposes of determining preferences and liquidation,
be deemed to be a liquidation, dissolution or winding up of the Company.
Section 6. Preemptive Rights. No holder of any shares of Series A
-----------------
Preferred stock shall be entitled as such, as a matter of right, to subscribe
for, purchase or receive any part of any class whatsoever, or of securities
convertible into or exchangeable for any stock or any class whatsoever, whether
now or hereafter authorized or whether issued for cash or other consideration or
by way of a dividend.
Section 7. Mandatory Redemption. Unless earlier redeemed or acquired
--------------------
in whole or in part by the Company with the consent of the Holder, the shares of
Series A Preferred Stock that remain issued and outstanding shall expire and
shall be automatically redeemed on December 31, 1999, at par value, plus an
amount equal to all accumulated and unpaid dividends, if any, due with respect
to the Preferred Stock (collectively, the "Redemption Price"). Redemption shall
be in cash out of any funds legally available for the redemption of the
Preferred Stock.
Section 8. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of
undesignated stock and may be reissued subject to the conditions and
restrictions on issuance in the Articles of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
----
the payment of dividends and the distribution of assets, senior to all series
of any other class of Preferred Stock.
Section 10. Amendment. If any proposed amendment to the Articles of
---------
Incorporation or this Certificate of Designation would alter or change the
preferences, special rights or powers given to the Series A Preferred Stock so
as to affect the Series A Preferred Stock adversely, or would authorize the
issuance of a class or classes of stock having preferences or rights with
respect to dividends or dissolution or the distribution of assets that would be
superior to the preferences or rights of the Series A Preferred Stock, then the
holders of the Series A Preferred Stock shall be entitled to vote as a series
upon such amendment, and the
Exhibit 1-5
<PAGE>
affirmative vote of two-thirds of the outstanding shares of Series A
Preferred Stock shall be necessary to the adoption thereof, in addition to such
other vote as may be required by law.
Exhibit 1-6
<PAGE>
Exhibit 2
Funding Notice
(date)
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention:________________
Dear________________:
Pursuant to Sections 2.01 and 2.02 of that certain Preferred Stock,
Subordinated Note and Warrant Purchase Agreement ("Loan Agreement") dated as of
November 14, 1996 between Netco Communications Corporation ("NETCO") and
WorldCom Inc. ("WCOM), NETCO hereby requests WCOM to make the following Future
Disbursement as contemplated by the Loan Agreement.
1) Amount $______________________
2) For quarter ending _______________________
Please cause the requested funds to be delivered by wire transfer to
NETCO's account as follows:
(wire transfer instructions)
By my signature set forth below, I hereby certify that this request for
Future Disbursement has been duly authorized by NETCO's board of Directors.
Thank you for your courtesies in this matter.
Very truly yours,
Netco Communications Corporation
By________________________________
(authorized signature)
<PAGE>
Exhibit 3
Registered Holder: WorldCom Inc.
$____________
NETCO COMMUNICATIONS CORPORATION
102 UNION PLAZA
333 NORTH WASHINGTON AVENUE
MINNEAPOLIS, MINNESOTA 55401
7% Subordinated Note
Due December 31, 2003
For Value Received, NETCO COMMUNICATIONS CORPORATION, a Minnesota
corporation, (hereinafter called the "Issuer") hereby promises to pay to the
order of WorldCom Inc., or the registered holder (hereinafter referred to as the
"Holder") the principal amount of Twenty Eight Million Five Hundred Thousand
Dollars ($28,500,000), or such lesser amount as has been actually advanced to
Issuer by Holder pursuant to that certain Preferred Stock, Subordinated Note and
Warrant Purchase Agreement of even date herewith, upon presentation of this
certificate, in legal tender of the United States of America at the time of
payment hereof, to the account of holder according to Holder's written
instructions, on December 31, 2003, or sooner as hereinafter provided.
The Issuer further agrees to pay interest on the principal amount remaining
unpaid from time to time thereon from the date hereof at the rate of seven
percent (7%) per annum. Interest shall accrue from the date of purchase of
this Note (hereinafter, the "Note"), and be payable on June 30 and December 31
of each year, commencing with the first interest payment on December 31, 1996.
The Issuer shall, upon request of the registered Holder, mail a check or draft
representing such interest to the registered holder at the address designated by
the registered holder and appearing on the books of registration maintained by
the Issuer. Except as otherwise provided in Article 2, no interest shall accrue
or be paid on this Note after December 31, 2003.
If any payment due hereunder is not received by the Holder within 15 days
from the date due, Issuer shall pay a late payment charge of Five Dollars
($5.00) or four percent (4%) of the amount of the delinquency, whichever is
greater.
The following terms, covenants, and conditions shall apply to this Note.
Exhibit 3-1
<PAGE>
ARTICLE 1
SUBORDINATION
1.1) The Issuer and the Holder of this Note, by acceptance hereof, agree
that the payment of the principal and interest on this Note is, to the extent
stated herein, expressly subordinated to the prior payment of the principal and
interest on all existing or future obligations of the Issuer for money borrowed
from a bank, trust, insurance, or other financial institution engaged in the
business of lending money, which is hereinafter referred to as "Senior
Indebtedness." In the event of any receivership, insolvency, assignment for the
benefit of creditors, bankruptcy, reorganization, or arrangement with creditors
(whether or not pursuant to bankruptcy or other insolvency laws), sale of all or
substantially all of the assets, dissolution, liquidation, or any other
marshaling of the assets and liabilities of the Issuer, or in the event the Note
shall be declared due and payable upon the occurrence of an event of default (as
specified herein), (1) no amount shall be paid by the Issuer in respect of the
principal or interest on this Note at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding shall
have been paid in full, and (2) no claim or proof of claim shall be filed with
the Issuer by or on behalf of the holder of this Note which shall assert any
right to receive any payments in respect of the principal of and interest on
this Note except subject to the payment in full of the principal and interest of
all of the Senior Indebtedness then outstanding.
ARTICLE 2
EVENT OF DEFAULT
2.1) Each of the following shall constitute an Event of Default.
(a) Failure to pay interest when due, continued for thirty (30) days;
(b) Failure to pay principal or premium when due;
(c) An assignment for the benefit of creditors of the Issuer, adjudication
of Issuer as a bankrupt, or petition for the reorganization of the Issuer
pursuant to Chapter 7 or 11 of the United States Bankruptcy Code, as the same
may be amended.
2.2) Upon the occurrence of any Event of Default specified in Section
2.1(c) above, the entire unpaid principal balance hereof, together with all
accrued and unpaid interest thereon and all other sums owing hereunder, shall
become immediately due and payable, without presentation, demand or further
action of any kind. Upon the occurrence of any Event of Default specified in
Section 2.1 (a) or Section 2.1 (b) above, the holder of this Note shall have the
sole option of declaring the unpaid principal
Exhibit 3-2
<PAGE>
balance hereof together with all other sums owing hereunder immediately due and
payable, without presentation, demand or further action of any kind.
2.3) Upon the occurrence of any Event of Default and before and after
acceleration of the entire unpaid principal balance of this Note, interest shall
continue to accrue thereafter at a rate equal to two percent (2%) per annum in
excess of the then applicable rate of interest under this Note until this Note
is paid in full, including the period following entry of any judgment. Both
before and after any default, interest shall be calculated on the basis of a
360-day year but charged on the basis of actual number of days elapsed in any
calendar year of part thereof.
2.4) Holder may waive any default before or after the same has been
declared without impairing the Holder's right to declare a subsequent default
hereunder, this right being a continuing right.
2.5) Upon an Event of Default, Holder shall not be deemed, by any act of
omission or commission to have waived any of its rights or remedies unless such
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. A waiver as to one event shall not be
construed as continuing or as a bar to or waiver of any right or remedy as to a
subsequent event.
ARTICLE 3
PREPAYMENT
3.1) This Note may be prepaid at any time, in whole or in part, prior to
maturity at the option of the Issuer, upon payment of all, or such lesser
portion of the principal amount as specified in the notice, together with
interest accrued to the date fixed for payment. If the Holder hereof fails or
neglects to present this Note for payment at the time and place specified in
such notice, this Note shall cease to bear interest on the portion to be
prepaid, as set forth in the notice, unless payment hereof is refused upon the
presentation of the same at or after the time specified in such notice.
ARTICLE 4
PAYMENT
4.1) Payment to the Holder of principal and interest shall be a complete
discharge of the Issuer's liability with respect to such payment, but the Issuer
may, at any time, require the presentation hereof as a condition precedent to
such payment.
4.2) No recourse shall be had for the payment of the principal, or
interest, or for any claim based thereon, or otherwise, against any
incorporator, shareholder, officer, director, or agent, past, present, or
future, of the Issuer, whether by virtue of any
Exhibit 3-3
<PAGE>
constitution, statute, rule of law, enforcement of any assessment, or penalty,
or by reason of any matter prior to delivery of this Note, or otherwise. All
such liability, by the acceptance hereof, is a part of the consideration to the
Issuer hereof, and is expressly waived.
ARTICLE 5
DIVIDENDS
5.1) Until payment in full of this Note, the Issuer may not declare any
dividend payable in cash or property on its Common Stock, with the sole
exception of any stock split in the form of a dividend payable in shares of
common stock.
ARTICLE 6
NOTICE
6.1) All notices, requests, demands and other communications under this
Note shall be in writing and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day after mailing if mailed to the party to whom notice is to be given
by first class mail, registered or certified, postage prepaid to the Issuer at
its address stated on the front page of this Note and to the Holder at its
address as listed in the register of the Issuer. Either party may change its
address for purposes of this Article 6.1 by giving the other party written
notice of the new address in the manner set forth above.
ART1CLE 7
MISCELLANEOUS
7.1) All parties liable for the payment of this Note agree to pay on
demand, all costs of collection and to cure any default under this Note
including, but not limited to, reasonable attorneys' fees actually incurred.
7.2) The undersigned and all endorsers, sureties and guarantors of
this Note, jointly and severally waive notice of and consent to any and all
extensions of this Note or any part hereof without notice, and each hereby
waives presentment, demand for payment, protest and notice of dishonor, demand,
protest and nonpayment.
7.3) The remedies of Holder as provided herein shall be cumulative and
concurrent, and may be pursued singly, successively or together against Issuer
at the
Exhibit 3-4
<PAGE>
sole discretion of Holder, and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release of the same.
7.4) Issuer's obligations hereunder shall extend to and bind Issuer's
successors and assigns. This Note may be amended only by an instrument in
writing signed by both Issuer and Holder.
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed by its
President and Secretary.
Dated: November __, 1996 NETCO COMMUNICATIONS CORPORATION
By:______________________________
Edward J. Driscoll, III
President and Secretary
Exhibit 3-5
<PAGE>
Exhibit 4
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME DECEMBER 31, 2000
Certificate for 4,157,500 Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
NETCO COMMUNICATIONS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that WORLDCOM INC., ("Holder") or assigns, is the owner
of the number of Warrants set forth above, each of which represents the right to
purchase from Netco Communications Corporation, a Minnesota corporation (the
"Company"), at any time on or before 5:00 Minneapolis time, December 31, 2000,
upon compliance with and subject to the conditions set forth herein, one share
(subject to adjustments referred to below) of the Common Stock of the Company,
par value $.01 per share (such shares or other securities or property
purchasable upon exercise of the Warrants being herein called the "Shares").
Upon any exercise of less than all the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Holder a new Warrant
Certificate in respect of the Warrants as to which this Warrant Certificate was
not exercised.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability. The rights represented by this Warrant
-------------------------
may be exercised by the Holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), by written notice of exercise delivered to
the Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and by paying in full, as provided herein, the purchase
price of $4.81 per share (the "Initial Exercise Price" subject to adjustments as
noted subsequently).
Payment upon exercise of the rights represented by this Warrant may be
made at the option of the Holder (a) in cash or by certified or official bank
check payable to the order of the Company, (b) by surrendering to the Company
for cancellation and retirement any number shares of Class A Preferred Shares,
par value $10.00 per share, which shares shall each be valued for purposes
hereof at
Exhibit 4-1
<PAGE>
their par value of $10.00 plus the sum of any then accumulated and unpaid
dividends thereon, (c) by cancellation and discharge of the Company from all or
any portion of any debt in the amount then owed by the Company to the Holder on
a dollar for dollar basis, including principal whether or not then due and
payable together with any interest accrued and unpaid thereon, or (d) by any
combination of any or all of the foregoing.
This Warrant may not be transferred or divided into two or more
Warrants of smaller denominations, nor may any Common Stock issued pursuant to
exercise of this Warrant be transferred unless this Warrant or shares have been
registered under the Securities Act of 1933, as amended ("Securities Act") and
applicable state laws, or unless the Holder of the certificate obtains an
opinion of counsel satisfactory to the Company and its counsel that the proposed
transfer may be effected without registration pursuant to exemptions under the
Securities Act and applicable state laws.
2. Issuance of Shares. The Company agrees that the shares purchased
------------------
hereby shall be deemed to be issued to the record Holder hereof as of the close
of business on the date on which this Warrant shall have been surrendered and
the payment made for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
shall be delivered to the Holder hereof within a reasonable time, not exceeding
ten (10) days after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to the Holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all
--------------------
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at all
times equal to or less than the then effective purchase price per share of the
Common Stock issuable pursuant to this Warrant. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its
Exhibit 4-2
<PAGE>
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Adjustments. The above provisions are, however, subject to the
-----------
following provisions:
(a) The Initial Exercise Price of $4.81 per share shall increase to $4.94
per share on March 31, 1997, and shall thereafter increase by the
amount of $.08 per share on the last day of each calendar quarter
during the term of the Warrant, commencing with the calendar quarter
ending June 30, 1997 (such increases beginning with the calendar
quarter ending June 30, 1997, being referred to as the "Quarterly
Increase"); provided, that to encourage earlier partial exercise of the
Warrants, the amount of each Quarterly Increase shall be abated at the
rate of $.00875 per share (the "Abatement") for each incremental
purchase of aggregated amounts of Five Hundred Thousand (500,000)
shares upon partial exercise of this Warrant. Each Abatement shall take
effect on the last day of the calendar quarter during which such
partial exercise and purchase occurred, as illustrated by the following
examples: (i) the purchase of One Million Five Hundred Thousand
(1,500,000) shares during the second calendar quarter of 1998 would
result in a reduction, commencing June 30, 1998, of the Quarterly
Increase to .0625 per share for each subsequent calendar quarter; (ii)
the further purchase of Five Hundred Thousand (500,000) shares during
the third calendar quarter of 1998 would result in a further reduction,
commencing September 30, 1998, of the Quarterly Increase to $.045 per
share for each subsequent calendar quarter. The exercise price computed
from time to time in accordance with this provision shall be referred
to as the "Current Exercise Price."
(d) In case the Company shall at anytime hereafter subdivide or combine the
outstanding shares of Common Stock or declare a dividend payable in
Common Stock, the exercise price of this Warrant in effect immediately
prior to the subdivision, combination or record date for such dividend
payable in Common Stock shall forthwith be proportionately increased,
in the case of combination, or decreased, in the case of subdivision or
dividend payable in Common Stock, and each share of Common Stock
purchasable upon exercise of the Warrant shall be changed to the number
determined by dividing the then Current Exercise Price by the exercise
price as adjusted after the subdivision, combination, or dividend
payable in Common Stock.
(e) No fractional shares of Common Stock are to be issued upon the exercise
of the Warrant, but the Company shall pay a cash
Exhibit 4-3
<PAGE>
adjustment in respect of any fraction of a share which would otherwise
be issuable in an amount equal to the same fraction of the market price
per share of Common Stock on the date of exercise as determined in good
faith by the Company.
(f) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock then, as a condition of
such reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provision shall be made whereby the Holder hereof
shall hereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant and in lieu
of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may
be issued and payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provisions shall be made with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including without limitation provisions for
adjustments of the Warrant purchase price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation, merger, or
the corporation purchasing such assets shall assume by written
instrument executed and mailed to the registered Holder hereof at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder
may be entitled to purchase.
(g) If the Company shall at any time or from time to time (i) distribute
(otherwise than as a dividend in cash or in Common Stock or securities
convertible into or exchangeable for Common Stock) to the holders of
Common Stock any property or other securities, or
Exhibit 4-4
<PAGE>
(ii) declare a dividend upon the Common Stock (to the extent payable
otherwise than out of earnings or earned surplus, as indicated by the
accounting treatment of such dividend in the books of the Company, and
otherwise than in Common Stock or securities convertible into or
exchangeable for Common Stock), the Company shall reserve and the
Holder of this Warrant shall thereafter upon exercise hereof be
entitled to receive, with respect to each share of Common Stock
purchased hereunder, without any change in, or payment in addition to,
the exercise price, the amount of any property or other securities
which would have been distributable to such holder had such holder
been a holder of one share of Common Stock on the record date of such
distribution or dividend (or if no record date was established by the
Company, the date such distribution or dividend was paid).
(h) Upon any adjustment of the Current Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered holder of
this Warrant at the address of such holder as shown on the books of
the Company, which notice shall state the exercise price resulting
from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
5. Common Stock. As used herein, the term "Common Stock" means the
------------
Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
6. No Voting Rights. This Warrant shall not entitle the Holder hereof to
----------------
any voting rights or other rights as a stockholder of the Company.
7. Notice of Transfer of Warrant or Resale of Shares. The Holder of this
-------------------------------------------------
Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, or transferring any Common Stock issued upon
the exercise hereof, of such holder's intention to do so, describing briefly the
manner of any proposed transfer. Promptly upon receiving such written notice the
Company shall present copies thereof to the Company counsel and if in the
opinion of such counsel the proposed transfer complies with federal and state
securities laws and may be effected without registration or qualification (under
any Federal or State law), the Company, as promptly as practicable, shall notify
such holder of such opinion, whereupon such holder shall be entitled to transfer
Exhibit 4-5
<PAGE>
this Warrant or to dispose of shares of Common Stock received upon the previous
exercise of this Warrant, provided that an appropriate legend may be endorsed on
this Warrant or the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfers which would be in violation of Section 5 of the
Securities Act of 1933.
If in the opinion of Company's counsel referred to in this paragraph 7
hereof, the proposed transfer or disposition of shares described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. Registration Rights. If the Company, at any time after three (3)
-------------------
years from the date hereof until two (2) years after the complete exercise of
this Warrant, but in any event no later March 31, 2003, proposes to claim an
exemption under Section 3(b) for a public offering of any of its securities or
to register under the Securities Act of 1933 (except by a Form S-8 or other
inappropriate Form for registration) any of its securities, it will give written
notice to all registered holders of Warrants, and all registered holders of
shares of Common Stock acquired upon the exercise of Warrants, of its intention
to do so and, on the written request of any registered holders given within
twenty (20) days after receipt of any such notice (which request shall specify
the Warrants or shares of Common Stock intended to be sold or disposed of by
such registered holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrants and/or shares, the registered holders of which shall have requested the
registration or qualification thereof, to be included in such notification or
registration statement proposed to be filed by the Company; provided, however,
that no such inclusion shall be required (i) if the Shares may then be sold by
the holder thereof without limitation under Rule 144(k), or comparable successor
rule of the Securities and Exchange Commission, or (ii) if the managing
underwriter of such offering reasonably determines that including such Shares
would unreasonably interfere with such offering. The Company will pay all
expenses of registration. The Warrant holders shall pay all commissions or
discounts applicable to the sale of the included Shares, together with any
expenses of counsel retained by them in connection with their sale of the
Shares.
Exhibit 4-6
<PAGE>
IN WITNESS WHEREOF, Netco Communications Corporation, Inc. has caused
this Warrant to be signed by its duly authorized officer and this Warrant to be
dated November ___, 1996.
NETCO COMMUNICATIONS CORPORATION
By: _____________________________
Edward J. Driscoll, III
President
Exhibit 4-7
<PAGE>
Exhibit 5
NETCO COMMUNICATIONS CORPORATION
IRREVOCABLE, LIMITED PROXY COUPLED WITH AN INTEREST
WorldCom Inc. ("WCOM") hereby irrevocably appoints Edward J. Driscoll,
III, and Allen L. Witters as Proxies (each with the power to act alone and with
the power of substitution and revocation) to represent the undersigned and to
vote, as designated and limited below, all Common Shares of Netco Communications
Corporation ("NETCO") held of record by the undersigned during the Payment
Period.
This Proxy is given pursuant to section 4.02(e) of that certain
Preferred Stock, Subordinated Note and Warrant Purchase Agreement ("Purchase
Agreement") between WCOM and NETCO dated November 14, 1996. Capitalized terms
used and not otherwise defined in this Proxy shall have the meanings ascribed to
them in the Purchase Agreement.
The Proxies are authorized during the Payment Period to vote in their
discretion upon all matters which may come before any meeting of shareholders of
NETCO during the Payment Period, including the election of directors; provided,
however, that the Proxies are not authorized to vote in favor of any proposal
which approves any merger, sale or exchange of assets, or other transaction
requiring shareholder approval unless a principle purpose of such transaction is
to permit NETCO to obtain the financing and/or funds that are necessary, and
that are used, to pay WCOM the full purchase price (pursuant to section 4.02(d)
of the Purchase Agreement) for the Warrants and/or the shares of NETCO Common
Stock theretofore issued upon exercise of the Warrants or conversion of the
Convertible Note.
WCOM retains the right to vote on all other matters submitted to NETCO
shareholders for which the Proxies are not expressly authorized to vote.
This Proxy is coupled with an interest and is irrevocable until
expiration of the Payment Period.
WorldCom, Inc.
By:______________________________
Its:_____________________________
Dated: November __, 1996
<PAGE>
Exhibit 6
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
AGREEMENT, made and entered into as of the ____ day of November, 1996,
by and between Netco Communications Corporation, a Minnesota corporation (the
"Corporation"), and Edward J. Driscoll, III ("Executive").
RECITALS:
--------
WHEREAS, the Executive is the President and Chief Executive Officer of
the Corporation;
WHEREAS, the Executive's leadership and services have constituted a
major factor in the successful growth and development of the Corporation's
business; and
WHEREAS, the Corporation desires to employ and retain the unique
experience, ability and services of the Executive as a principal executive
officer; and
WHEREAS, the Corporation and the Executive desire to record the terms
of Executive's continued employment by the Corporation;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1.) Term of Employment. Subject to the terms and conditions of this
------------------
Agreement, the Corporation hereby employs Executive and Executive hereby
accepts employment for the period commencing October 1, 1996, and ending
December 31, 1998, and thereafter for successive one year periods ending
December 31 of each succeeding year unless and until the employment is
terminated in accordance with the provisions of this Agreement. Each December
31, commencing December 31, 1998, shall be designated the "Annual Renewal Date."
2) Duties, Responsibilities, and Authority. During the term of this
---------------------------------------
Agreement, Executive shall serve as Chief Executive Officer of the Corporation.
As such, Executive shall be responsible for the overall direction of the
Corporation and he shall have such duties as are generally appropriate to his
Exhibit 6 - 1
<PAGE>
position and such authority as shall be required to enable him to perform these
duties, including but not limited to the authorities and duties currently
prescribed in the Articles of Incorporation and the Bylaws of the Corporation,
subject to the power of the shareholders and/or directors of the Corporation to
amend or modify such Articles of Incorporation or Bylaws. The Executive shall
exert his best efforts and devote substantially all of his time and attention to
the Corporation's business. The Executive shall be in complete charge of the
operations of the Company, and shall have full authority and responsibility,
subject only to the general direction, approval, and control of the
Corporation's Board of Directors, for formulating policies and administering
the Corporation in all respects. His powers shall include authority to hire and
fire Corporation personnel, except for members of the Board of Directors who are
also employees of the Corporation, and to retain consultants when he deems
necessary to implement Corporation policies.
3.) Location of Employment. Executive's services shall be rendered
----------------------
principally in Minneapolis, Minnesota and Executive shall not be required,
without his consent, to change his residence or work location from either
Hennepin County or Ramsey County, Minnesota by virtue of his employment with the
Corporation.
4.) Compensation, Benefits, Expenses.
--------------------------------
(a) Salary. The Corporation shall pay Executive a base salary at an
------
annual rate of $150,000.00 commencing October 1, 1996. Salary shall be
paid in accordance with the Corporation's regular payroll procedure,
but not less frequently than monthly. Executive's base salary shall be
reviewed periodically (at intervals of not more than 12 months) by the
Board of Directors of the Corporation ("the Board of Directors" or
"Board") or a committee thereof for the purpose of considering
increases thereof. In evaluating increases in salary, such factors as
corporate performance, individual merit, inflation and other
appropriate considerations shall be taken into account.
(b) Stock Option. In addition to any other compensation or benefits
------------
to which the Executive may be entitled under this Agreement or
otherwise, Executive shall receive options to acquire Four Hundred
Thousand (400,000) shares of the capital stock of the Corporation in
accordance with the terms of that certain Stock Option Agreement which
is attached hereto and marked Exhibit A.
(c) Bonus and Other Compensation. The Executive shall be entitled to
----------------------------
additional bonus and other compensation as may be established from
time to time by the Board of Directors based upon an annual business
plan which shall set goals (which shall include achievement of revenue
and
Exhibit 6 - 2
<PAGE>
profit measures which are reasonable at the time established) for the
Corporation.
(d) Vacation. During each year of his employment, Executive will be
--------
entitled to reasonable vacations not exceeding five weeks per year,
holidays and time off when ill, all at full pay. Vacations shall be at
such time or times and for such periods as Employer and Executive
shall agree.
(e) Automobiles. The Corporation recognizes the Executive's need for
-----------
an automobile or automobiles for business purposes. It, therefore,
shall provide the Executive with a reasonably suitable automobile or
automobiles, including all related maintenance, repairs, insurance and
other costs associated with such automobiles during the term of this
Agreement or any renewal or extension thereof.
(f) Expenses. The Corporation recognizes that Executive will have to
--------
incur certain out-of-pocket expenses related to his services and the
Corporation's business and that it will be extremely difficult to
account for such expenses. It is understood that Executive's
compensation is intended to cover all such out-of-pocket expenses. The
Corporation, however, shall reimburse Executive for any specific
expenditures incurred for travel, lodging, entertainment, and the like
upon submission of appropriate receipts and documentation sufficient
to substantiate them as reasonable and necessary business expenses.
(g) Employee Benefits. This Agreement shall not be in lieu of any
-----------------
rights, benefits and privileges to which Executive may be entitled as
an employee of the Corporation under any retirement, pension,
profit-sharing, insurance, group life insurance, hospitalization,
surgical and major medical coverage, and long-term disability or other
plans which may now be in effect or which may hereafter be adopted.
Executive shall have the same rights and privileges to participate in
such plans and benefits as any other employee during his period of
employment. In addition, to the extent appropriate for a senior
executive of the Corporation, Executive shall be entitled to
participate in any pension and retirement plans, bonus plans and such
other fringe benefit programs or plans as are or may be made available
from time to time to executive and/or other salaried Executives of the
Corporation.
5.) Termination.
-----------
(a) Events of Termination. This Agreement may be terminated upon
---------------------
the occurrence of any one of the following events:
Exhibit 6 - 3
<PAGE>
(1) Voluntary. Executive may terminate this Agreement at any time
---------
during the term of this Agreement by giving 30 days prior written
notice of termination to the Board.
(2) Involuntary Without Cause. The Board, without cause, may
-------------------------
terminate this Agreement on any Annual Renewal Date during the
term of this Agreement upon written notice to Executive at least
90 days prior to an Annual Renewal Date.
(3) Involuntary With Cause. The Board, upon written notice effective
----------------------
immediately, may terminate this Agreement at any time during the
term of this Agreement for cause. "Cause" for purposes of such
termination shall mean the following:
a. admission or conviction of an act of dishonesty by Executive
with respect to the material interests of the Corporation;
b. willful misfeasance or willful nonfeasance of a duty
intended to injure or having the effect of injuring the
reputation, business relationships of the Corporation,
provided that for purposes hereof Executive shall not be
deemed to have committed willful misfeasance or willful
nonfeasance by reason of any act or failure to act by
Executive done in good faith;
c. conviction of Executive upon a charge of any crime involving
moral turpitude or any felony reflecting unfavorably upon
the Corporation; or
d. Failure, neglect or refusal by Executive to perform his
duties and responsibilities as set forth in this agreement
(other than by reason of disability due to physical or
mental illness or by reason of permitted vacations or
holidays) without the same being corrected upon ninety (90)
business days prior written notice from the Corporation
specifying such non-performance.
(4) Bankruptcy. This Agreement may be terminated by either party upon
----------
written notice to the other effective immediately if the other
party to this Agreement:
a. is adjudicated as a bankrupt;
Exhibit 6 - 4
<PAGE>
b. is subject to the entry of an order, judgment, or decree by
any court of competent jurisdiction approving a petition
appointing a trustee, receiver, or liquidator of all or a
substantial part of the party's assets;
c. makes or attempts to make an assignment for the benefit of
creditors; or
d. institutes or attempts to institute voluntary bankruptcy
proceedings.
(5) Death. This Agreement shall terminate upon the death of the
-----
Executive.
(6) Disability. This Agreement shall terminate upon the permanent
----------
disability of Executive. For the purposes of this Agreement,
Executive shall be deemed permanently disabled if any ailment,
illness or other incapacity prevents him from performing his
duties as specified in this Agreement for a period of six
consecutive months or for an aggregate of six months in any
twelve month period from the date of this Agreement.
(7) Purchase of Executive's Shares by WorldCom Inc. This Agreement
----------------------------------------------
shall terminate on the Annual Renewal Date next following sale by
Executive of all shares and options to purchase shares of the
Corporation owned by him to WorldCom Inc. pursuant to Section
4.02 of that certain Preferred Stock, Subordinated Note and
Warrant Purchase Agreement between WorldCom Inc. and the
Corporation ("Preferred Stock Purchase Agreement").
(b) Consequences of Termination.
---------------------------
(1) In the event of the termination of this Agreement in accordance
with Subparagraph 5(a)(1) or 5(a)(3) above (voluntary termination
or involuntary termination with cause), Executive shall be
entitled to the base salary earned by him prior to the date of
termination as provided herein computed on a pro rata basis to
and including such date of termination. In addition, Executive
shall also be reimbursed for his reasonable business expenses
incurred prior to the date of termination.
(2) In the event of the termination of this Agreement in accordance
with Subparagraph 5(a)(7) above (purchase of
Exhibit 6 - 5
<PAGE>
Executive's shares by WorldCom), Executive shall be entitled to
the base salary earned by him prior to the date of termination as
provided herein computed on a pro rata basis to and including
such date of termination. In addition, Executive shall also be
reimbursed for his reasonable business expenses incurred prior to
the date of termination. In the event termination pursuant to
Subparagraph 5(a)(7) above occurs on or prior to December 31,
1999, then, to the extent that the consideration received by
Executive in exchange for his options to purchase shares of the
Corporation is a non-cash consideration, all stock options under
the Stock Option Agreement (Exhibit A) that have not theretofore
vested (including any and all options or rights received or
exchanged therefor by Executive as a consequence of the
transaction occurring pursuant to Section 4.02 of the Preferred
Stock Purchase Agreement) shall immediately vest and become
exercisable in accordance with the provisions of said Stock
Option Agreement thereto applicable. In addition, in the event
termination pursuant to Subparagraph 5(a)(7) occurs on or prior
to December 31, 2000, then Executive shall also receive a lump
sum payment in the amount of Seventy Five Thousand Dollars
($75,000).
(3) If the Corporation terminates this Agreement without cause
pursuant to Subparagraph 5(a)(2) above (involuntary without
cause), Executive shall be entitled to receive a severance cash
payment as liquidated damages for, and in lieu of, any and all
damages which he may incur as a result of such termination in an
amount equal to the greater of (i) the Executive's then base
salary for two years, or (ii) the amounts reasonably estimated to
be due hereunder for the two year period following the Annual
Renewal Date upon which the termination becomes effective, which
shall be payable within 30 days from the date of termination
plus, in either case, one half of the cash bonus (determined
pursuant to Paragraph 4(c) above relating to Bonus and Other
Compensation), to which Executive would have been entitled had he
continued in the employment of the Corporation for the year
following termination, which payment shall be payable in
accordance with Paragraph 4(b). Additionally, If the Corporation
terminates this Agreement without cause pursuant to Subparagraph
5(a)(2) above, an stock options under the Stock Option Agreement
(Exhibit A) that have not theretofore vested shall immediately
vest and become exercisable in
Exhibit 6 - 6
<PAGE>
accordance with the provisions of said Stock Option Agreement.
(4) In the event this Agreement is terminated due to the death
(pursuant Subparagraph 6(a)(5)) or disability (pursuant to
Subparagraph 6(a)(6)) of Executive, Executive (or his estate)
shall be entitled to his then base salary for a period of six
months, plus the cash bonus payable with respect to the fiscal
year of death or disability, in accordance with normal payment
procedures under this Agreement.
6.) Non-Competition. Executive covenants and agrees that:
---------------
(a) During the term of this Agreement, he shall not without the prior
written consent of the Corporation, directly or indirectly, as an
Executive, employer, agent, principal, proprietor, partner, stockholder,
consultant, director, or corporate officer, engage in any business engaged
in the high-speed, transaction based electronic data transportation and
delivery business (the "Competitive Business") or render any services to
any business that is engaged in a Competitive Business.
(b) For a period of two years (the "Non-Competition Period") after
Executive has ceased to be employed by the Corporation or any subsidiary of
the Corporation, Executive shall not without the prior written consent of
the Corporation:
(1) directly or indirectly engage in, or
(2) be employed by any person, firm, partnership, association,
corporation or business organization, entity or enterprise that
is, or is about to become, directly or indirectly engaged in,
any Competitive Business. For purposes hereof, "Competitive Business" shall
mean engaging or having a material interest, directly or indirectly as
owner, employee, officer, director, partner, venturer or stockholder,
capital investor, consultant, agent, principal advisor or otherwise, either
alone or in association with others, in the operation of a high speed,
transaction based, electronic data transportation and delivery business;
provided, however, that the restrictions contained in this Subparagraph (b)
shall not apply to any business that does not meet both of the following
requirements:
(1) the Corporation or a subsidiary of the Corporation shall have
operated such business, or had such business in the planning or
development stage therein, during the 120-day period
Exhibit 6 - 7
<PAGE>
immediately prior to Executive's ceasing to be employed by the
Corporation or any subsidiary of the Corporation, and
(2) Executive, during such period, shall have had substantial
planning, development, administrative or operational
responsibilities for such business of the corporation or such
subsidiary of the Corporation in such area.
(c) Executive shall not during the Non-Competition Period (i) solicit any
employee of the Corporation to engage in a Competitive Business, or (ii)
personally solicit customers of the Corporation in a manner which is
competitive with the Corporation.
(d) If the scope of any restrictions contained in Subparagraphs 6(a), (b)
or (c) hereof are too broad to permit enforcement of such restrictions to
their full extent, then such restrictions shall be enforced to the maximum
extent permitted by law, and Executive hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restrictions. Ownership of less than five (5%) percent of the
outstanding stock of a corporation traded on a national securities exchange
shall not be deemed to breach or conflict with the provisions of
Subparagraphs (a) or (b) of this Section 6.
7.) Trade Secrets. Executive shall not at any time during the term of
-------------
this Agreement or thereafter, or in any manner, either directly or indirectly,
divulge, disclose or communicate to any person, firm or corporation in any
manner whatsoever any information concerning any matters affecting or relating
to the business of the Corporation, including without limiting the generality of
the foregoing, any of its customers, the prices it obtains or has obtained from
the sale of, or at which it sells or has sold, its products, or any other
information concerning the business of the Corporation, its manner of operation,
its plans, processes, or other data without regard to whether all of the
foregoing matters will be deemed confidential, material, or important, the
parties hereto stipulating that as between them, the same are important,
material, and confidential and gravely affect the effective and successful
conduct of the business of the Corporation, and the Corporation's good will, and
that any breach of the terms of this paragraph shall be a material breach of
this Agreement.
8.) Disclosure and Assignment. Except as provided elsewhere in this
-------------------------
Agreement, Executive shall treat as for the Corporation's sole benefit and fully
and promptly disclose to the Corporation, without additional compensation, all
ideas, discoveries, inventions and improvements, whether patentable or not,
relating to high-speed, transaction based electronic data transportation and
delivery services, which while the Executive is employed by the Corporation are
made, conceived or reduced to practice by Executive, alone or with others,
during or after usual working hours, either on or off the job, and Executive
hereby
Exhibit 6 - 8
<PAGE>
assigns to the Corporation all such ideas, discoveries, inventions and
improvements relating to high-speed, transaction based electronic data
transportation and delivery to be the Corporation's exclusive property.
9.) Disclosure and Right of First Refusal. Paragraph 8 of this Agreement
-------------------------------------
shall not apply to any ideas, discoveries, inventions and improvements for which
no equipment, supplies, facility or trade secret information of the Corporation
was used, and which was developed entirely on Executive's own time, and (1)
--- ---
which does not relate (a) directly to high-speed, transaction based electronic
data transportation and delivery or (b) to the Corporation's actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Executive for the Corporation. Executive will,
nonetheless, promptly disclose all such ideas, discoveries, inventions and
improvements to the Corporation and offer to the Corporation the right of first
refusal to enter into a license or purchase agreement covering the subject idea,
discovery, invention or improvement on terms mutually agreed to by Executive and
the Corporation. In the event the Corporation and Executive cannot agree on
terms and Executive receives an offer to enter into a license or purchase
agreement with some other party on terms more favorable to that other party than
the terms offered to the Corporation, then the Corporation shall have the right
and Executive shall have the obligation to offer to the Corporation the idea,
discovery, invention or improvement on such terms as offered to the other party.
When such an offer is made to the Corporation pursuant to the preceding
sentence, it must be accepted by the Corporation within thirty (30) days; or if
not accepted, the right of first refusal hereunder as to that offer shall
terminate.
NOTICE: Paragraph 9 hereof requires Executive to assign rights to
inventions to the Corporation or its successors. Minnesota Statutes (S) 181.78
limits the scope of agreements requiring the inventions be assigned to
employers. The statute states that such assignment agreements do not apply:
"to an invention for which no equipment, supplies, facility or trade
secret information of the employer was used and which was developed
---
entirely on the Executive's own time, and (1) which does not relate
---
(a) directly to the business of the employer or (b) to the employer's
actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the Executive for the
employer." (Underlining added).
Please note that Paragraph 9 of this Agreement uses these statutory terms
to define the inventions which are not automatically assigned to the Corporation
but instead are subject to a right of first refusal in favor of the Corporation.
Exhibit 6 - 9
<PAGE>
10.) Assistance to the Corporation. Executive shall give the Corporation,
-----------------------------
at the Corporation's expense, all assistance the Corporation reasonably requires
to perfect, protect, and exercise the rights to all ideas, discoveries,
inventions or improvements acquired by the Corporation pursuant to the
assignment provisions of Paragraph 8 of this Agreement or the right of first
refusal provisions of Paragraph 9 of this Agreement.
11.) Documents and Tangible Property. All documents or other tangible
--------------------------------
property relating in any way to the business of the Corporation which are
conceived or generated by Executive or come into Executive's possession during
Executive's employment shall be and remain the Corporation's exclusive property,
and Executive agrees to return all such documents and tangible property to the
Corporation upon termination of Executive's employment by the Corporation or at
such earlier or later time the Corporation may request Executive to do so.
12.) Remedies for Breach of Covenants of Executive. The covenants set
---------------------------------------------
forth in Paragraphs 6, 7, 8, 9, 10 and 11 of this Agreement shall continue to be
binding upon Executive, notwithstanding the termination of his employment with
the Corporation for any reason whatsoever. Such covenants shall be deemed and
construed as separate agreements independent of any other provisions of this
Agreement. The existence of any claim or cause of action by Executive against
the Corporation, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Corporation or any or all of such
covenants. It is expressly agreed that the remedy at law for the breach of any
such covenant is inadequate and that temporary and permanent injunctive relief
shall be available to prevent the breach or any threatened breach thereof,
without the necessity of proof of actual damages; provided, however, that it is
expressly agreed that the provisions of Subparagraph 6(b) shall immediately
become void and no longer of any effect whatsoever in the event of a merger or
consolidation of the Corporation into another corporation in which the
Corporation is not the surviving corporation or which requires the stockholders
of the Corporation to exchange their shares of Common Stock of the Corporation
for any other class of capital stock, expressly excepting any transaction
involving the issuance of the capital stock of WorldCom Inc. The termination of
such provision shall be effective on the effective date of such merger or
consolidation.
13.) Notices. Any notices to be given hereunder by either party to the
-------
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Personal delivery to the Corporation shall mean personal delivery to the
Chairman of the Board of Directors. Mailed notices shall be addressed to the
respective addresses shown below. Either party may change its address for notice
by giving written notice in accordance with the terms of this Paragraph 13.
Exhibit 6 - 10
<PAGE>
(a) If to Executive:
Edward J. Driscoll
2500 Christian Drive
Chaska, Minnesota 55318
(b) If to the Corporation:
Netco Communications Corporation
104 Union P1aza
333 North Washington Ave.
Minneapolis, MN 55401
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
14.) Successors and Assigns: Sale of Business.
----------------------------------------
(a) The Corporation's rights and obligations under this Agreement shall
inure to the benefit of and shall be binding upon the Corporation's
successors and assigns.
(b) In the event of a merger or consolidation of the Corporation with
any other corporation or corporations, the sale by the Corporation of a
major portion of its assets or of its business and goodwill, or any
other corporate reorganization involving the Corporation, this Agreement
shall be assigned and transferred to such successor in interest as an
asset of the Corporation; and the Corporation agrees that it shall make
it a condition of such sale or transfer agreement that the purchaser or
assignee shall assume the Corporation's obligations under this
Agreement.
(c) In the event of any such assignment, the Executive agrees to
continue to perform his duties according to the terms of this Agreement
to or for such assignee or transferee of this Agreement; provided,
however, the Corporation shall remain secondarily liable as a guarantor
of such assignee's or transferee's obligations to the Executive under
this Agreement. The Executive acknowledges that his services are unique
and personal, and, accordingly, the Executive may not assign his rights
(except the right to receive payments due to him) or delegate his duties
or obligations under this Agreement.
Exhibit 6 - 11
<PAGE>
15.) General Provisions.
------------------
(a) Law Governing. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota.
(b) Invalid Provisions. If any provision of this Agreement is held to
------------------
be illegal, invalid, or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid, or unenforceable provision as may be
possible and still be legal, valid or enforceable.
(c) Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. The prior Employment Agreement dated September 24, 1994
between the parties hereto is terminated. No terms, conditions,
warranties, other than those contained herein, and no amendments or
modifications hereto shall be binding unless made in writing and signed
by the parties hereto.
(d) Binding Effect. This Agreement shall extend to and be binding upon
--------------
and inure to the benefit of the parties hereto, their respective heirs,
representatives, successors and assigns. This Agreement may not be
assigned by Executive.
(e) Waiver. The failure of either party to insist in any one or more
------
instances upon performance of any term or condition of this Agreement
shall not be construed a waiver of its future performance. The
obligations of either party with respect to such term, covenant or
condition shall continue in full force and effect.
(f) Titles. Titles of the paragraphs herein are used solely for
------
convenience and shall not be used for interpretation or construing any
word, clause, paragraph, or provision of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
Exhibit 6 - 12
<PAGE>
IN WITNESS WHEREOF, the Corporation and Executive have executed this
Agreement as of the date and year first written
"EXECUTIVE" NETCO COMMUNICATIONS CORPORATION
________________________________ By:_________________________________
Edward J. Driscoll, III Edward J. Driscoll, III
Chief Executive Officer
Exhibit 6 - 13
<PAGE>
Exhibit A to
Executive Employment Agreement
STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of and effective this __day of
November 1996, by and between NETCO COMMUNICATIONS CORPORATION, a Minnesota
corporation (hereinafter referred to as the "Corporation") and EDWARD J.
DRISCOLL, III, a resident of the State of Minnesota (hereinafter referred
to as the "Executive").
WHEREAS, the Corporation considers it desirable and in its best
interests that the Executive be given an inducement to acquire a proprietary
interest in the Corporation and an added incentive to advance the interests of
the Corporation, by possessing an option to purchase common shares of the
Corporation.
NOW THEREFORE, in consideration of the premises and of the mutual
promises and consideration provided herein, the parties agree as follows:
Section I - Grant of Option
1.01 Grant of Option. The Corporation grants to Executive an Option
---------------
(the "Option") to purchase FOUR HUNDRED THOUSAND (400,000) common shares of the
Corporation at a purchase price of $4.81 per share.
Section III - Term and Duration
2.01 Term and Duration. The Option shall have a term commencing with
-----------------
the date first above written and expiring on December 31, 2007.
Section III - Vesting
3.01 Vesting of Option. Subject to earlier vesting and exercise
-----------------
provisions of Paragraph 3.02 hereof, the Option shall vest and may be exercised
in incremental amounts at the rate of fifty (50) shares for each Installed
Customer Site that becomes first installed during a calendar quarter during the
term of the Option, commencing with the calendar quarter ending March 31, 1997,
and for each successive calendar quarter through expiration of the term of the
Option.
3.02 Earlier Vesting of Option. The provisions of Paragraph 3.01 to
-------------------------
the contrary notwithstanding, the Option shall immediately vest and become
immediately exercisable in its entirety in any of the following events:
Exhibit 6A-1
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
_______, 1996
(a) Executive's employment by the Corporation is terminated "involuntarily
without cause" as that phrase is defined in that certain Employment
Agreement (the "Employment Agreement") between the Corporation and the
Executive, dated of even date with this Stock Option Agreement;
(b) The Employment Agreement is terminated pursuant to Section 5(a)(7) of
the Employment Agreement prior to December 31, 1999.
(c) An Acquisition or Change of Control occurs during the period
commencing January 1, 1997 and ending January 31, 1999.
3.03 Definitions. For purposes of this Section 3, the following words
-----------
shall have the meanings ascribed to them.
(a) Acquisition. "Acquisition" means either (i) the purchase of all or
-----------
substantially all of the assets of the Corporation by any person or
party, or (ii) the merger or consolidation of the Corporation with any
person or party; provided that neither (i) the purchase of all or
substantially all of the assets of the Corporation by WorldCom Inc.,
nor (ii) a merger or consolidation in which the shares of the
Corporation are exchanged for shares WorldCom Inc., of a class that is
registered under the Securities Exchange Act of 1934 shall be deemed
to be an "acquisition" for purposes hereof.
(b) Change of Control. "Change of Control" means the election by
-----------------
shareholders of the Corporation of a majority of directors of the
Corporation who were not recommended by the Corporation's executive
management for nomination for election as directors, provided that
election of a majority of the directors of the Corporation who receive
the affirmative vote of WorldCom Inc., shall not be deemed a change of
control.
(c) Customer. "Customer" shall mean a customer of the Corporation
--------
who has subscribed to, and agreed to pay for, Use Fees for use of the
Corporation's WAM!NET Service.
(d) Installed Customer Site. "Installed Customer Site" shall mean a
-----------------------
customer that has been continually connected to the Corporation's
WAM!NET Service for at least Ninety (90) days or has begun either (i)
to pay minimum monthly Use Fees under a service agreement or (ii) to
incur use charges under an agreement having no minimum monthly Use
Fees.
Exhibit 6A-2
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
_________, 1996
(e) Use Fees. "Use Fees" shall mean fees payable by a Customer for use of
--------
WAM!NET Services, and shall include fees payable by a Customer
relating to remote proofing and digital image archiving and retrieval
services.
(f) WAM!NET Service. "WAM!NET Service" shall mean the Corporation's
---------------
WAM!NET(TM) Electronic Data Transportation and Delivery Service (the
"WAM!NET Service") as presently configured or as may be configured in
the future, and shall include services relating to remote proofing and
digital image archiving and retrieval services.
Section IV - Exercise and Payment
4.01 Method of Exercise. The Option shall be exercised by written notice to
------------------
the Board of the Corporation at the Corporation's principal place of business,
accompanied by payment in cash or exercise of the Conversion Right as provided,
respectively, in Paragraphs 4.02 or 4.03 hereof, or by some combination thereof.
The notice shall specify how many shares are being acquired for cash in
accordance with Paragraph 4.02 hereof, and how many by exercise of the
Conversion Right in accordance with Paragraph 4.03 hereof. The notice shall also
be accompanied by any document reasonably required by the Corporation to be
executed by Executive acknowledging the applicable restrictions on the transfer
of the common shares being purchased as set forth under Section 7.02 of this
Agreement.
4.02 Payment in Cash. The notice specified in Paragraph 4.01 hereof shall
---------------
be accompanied by payment of the option price for the shares being purchased for
cash, which shall be in the form of cash or cashier's check or certified check
or, in the sole discretion of the Board, or the Committee if such exists, by
such other form of payment acceptable to the Corporation.
4.03 Payment by Exercise of Conversion Right. In the alternative, the
---------------------------------------
notice specified in Paragraph 4.01 hereof shall be accompanied by payment for
the shares being purchased by exercise of the Conversion Right provided in this
paragraph. The holder of this option shall have the right to require the
Corporation to convert this option, to the extent then vested, to shares of
Common Stock of the Corporation at any time prior to December 31, 2006. Upon
exercise of the Conversion Right, the Corporation shall deliver to the holder of
this Option (without payment of the exercise price in cash or check as provided
in Paragraph 4.02 thereof) shares of the Corporation's common Stock in number
equal to the quotient obtained by dividing
Exhibit 6A-3
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
________, 1996
(a) the value of the Option at the time the Conversion Right is exercised
(determined by subtracting the aggregate Option exercise price at the
time the Conversion Right is exercised) from the aggregate Fair Market
Value, as determined immediately prior to the exercise of the
Conversion Right, of the aggregate Fair Market Value of the shares for
which the Option may be exercised by
(b) the Fair Market Value of one share of common stock immediately prior
to the exercise of the Conversion Right.
The immediately preceding formula is illustrated by the following example where
(i) the number of optioned shares being acquired by exercise of the Conversion
Right is 10,000, (ii) the per share exercise price of the Option is $4.81, and
(iii) the applicable Fair Market Value is $14.43: [(10,000 x 14.43) - (10,000 x
4.81)] / 14.43 = [144,300 - 48,100] / 14.43 = 96,200 / 14.43 = 6,667 shares.
4.04 Delivery of Certificates. Upon receipt of the Notice of Exercise,
------------------------
together with any document specified in Paragraph 4.01 hereof accompanied by
payment in accordance with either Paragraph 4.02 or 4.03 hereof, the Corporation
will deliver to the holder of this Option a certificate or certificates for the
number of shares of common stock issuable thereupon, together with a payment in
cash in lieu of any fraction of a share. The Corporation shall make prompt
delivery of a certificate or certificates representing such common shares,
provided that if any law or regulation requires the Corporation to take any
action with respect to the common shares specified in such notice before the
issuance thereof, then the date of delivery of such common shares shall be
extended for the period necessary to take such action.
4.05 Fair Market Value. "Fair Market Value" of a share of the Corporation's
-----------------
common stock as of a particular date (the "Determination Date") shall mean:
(a) If the Corporation's common stock is traded on an exchange or is
quoted on NASDAQ, then the average closing or last sale prices,
respectively, reported for the ten (10) business days immediately
preceding the Determination Date;
(b) If the Corporation's common stock is not traded on an exchange or on
NASDAQ, but is traded in the over-the-counter securities market, then
the average closing bid and asked prices reported for the ten (10)
business days immediately preceding the Determination Date; and
Exhibit 6A-4
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
________, 1996
(c) If the Corporation's common stock is not publicly traded, then the
Fair Market Value as determined in good faith by the Company's Board
of Directors upon advice of a national investment banking firm whom,
upon request of the holder of this Option, the Corporation shall
select and retain to render such valuation.
Section V - Termination
5.01 Termination of Option. Except as herein otherwise provided, the
---------------------
Option granted under this Agreement, to the extent not theretofore exercised,
shall terminate upon the first to occur of the following events:
(a) Ninety (90) days following the Executive's voluntary termination of
Executive's employment by the Corporation.
(b) Ninety (90) days following the Executive's termination of employment
by the Corporation "involuntarily for cause" as that phrase is defined
in the Employment Agreement.
(c) The expiration of twelve months from the date of Executive's death
should Executive die within three months of termination of employment
by the Corporation.
(d) 11:59 PM Minneapolis, Minnesota, local time on December 31, 2007.
5.02 Governing Date. No provision of this Agreement to the contrary
--------------
withstanding, neither the Option nor any right claimed thereby or hereby,
therein or herein, or thereunder or hereunder shall be exercisable by anyone
after Dec. 31, 2007.
Section VI - Reclassification, Consolidation or Merger
6.01 Reclassification, Split or Dividend. If and to the extent that
-----------------------------------
the number of issued common shares of the Corporation shall be increased or
reduced by change in par value, split up, reverse split, reclassification,
distribution of a dividend payable in stock, or the like, the number of common
shares subject to the Option and the option price per share shall be
proportionately adjusted.
6.02 Consolidation or Merger. If the Corporation is reorganized or
-----------------------
consolidated or merged with another corporation, the Executive shall be entitled
to receive an option (the "New Option") covering common shares of such
Exhibit 6A-5
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
_________, 1996
reorganized, consolidated or merged Corporation in the same proportion, at an
equivalent price, and subject to the same conditions as the Option. For purposes
of the preceding sentence, the excess of the fair market value of the common
shares subject to the Option immediately after the reorganization, consolidation
or merger over the aggregate option price of such common shares shall not be
more than the excess of the aggregate fair market value of all common shares
subject to the Option immediately before such reorganization, consolidation or
merger over the aggregate option price of such common shares, and the New
Option or assumption of the Option shall not give the Executive additional
benefits which he does not have under this Option, or deprive him of benefits
which he has under this Option.
VII - Rights and Restrictions
7.01 Rights Prior to Exercise of Option. This Option is non-transferable by
----------------------------------
Executive, except in the event of his death, and during his lifetime is
exercisable only by him. No person shall have any rights as a stockholder with
respect to any common shares purchasable hereunder until payment of the option
price in accordance with Section 4.02 or 4.03 hereof, and delivery to him of
such common shares as herein provided.
7.02 Restriction on Disposition. All common shares acquired by Executive
--------------------------
pursuant to this Agreement shall be subject to the restrictions on sale,
encumbrance and other disposition contained in the Corporation's By-Laws, or
imposed by applicable state and federal laws or regulations regarding the
registration or qualification of such acquisition of common shares, and may not
be sold or otherwise disposed of except in accordance with applicable exemptions
from registration under applicable federal and state laws or pursuant to
registration thereunder.
7.03 Refusal Option. All common shares acquired by Executive pursuant
--------------
to this Agreement shall be subject to the Right of Refusal Agreement among
Executive, Allen L. Witters and WorldCom Inc.
VIII - Miscellaneous
8.01 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
8.02 Construction. This Agreement shall be construed in accordance with
------------
the laws of the State of Minnesota, excluding the conflicts of laws provisions
thereof. This Agreement shall also be construed, to the extent
Exhibit 6A-6
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
_______, 1996
practicable, consistently with the Employment Agreement between the Corporation
and the Executive dated as of the date first above written.
In witness whereof, the parties have signed this Incentive Stock Option
Agreement the day and year first above written.
"Executive" "Corporation"
Netco Communications Corporation
By: __________________________ By: ___________________________
Edward J. Driscoll, III Edward J. Driscoll, III
Exhibit 6A-7
<PAGE>
Exhibit 7
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
AGREEMENT, made and entered into as of the _____ day of November, 1996, by
and between Netco Communications Corporation, a Minnesota corporation (the
"Corporation"), and Allen L. Witters ("Executive").
RECITALS:
---------
WHEREAS, the Executive is the Chief Technology Officer of the Corporation;
WHEREAS, the Executive's leadership and services have constituted a
major factor in the successful growth and development of the Corporation's
business; and
WHEREAS, the Corporation desires to employ and retain the unique
experience, ability and services of the Executive as a principal executive
officer; and
WHEREAS, the Corporation and the Executive desire to record the terms of
Executive's continued employment by the Corporation;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1.) Term of Employment. Subject to the terms and conditions of this
------------------
Agreement, the Corporation hereby employs Executive and Executive hereby accepts
employment for the period commencing October 1, 1996, and ending December 31,
1998, and thereafter for successive one year periods ending December 31 of each
succeeding year unless and until the employment is terminated in accordance with
the provisions of this Agreement. Each December 31, commencing December 31,
1998, shall be designated the "Annual Renewal Date."
2.) Duties, Responsibilities, and Authority. During the term of this
---------------------------------------
Agreement, Executive shall serve as Chief Technology Officer of the Corporation.
As such, Executive shall be responsible for the overall management and direction
of the technology, infrastructure and technical network operations of the
Corporation, and he shall have such duties as are generally appropriate to his
position and such authority as shall be required to enable him to perform these
duties, including but not limited to the authorities and duties currently
prescribed in the Articles of Incorporation and the Bylaws of the Corporation,
subject to the power of the shareholders and/or directors of the Corporation to
amend or modify such Articles of Incorporation or Bylaws. The Executive shall
exert his best efforts and devote
Exhibit 7 - 1
<PAGE>
substantially all of his time and attention to the Corporation's business. The
Executive shall be in charge of the development of technology and infrastructure
of the Corporation, and shall have full authority and responsibility, subject
only to the direction, approval, and control of the Corporation's Chief
Executive Officer, and to the general direction, approval and control of the
Corporation's Board of Directors, for formulating technology policies and
administering the Corporation's technology services and products in all
respects. His powers shall include authority, upon consultation of the
Corporation's Chief Executive Officer, to hire and fire Corporation personnel in
his department and, with the permission of the Corporation's Chief Executive
Officer, to retain consultants when he deems necessary to implement Corporation
policies.
3.) Location of Employment. Executive's services shall be rendered
----------------------
principally in Minneapolis, Minnesota and Executive shall not be required,
without his consent, to change his residence or work location from either
Hennepin County or Ramsey County, Minnesota by virtue of his employment with the
Corporation.
4.) Compensation, Benefits, Expenses.
--------------------------------
(a) Salary. The Corporation shall pay Executive a base salary at an annual
------
rate of $150,000.00 commencing October 1, 1996. Salary shall be paid in
accordance with the Corporation's regular payroll procedure, but not less
frequently than monthly. Executive's base salary shall be reviewed
periodically (at intervals of not more than 12 months) by the Board of
Directors of the Corporation ("the Board of Directors" or "Board") or a
committee thereof for the purpose of considering increases thereof. In
evaluating increases in salary, such factors as corporate performance,
individual merit, inflation and other appropriate considerations shall be
taken into account.
(b) Stock Option. In addition to any other compensation or benefits to
------------
which the Executive may be entitled under this Agreement or otherwise,
Executive shall receive options to acquire Four Hundred Thousand (400,000)
shares of the capital stork of the Corporation in accordance with the terms
of that certain Stock Option Agreement which is attached hereto and marked
Exhibit A.
(c) Bonus and Other Compensation. The Executive shall be entitled to
----------------------------
additional bonus and other compensation as may be established from time to
time by the Board of Directors based upon an annual business plan which
shall set goals (which shall include achievement of revenue and profit
measures which are reasonable at the time established) for the Corporation.
(d) Vacation. During each year of his employment, Executive will be
--------
entitled to reasonable vacations not exceeding five weeks per year,
holidays
Exhibit 7 - 2
<PAGE>
and time off when ill, all at full pay. Vacations shall be at such time or
times and for such periods as Employer and Executive shall agree.
(e) Automobiles. The Corporation recognizes the Executive's need for an
-----------
automobile or automobiles for business purposes. It, therefore, shall
provide the Executive with a reasonably suitable automobile or automobiles,
including all related maintenance, repairs, insurance and other costs
associated with such automobiles during the term of this Agreement or any
renewal or extension thereof.
(f) Expenses. The Corporation recognizes that Executive will have to incur
--------
certain out-of-pocket expenses related to his services and the
Corporation's business and that it will be extremely difficult to account
for such expenses. It is understood that Executive's compensation is
intended to cover all such out-of-pocket expenses. The Corporation,
however, shall reimburse Executive for any specific expenditures incurred
for travel, lodging, entertainment, and the like upon submission of
appropriate receipts and documentation sufficient to substantiate them as
reasonable and necessary business expenses.
(g) Employee Benefits. This Agreement shall not be in lieu of any rights,
-----------------
benefits and privileges to which Executive may be entitled as an employee
of the Corporation under any retirement, pension, profit-sharing,
insurance, group life insurance, hospitalization, surgical and major
medical coverage, and long-term disability or other plans which may now be
in effect or which may hereafter be adopted. Executive shall have the same
rights and privileges to participate in such plans and benefits as any
other employee during his period of employment. In addition, to the extent
appropriate for a senior executive of the Corporation, Executive shall be
entitled to participate in any pension and retirement plans, bonus plans
and such other fringe benefit programs or plans as are or may be made
available from time to time to executive and/or other salaried Executives
of the Corporation.
5.) Termination.
-----------
(a) Events of Termination. This Agreement may be terminated upon the
---------------------
occurrence of any one of the following events:
(1) Voluntary. Executive may terminate this Agreement at any time
---------
during the term of this Agreement by giving 30 days prior written
notice of termination to the Board.
(2) Involuntary Without Cause. The Board, without cause, may
-------------------------
terminate this Agreement on any Annual Renewal Date during the
term of this Agreement upon written notice to Executive at least
90 days prior to an Annual Renewal Date.
Exhibit 7 - 3
<PAGE>
(3) Involuntary With Cause. The Board, upon written notice effective
----------------------
immediately, may terminate this Agreement at any time during the
term of this Agreement for cause. "Cause" for purposes of such
termination shall mean the following:
a. admission or conviction of an act of dishonesty by Executive
with respect to the material interests of the Corporation;
b. willful misfeasance or willful nonfeasance of a duty
intended to injure or having the effect of injuring the
reputation, business relationships of the Corporation,
provided that for purposes hereof Executive shall not be
deemed to have committed willful misfeasance or willful
nonfeasance by reason of any act or failure to act by
Executive done in good faith;
c. conviction of Executive upon a charge of any crime involving
moral turpitude or any felony reflecting unfavorably upon
the Corporation; or
d. Failure, neglect or refusal by Executive to perform his
duties and responsibilities as set forth in this agreement
(other than by reason of disability due to physical or
mental illness or by reason of permitted vacations or
holidays) without the same being corrected upon ninety (90)
business days prior written notice from the Corporation
specifying such non-performance.
(4) Bankruptcy. This Agreement may be terminated by either party
----------
upon written notice to the other effective immediately if the
other party to this Agreement:
a. is adjudicated as a bankrupt;
b. is subject to the entry of an order, judgment, or decree by
any court of competent jurisdiction approving a petition
appointing a trustee, receiver, or liquidator of all or a
substantial part of the party's assets;
c. makes or attempts to make an assignment for the benefit of
creditors; or
d. institutes or attempts to institute voluntary bankruptcy
proceedings.
Exhibit 7 - 4
<PAGE>
(5) Death. This Agreement shall terminate upon the death of the Executive.
-----
(6) Disability. This Agreement shall terminate upon the permanent
----------
disability of Executive. For the purposes of this Agreement, Executive
shall be deemed permanently disabled if any ailment, illness or other
incapacity prevents him from performing his duties as specified in
this Agreement for a period of six consecutive months or for an
aggregate of six months in any twelve month period from the date of
this Agreement.
(7) Purchase of Executive's Shares by WorldCom Inc. This Agreement shall
---------------------------------------------
terminate on the Annual Renewal Date next following sale by Executive
of all shares and options to purchase shares of the Corporation owned
by him to WorldCom Inc. pursuant to Section 4.02 of that certain
Preferred Stock, Subordinated Note and Warrant Purchase Agreement
between WorldCom Inc. and the Corporation ("Preferred Stock Purchase
Agreement").
(b) Consequences of Termination.
---------------------------
(1) In the event of the termination of this Agreement in accordance with
Subparagraph 5(a)(1) or 5(a)(3) above (voluntary termination or
involuntary termination with cause), Executive shall be entitled to
the base salary earned by him prior to the date of termination as
provided herein computed on a pro rata basis to and including such
date of termination. In addition, Executive shall also be reimbursed
for his reasonable business expenses incurred prior to the date of
termination.
(2) In the event of the termination of this Agreement in accordance with
Subparagraph 5(a)(7) above (purchase of Executive's shares by
WorldCom), Executive shall be entitled to the base salary earned by
him prior to the date of termination as provided herein computed on a
pro rata basis to and including such date of termination. In addition,
Executive shall also be reimbursed for his reasonable business
expenses incurred prior to the date of termination. In the event
termination pursuant to Subparagraph 5(a)(7) above occurs on or prior
to December 31, 1999, then, to the extent that the consideration
received by Executive in exchange for his options to purchase shares
of the Corporation is a non-cash consideration, all stock options
under the Stock Option Agreement (Exhibit A) that have not theretofore
vested (including any and all options or rights received or exchanged
therefor by Executive as a consequence of
Exhibit 7 - 5
<PAGE>
the transaction occurring pursuant to Section 4.02 of the Preferred
Stock Purchase Agreement) shall immediately vest and become
exercisable in accordance with the provisions of said Stock Option
Agreement thereto applicable. In addition, in the event termination
pursuant to Subparagraph 5(a)(7) occurs on or prior to December 31,
2000, then Executive shall also receive a lump sum payment in the
amount of Seventy Five Thousand Dollars ($75,000).
(3) If the Corporation terminates this Agreement without cause pursuant to
Subparagraph 5(a)(2) above (involuntary without cause), Executive
shall be entitled to receive a severance cash payment as liquidated
damages for, and in lieu of, any and all damages which he may incur as
a result of such termination in an amount equal to the greater of (i)
the Executive's then base salary for two years, or (ii) the amounts
reasonably estimated to be due hereunder for the two year period
following the Annual Renewal Date upon which the termination becomes
effective, which shall be payable within 30 days from the date of
termination plus, in either case, one half of the cash bonus
(determined pursuant to Paragraph 4(c) above relating to Bonus and
Other Compensation), to which Executive would have been entitled had
he continued in the employment of the Corporation for the year
following termination, which payment shall be payable in accordance
with Paragraph 4(b). Additionally, If the Corporation terminates this
Agreement without cause pursuant to Subparagraph 5(a)(2) above, all
stock options under the Stock Option Agreement (Exhibit A) that have
not theretofore vested shall immediately vest and become exercisable
in accordance with the provisions of said Stock Option Agreement.
(4) In the event this Agreement is terminated due to the death (pursuant
to Subparagraph 6(a)(5)) or disability (pursuant to Subparagraph
6(a)(6)) of Executive, Executive (or his estate) shall be entitled to
his then base salary for a period of six months, plus the cash bonus
payable with respect to the fiscal year of death or disability, in
accordance with normal payment procedures under this Agreement.
6.) Non-Competition. Executive covenants and agrees that:
---------------
(a) During the term of this Agreement, he shall not without the prior written
consent of the Corporation, directly or indirectly, as an Executive, employer,
agent, principal, proprietor, partner, stockholder, consultant, director, or
corporate officer, engage in any business engaged in the high-
Exhibit 7 - 6
<PAGE>
speed, transaction based electronic data transportation and delivery business
(the "Competitive Business") or render any services to any business that is
engaged in a Competitive Business.
(b) For a period of two years (the "Non-Competition Period") after Executive
has ceased to be employed by the Corporation or any subsidiary of the
Corporation, Executive shall not without the prior written consent of the
Corporation:
(1) directly or indirectly engage in, or
(2) be employed by any person, firm, partnership, association, corporation
or business organization, entity or enterprise that is, or is about to
become, directly or indirectly engaged in,
any Competitive Business. For purposes hereof, "Competitive Business" shall mean
engaging or having a material interest, directly or indirectly as owner,
employee, officer, director, partner, venturer or stockholder, capital investor,
consultant, agent, principal advisor or otherwise, either alone or in
association with others, in the operation of a high speed, transaction based,
electronic data transportation and delivery business; provided, however, that
the restrictions contained in this Subparagraph (b) shall not apply to any
business that does not meet both of the following requirements:
(1) the Corporation or a subsidiary of the Corporation shall have operated
such business, or had such business in the planning or development
stage therein, during the 120-day period immediately prior to
Executive's ceasing to be employed by the Corporation or any
subsidiary of the Corporation, and
(2) Executive, during such period, shall have had substantial planning
development, administrative or operational responsibilities for such
business of the corporation or such subsidiary of the Corporation in
such area.
(c) Executive shall not during the Non-Competition Period (i) solicit any
employee of the Corporation to engage in a Competitive Business, or (ii)
personally solicit customers of the Corporation in a manner which is competitive
with the Corporation.
(d) If the scope of any restrictions contained in Subparagraphs 6(a), (b) or
(c) hereof are too broad to permit enforcement of such restrictions to their
full extent, then such restrictions shall be enforced to the maximum extent
permitted by law, and Executive hereby consents and agrees that such scope may
be judicially modified accordingly in any proceeding brought to enforce such
restrictions. Ownership of less than five (5%) percent of the outstanding
Exhibit 7 - 7
<PAGE>
stock of a corporation traded on a national securities exchange shall not
be deemed to breach or conflict with the provisions of Subparagraphs (a) or
(b) of this Section 6.
7.) Trade Secrets. Executive shall not at any time during the term of
-------------
this Agreement or thereafter, or in any manner, either directly or indirectly,
divulge, disclose or communicate to any person, firm or corporation in any
manner whatsoever any information concerning any matters affecting or relating
to the business of the Corporation, including without limiting the generality of
the foregoing, any of its customers, the prices it obtains or has obtained from
the sale of, or at which it sells or has sold, its products, or any other
information concerning the business of the Corporation, its manner of operation,
its plans, processes, or other data without regard to whether all of the
foregoing matters will be deemed confidential, material, or important, the
parties hereto stipulating that as between them, the same are important,
material, and confidential and gravely affect the effective and successful
conduct of the business of the Corporation, and the Corporation's good will, and
that any breach of the terms of this paragraph shall be a material breach of
this Agreement.
8.) Disclosure and Assignment. Except as provided elsewhere in this
-------------------------
Agreement, Executive shall treat as for the Corporation's sole benefit and fully
and promptly disclose to the Corporation, without additional compensation, all
ideas, discoveries, inventions and improvements, whether patentable or not,
relating to high-speed, transaction based electronic data transportation and
delivery services, which while the Executive is employed by the Corporation are
made, conceived or reduced to practice by Executive, alone or with others,
during or after usual working hours, either on or off the job, and Executive
hereby assigns to the Corporation all such ideas, discoveries, inventions and
improvements relating to high-speed, transaction based electronic data
transportation and delivery to be the Corporation's exclusive property.
9.) Disclosure and Right of First Refusal. Paragraph 8 of this Agreement
-------------------------------------
shall not apply to any ideas, discoveries, inventions and improvements for which
no equipment, supplies, facility or trade secret information of the Corporation
was used, and which was developed entirely on Executive's own time, and (1)
--- ---
which does not relate (a) directly to high-speed, transaction based electronic
data transportation and delivery or (b) to the Corporation's actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Executive for the Corporation. Executive will,
nonetheless, promptly disclose all such ideas, discoveries, inventions and
improvements to the Corporation and offer to the Corporation the right of first
refusal to enter into a license or purchase agreement covering the subject idea,
discovery, invention or improvement on terms mutually agreed to by Executive and
the Corporation. In the event the Corporation and Executive cannot agree on
terms and Executive receives an offer to enter into a license or purchase
agreement with some other party on terms more favorable to that other party than
the terms offered to the
Exhibit 7 - 8
<PAGE>
Corporation, then the Corporation shall have the right and Executive shall
have the obligation to offer to the Corporation the idea, discovery, invention
or improvement on such terms as offered to the other party. When such an offer
is made to the Corporation pursuant to the preceding sentence, it must be
accepted by the Corporation within thirty, (30) days; or if not accepted, the
right of first refusal hereunder as to that offer shall terminate.
NOTICE: Paragraph 9 hereof requires Executive to assign rights to
inventions to the Corporation or its successors. Minnesota Statutes (S) 181.78
limits the scope of agreements requiring the inventions be assigned to
employers. The statute states that such assignment agreements do not apply:
"to an invention for which no equipment, supplies, facility
or trade secret information of the employer was used and
---
which was developed entirely on the Executive's own time,
and (1) which does not relate (a) directly to the business
---
of the employer or (b) to the employer's actual or
demonstrably anticipated research or development, or (2)
which does not result from any work performed by the
Executive for the employer." (Underlining added).
Please note that Paragraph 9 of this Agreement uses these statutory terms
to define the inventions which are not automatically assigned to the Corporation
but instead are subject to a right of first refusal in favor of the Corporation.
10.) Assistance to the Corporation. Executive shall give the Corporation,
-----------------------------
at the Corporation's expense, all assistance the Corporation reasonably requires
to perfect, protect, and exercise the rights to all ideas, discoveries,
inventions or improvements acquired by the Corporation pursuant to the
assignment provisions of Paragraph 8 of this Agreement or the right of first
refusal provisions of Paragraph 9 of this Agreement.
11.) Documents and Tangible Property. All documents or other tangible
-------------------------------
property relating in any way to the business of the Corporation which are
conceived or generated by Executive or come into Executive's possession during
Executive's employment shall be and remain the Corporation's exclusive property,
and Executive agrees to return all such documents and tangible property to the
Corporation upon termination of Executive's employment by the Corporation or at
such earlier or later time the Corporation may request Executive to do so.
12.) Remedies for Breach of Covenants of Executive. The covenants set
---------------------------------------------
forth in Paragraphs 6, 7, 8, 9, 10 and 11 of this Agreement shall continue to be
binding upon Executive, notwithstanding the termination of his employment with
the Corporation for any reason whatsoever. Such covenants shall be deemed and
construed as separate agreements independent of any other provisions of this
Agreement. The existence of any claim or cause of action by Executive against
the
Exhibit 7 - 9
<PAGE>
Corporation, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Corporation or any or all of such
covenants. It is expressly agreed that the remedy at law for the breach of any
such covenant is inadequate and that temporary and permanent injunctive relief
shall be available to prevent the breach or any threatened breach thereof,
without the necessity of proof of actual damages; provided, however, that it is
expressly agreed that the provisions of Subparagraph 6(b) shall immediately
become void and no longer of any effect whatsoever in the event of a merger or
consolidation of the Corporation into another corporation in which the
Corporation is not the surviving corporation or which requires the stockholders
of the Corporation to exchange their shares of Common Stock of the Corporation
for any other class of capital stock, expressly excepting any transaction
involving the issuance of the capital stock of WorldCom Inc. The termination of
such provision shall be effective on the effective date of such merger or
consolidation.
13.) Notices. Any notices to be given hereunder by either party to the
-------
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Personal delivery to the Corporation shall mean personal delivery to the
Chairman of the Board of Directors. Mailed notices shall be addressed to the
respective addresses shown below. Either party may change its address for notice
by giving written notice in accordance with the terms of this Paragraph 13.
(a) If to Executive:
Allen L. Witters
9640 Eden Prairie Road
Eden Prairie, Minnesota 55487
(b) If to the Corporation:
Netco Communications Corporation
104 Union Plaza
333 North Washington Ave.
Minneapolis, MN 55401
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
Exhibit 7 - 10
<PAGE>
14.) Successors and Assigns; Sale of Business.
----------------------------------------
(a) The Corporation's rights and obligations under this Agreement shall
inure to the benefit of and shall be binding upon the Corporation's
successors and assigns.
(b) In the event of a merger or consolidation of the Corporation with any
other corporation or corporations, the sale by the Corporation of a major
portion of its assets or of its business and goodwill, or any other
corporate reorganization involving the Corporation, this Agreement shall be
assigned and transferred to such successor in interest as an asset of the
Corporation; and the Corporation agrees that it shall make it a condition
of such sale or transfer agreement that the purchaser or assignee shall
assume the Corporation's obligations under this Agreement.
(c) In the event of any such assignment, the Executive agrees to continue
to perform his duties according to the terms of this Agreement to or for
such assignee or transferee of this Agreement; provided, however, the
Corporation shall remain secondarily liable as a guarantor of such
assignee's or transferee's obligations to the Executive under this
Agreement. The Executive acknowledges that his services are unique and
personal, and, accordingly, the Executive may not assign his rights (except
the right to receive payments due to him) or delegate his duties or
obligations under this Agreement.
15.) General Provisions.
------------------
(a) Law Governing. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota.
(b) Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of
this Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid or
enforceable.
(c) Entire Agreement. This Agreement sets forth the entire understanding
----------------
of the parties and supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof. The
prior Employment Agreement dated September 24, 1994 between the parties
hereto
Exhibit 7 - 11
<PAGE>
is terminated. No terms, conditions, warranties, other than those contained
herein, and no amendment or modifications hereto shall be binding unless
made in writing and signed by the parties hereto.
(d) Binding Effect. This Agreement shall extend to and be binding upon
--------------
and inure to the benefit of the parties hereto, their respective heirs,
representatives, successors and assigns. This Agreement may not be assigned
by Executive.
(e) Waiver. The failure of either party to insist in any one or more
------
instances upon performance of any term or condition of this Agreement
shall not be construed a waiver of its future performance. The obligations
of either party with respect to such term, covenant or condition shall
continue in full force and effect.
(f) Titles. Titles of the paragraphs herein are used solely for
------
convenience and shall not be used for interpretation or construing any
word, clause, paragraph, or provision of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Corporation and Executive have executed this
Agreement as of the date and year first written
"EXECUTIVE" NETCO COMMUNICATIONS
CORPORATION
___________________________ By:___________________________
Allen L. Witters Edward J. Driscoll, III
Chief Executive Officer
Exhibit 7 - 12
<PAGE>
Exhibit A to
Executive Employment Agreement
STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of and effective this ___ day of
November 1996, by and between NETCO COMMUNICATIONS CORPORATION, a Minnesota
corporation (hereinafter referred to as the "Corporation") and ALLEN WITTERS, a
resident of the State of Minnesota (hereinafter referred to as the "Executive").
WHEREAS, the Corporation considers it desirable and in its best
interests that the Executive be given an inducement to acquire a proprietary
interest in the Corporation and an added incentive to advance the interests of
the Corporation, by possessing an option to purchase common shares of the
Corporation.
NOW THEREFORE, in consideration of the premises and of the mutual promises
and consideration provided herein, the parties agree as follows:
Section I - Grant of Option
1.01 Grant of Option. The Corporation grants to Executive an Option
---------------
(the "Option") to purchase FOUR HUNDRED THOUSAND (400,000) common shares of the
Corporation at a purchase price of $4.81 per share.
Section III - Term and Duration
2.01 Term and Duration. The Option shall have a term commencing with the
-----------------
date first above written and expiring on December 31, 2007.
Section III - Vesting
3.01 Vesting of Option. Subject to earlier vesting and exercise provisions
-----------------
of Paragraph 3.02 hereof, the Option shall vest and may be exercised in
incremental amounts at the rate of fifty (50) shares for each Installed Customer
Site that becomes first installed during a calendar quarter during the term of
the Option, commencing with the calendar quarter ending March 31, 1997, and for
each successive calendar quarter through expiration of the term of the Option.
3.02 Earlier Vesting of Option. The provisions of Paragraph 3.01 to the
-------------------------
contrary notwithstanding, the Option shall immediately vest and become
immediately exercisable in its entirety in any of the following events:
Exhibit 7A - 1
<PAGE>
Allen Witters
Stock Option Agreement
________, 1996
(a) Executive's employment by the Corporation is terminated "involuntarily
without cause" as that phrase is defined in that certain Employment
Agreement (the "Employment Agreement") between the Corporation and the
Executive, dated of even date with this Stock Option Agreement;
(b) The Employment Agreement is terminated pursuant to Section 5(a)(7) of
the Employment Agreement prior to December 31, 1999.
(c) An Acquisition or Change of Control occurs during the period
commencing January 1, 1997 and ending January 31, 1999.
3.03 Definitions. For purposes of this Section 3, the following words shall
-----------
have the meanings ascribed to them.
(a) Acquisition. "Acquisition" means either (i) the purchase of all or
-----------
substantially all of the assets of the Corporation by any person or
party, or (ii) the merger or consolidation of the Corporation with any
person or party; provided that neither (i) the purchase of all or
substantially all of the assets of the Corporation by WorldCom Inc.,
nor (ii) a merger or consolidation in which the shares of the
Corporation are exchanged for shares WorldCom Inc., of a class that is
registered under the Securities Exchange Act of 1934 shall be deemed
to be an "acquisition" for purposes hereof.
(b) Change of Control. "Change of Control" means the election by
-----------------
shareholders of the Corporation of a majority of directors of the
Corporation who were not recommended by the Corporation's executive
management for nomination for election as directors, provided that
election of a majority of the directors of the Corporation who receive
the affirmative vote of WorldCom Inc., shall not be deemed a change of
control.
(c) Customer. "Customer" shall mean a customer of the Corporation who has
--------
subscribed to, and agreed to pay for, Use Fees for use of the
Corporation's WAM!NET Service.
(d) Installed Customer Site. "Installed Customer Site" shall mean a
-----------------------
customer that has been continually connected to the Corporation's
WAM!NET Service for at least Ninety (90) days or has begun either (i)
to pay minimum monthly Use Fees under a service agreement
Exhibit 7A - 2
<PAGE>
Allen Witters
Stock Option Agreement
________, 1996
or (ii) to incur use charges under an agreement having no minimum
monthly Use Fees.
(e) Use Fees. "Use Fees" shall mean fees payable by a Customer for use of
--------
WAM!NET Services, and shall include fees payable by a Customer
relating to remote proofing and digital image archiving and
retrieval services.
(f) WAM!NET Service. "WAM!NET Service" shall mean the Corporation's
---------------
WAM!NET(TM) Electronic Data Transportation and Delivery Service (the
"WAM!NET Service") as presently configured or as may be configured in
the future, and shall include services relating to remote proofing and
digital image archiving and retrieval services.
Section IV - Exercise and Payment
4.01 Method of Exercise. The Option shall be exercised by written notice to
------------------
the Board of the Corporation at the Corporation's principal place of business,
accompanied by payment in cash or exercise of the Conversion Right as provided,
respectively, in Paragraphs 4.02 or 4.03 hereof, or by some combination thereof.
The notice shall specify how many shares are being acquired for cash in
accordance with Paragraph 4.02 hereof, and how many by exercise of the
Conversion Right in accordance with Paragraph 4.03 hereof. The notice shall also
be accompanied by any document reasonably required by the Corporation to be
executed by Executive acknowledging the applicable restrictions on the transfer
of the common shares being purchased as set forth under Section 7.02 of this
Agreement.
4.02 Payment in Cash. The notice specified in Paragraph 4.01 hereof shall
---------------
be accompanied by payment of the option price for the shares being purchased for
cash, which shall be in the form of cash or cashier's check or certified check
or, in the sole discretion of the Board, or the Committee if such exists, by
such other form of payment acceptable to the Corporation.
4.03 Payment by Exercise of Conversion Right. In the alternative, the
---------------------------------------
notice specified in Paragraph 4.01 hereof shall be accompanied by payment for
the shares being purchased by exercise of the Conversion Right provided in this
paragraph. The holder of this option shall have the right to require the
Corporation to convert this option, to the extent then vested, to shares of
Common Stock of the Corporation at any time prior to December 31, 2006. Upon
exercise of the Conversion Right, the Corporation shall deliver to the holder of
this Option (without payment of the exercise price in cash or check as provided
Exhibit 7A - 3
<PAGE>
Allen Witters
Stock Option Agreement
________, 1996
in Paragraph 4.02 hereof) shares of the Corporation's common Stock in number
equal to the quotient obtained by dividing
(a) the value of the Option at the time the Conversion Right is exercised
(determined by subtracting the aggregate Option exercise price at the
time the Conversion Right is exercised) from the aggregate Fair Market
Value, as determined immediately prior to the exercise of the
Conversion Right, of the aggregate Fair Market Value of the shares for
which the Option may be exercised by
(b) the Fair Market Value of one share of common stock immediately prior
to the exercise of the Conversion Right.
The immediately preceding formula is illustrated by the following example where
(i) the number of optioned shares being acquired by exercise of the Conversion
Right is 10,000, (ii) the per share exercise price of the Option is $4.81, and
(iii) the applicable Fair Market Value is $14.43: [(10,000 x 14.43) - (10,000 x
4.81)] / 14.43 = [144,300 - 48,100] / 14.43 = 96,200/14.43 = 6,667 shares.
4.04 Delivery of Certificates. Upon receipt of the Notice of Exercise,
------------------------
together with any document specified in Paragraph 4.01 hereof accompanied by
payment in accordance with either Paragraph 4.02 or 4.03 hereof, the Corporation
will deliver to the holder of this Option a certificate or certificates for the
number of shares of common stock issuable thereupon, together with a payment in
cash in lieu of any fraction of a share. The Corporation shall make prompt
delivery of a certificate or certificates representing such common shares,
provided that if any law or regulation requires the Corporation to take any
action with respect to the common shares specified in such notice before the
issuance thereof, then the date of delivery of such common shares shall be
extended for the period necessary to take such action.
4.05 Fair Market Value. "Fair Market Value" of a share of the
-----------------
Corporation's common stock as of a particular date (the "Determination Date")
shall mean:
(a) If the Corporation's common stock is traded on an exchange or is
quoted on NASDAQ then the average closing or last sale prices,
respectively, reported for the ten (10) business days immediately
preceding the Determination Date;
(b) If the Corporation's common stock is not traded on an exchange or on
NASDAQ but is traded in the over-the-counter securities market, then
the average closing bid and asked prices reported for
Exhibit 7A-4
<PAGE>
Allen Witters
Stock Option Agreement
________, 1996
the ten (10) business days immediately preceding the Determination
Date; and
(c) If the Corporation's common stock is not publicly traded, then the
Fair Market Value as determined in good faith by the Company's Board
of Directors upon advice of a national investment banking firm whom,
upon request of the holder of this Option, the Corporation shall
select and retain to render such valuation.
Section V - Termination
5.01 Termination of Option. Except as herein otherwise provided, the
---------------------
Option granted under this Agreement, to the extent not theretofore exercised,
shall terminate upon the first to occur of the following events:
(a) Ninety (90) days following the Executive's voluntary termination of
Executive's employment by the Corporation.
(b) Ninety (90) days following the Executive's termination of employment
by the Corporation "involuntarily for cause" as that phrase is defined
in the Employment Agreement.
(c) The expiration of twelve months from the date of Executive's death
should Executive die within three months of termination of employment
by the Corporation.
(d) 11:59 PM Minneapolis, Minnesota, local time on December 31, 2007.
5.02 Governing Date. No provision of this Agreement to the contrary
--------------
withstanding, neither the Option nor any right claimed thereby or hereby,
therein or herein, or thereunder or hereunder shall be exercisable by anyone
after Dec. 31, 2007.
Section VI - Reclassification, Consolidation or Merger
6.01 Reclassification, Split or Dividend. If and to the extent that the
-----------------------------------
number of issued common shares of the Corporation shall be increased or reduced
by change in par value, split up, reverse split, reclassification, distribution
of a dividend payable in stock, or the like, the number of common shares subject
to the Option and the option price per share shall be proportionately adjusted.
Exhibit 7A-5
<PAGE>
Allen Witters
Stock Option Agreement
________, 1996
6.02 Consolidation or Merger. If the Corporation is reorganized or
-----------------------
consolidated or merged with another corporation, the Executive shall be entitled
to receive an option (the "New Option") covering common shares of such
reorganized, consolidated or merged Corporation in the same proportion, at an
equivalent price, and subject to the same conditions as the Option. For purposes
of the preceding sentence, the excess of the fair market value of the common
shares subject to the Option immediately after the reorganization, consolidation
or merger over the aggregate option price of such common shares shall not be
more than the excess of the aggregate fair market value of all common shares
subject to the Option immediately before such reorganization, consolidation or
merger over the aggregate option price of such common shares, and the New
Option or assumption of the Option shall not give the Executive additional
benefits which he does not have under this Option, or deprive him of benefits
which he has under this Option.
VII - Rights and Restrictions
7.01 Rights Prior to Exercise of Option. This Option is non-
----------------------------------
transferable by Executive, except in the event of his death, and during his
lifetime is exercisable only by him. No person shall have any rights as a
stockholder with respect to any common shares purchasable hereunder until
payment of the option price in accordance with Section 4.02 or 4.03 hereof, and
delivery to him of such common shares as herein provided.
7.02 Restriction on Disposition. All common shares acquired by
--------------------------
Executive pursuant to this Agreement shall be subject to the restrictions on
sale, encumbrance and other disposition contained in the Corporation's By-Laws,
or imposed by applicable state and federal laws or regulations regarding the
registration or qualification of such acquisition of common shares, and may not
be sold or otherwise disposed of except in accordance with applicable exemptions
from registration under applicable federal and state laws or pursuant to
registration thereunder.
7.03 Refusal Option. All common shares acquired by Executive pursuant
--------------
to this Agreement shall be subject to the Right of Refusal Agreement among
Executive, Edward J. Driscoll, III and WorldCom Inc.
VIII - Miscellaneous
8.01 Binding Effect. This Agreement shall inure to the benefit of and
--------------
be binding upon the parties hereto and their respective heirs, executors,
administrators successors and assigns.
Exhibit 7A-6
<PAGE>
Allen Witters
Stock Option Agreement
________, 1996
8.02 Construction. This Agreement shall be construed in accordance with
------------
the laws of the State of Minnesota, excluding the conflicts of laws provisions
thereof. This Agreement shall also be construed, to the extent practicable,
consistently with the Employment Agreement between the Corporation and the
Executive dated as of the date first above written.
In witness whereof, the parties have signed this Incentive Stock Option
Agreement the day and year first above written.
"Executive" "Corporation"
Netco Communications Corporation
By:_______________________ By:___________________________
Allen Witters Edward J. Driscoll, III
Exhibit 7A-7
<PAGE>
Exhibit 8
RIGHT OF REFUSAL AGREEMENT
THIS RIGHT OF REFUSAL AGREEMENT (Agreement) is made this ____ day of
November, 1996, by and among WorldCom, Inc., a Georgia corporation ("WCOM"),
Edward J. Driscoll, III ("Driscoll") and Allen L. Witters ("Witters").
RECITALS
Netco Communications Corporation, a Minnesota Corporation ("Netco"),
is engaged in the design, development and deployment of a high-speed,
transaction based electronic data transportation and delivery service. Netco
presently serves as its own transfer agent for its Common Stock.
Driscoll is the Chief Executive Officer of Netco. Driscoll owns four
hundred thousand (400,000) shares of the Common Stock of Netco represented by
Certificate No. 1 standing in his name on the books and records of Netco, and
also enjoys an option to acquire, according to the terms thereof, an additional
four hundred thousand (400,000) shares of the Common Stock of Netco. The four
hundred thousand (400,000) shares of Netco Common Stock presently owned by
Driscoll, together with any additional shares of Netco Common Stock which
Driscoll may acquire in the future by reason of the exercise of the option or
otherwise are herein referred to as the "Driscoll Shares".
Witters is the Chief Technology Officer of Netco. Witters owns four
hundred thousand (400,000) shares of the Common Stock of Netco represented by
Certificate No. 2 standing in his name on the books and records of Netco, and
also enjoys an option to acquire, according to the terms thereof, an additional
four hundred thousand (400,000) shares of the Common Stock of Netco. The four
hundred thousand (400,000) shares of Netco Common Stock presently owned by
Witters, together with any additional shares of Netco Common Stock which Witters
may acquire in the future by reason of the exercise of the option or otherwise
are herein referred to as the "Witters Shares".
Driscoll and Witters are each founders of Netco and comprise its
principal executive and technical management. The Driscoll Shares and the
Witters Shares are sometimes referred to herein as "Shares."
WCOM and Netco, have concurrently herewith, and contingent upon the
execution hereof, entered into a certain Preferred Stock, Subordinated Note
and Warrant Purchase Agreement (the "WCOM Agreement"), contemplating a
substantial investment by WCOM into Netco.
Exhibit 8-1
<PAGE>
WCOM, Driscoll and Witters each desire preserve and provide for the
successful continuity of Netco's management and thereby to provide for the
orderly disposition of the Driscoll Shares and the Witters Shares under the
circumstances contemplated in this Agreement.
In consideration of WCOM entering into the WCOM Agreement with Netco,
and in the further consideration of the mutual promises, covenants and
conditions herein contained, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, Driscoll, Witters and WCOM agree as
follows:
1.) Restriction on Transfer. Neither Driscoll nor Witters may sell or
-----------------------
engage in any transaction which will result in a change of beneficial or record
ownership of any of the Shares held by them including, without limitation, a
voluntary or involuntary sale, assignment, transfer, pledge, hypothecation,
encumbrance, disposal, loan, gift, attachment or levy (a transfer) except as
provided in this Agreement, and any transfer of the Shares or attempt to
transfer the Shares in contravention of this Agreement shall be void and
ineffective for any purpose or confer in any transferee or purported transferee
any rights whatsoever. This restriction shall apply only to the Shares
identified in the Recitals, and shall not apply to other shares of Netco which
either Driscoll or Witters may acquire in the future.
2.) Rights of First and Second Refusal. In the event either Driscoll
----------------------------------
or Witters (the "Selling Shareholder") proposes to transfer or is required by
operation of law or other involuntary transfer any or all of the Shares (the
"Offered Shares") then standing in the his name during the term of this
Agreement, he shall first offer such shares to the other ("Offeree") in
accordance with the following provisions:
(a) The Selling Shareholder shall deliver written notice (Notice) to
the Offeree, to WCOM and to NETCO stating (i) the Selling
Shareholder's intention to transfer the Offered Shares, (ii) the
identity of the proposed transferee, (iii) the price at which the
Selling Shareholder proposes to transfer the Offered Shares, and (iv)
the terms of payment upon which the Offered Shares are proposed to be
transferred.
(b) Within thirty (30) days after receipt of the Notice, the Offeree
shall have the first right to purchase or obtain such shares, upon the
price and the terms of payment designated in the Notice.
(c) If the Offeree elects not to purchase or obtain all of the
Offered Shares designated the Notice, then WorldCom shall have thirty
(30) days to purchase or obtain such of the Shares not acquired by the
Offeree, at the price and terms of payment designated in the Notice.
Exhibit 8-2
<PAGE>
(d) If neither the Offeree nor WCOM elect to purchase or obtain all
of the shares designated in the Notice, then the Selling Shareholder
may transfer the shares referred to in the Notice to the proposed
transferee named therein, providing (i) such transfer is completed
within sixty (60) days following expiration of WorldCom's right to
purchase or obtain such shares, and (ii) is made at the price and on
the terms designated in the Notice.
(e) Any of the Shares once offered pursuant to this Paragraph 2 which
are not sold and transferred in accordance with the provisions of
Subparagraph 2(d) must be again offered to the Offeree Shareholder and
to WCOM by Notice in accordance with this Paragraph 2 prior to any
other or subsequent proposed transfer of Shares.
3.) Legend on Stock Certificates. (a) Each certificate representing
----------------------------
the Shares now owned (or hereafter issued pursuant to exercise of the stock
options referred to in the Recitals) shall be endorsed prominently with the
following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDER
RIGHT OF FIRST AND SECOND REFUSAL AGREEMENT BETWEEN WORLDCOM, INC.,
AND THE SHAREHOLDERS THAT ARE SIGNATORY THERETO, PROVIDING FOR, AMONG
OTHER MATTERS, A RIGHT OF FIRST REFUSAL IN FAVOR OF THE SIGNATORY
SHAREHOLDERS AND WORLDCOM TO PURCHASE THE SECURITIES REPRESENTED BY
THIS CERTIFICATE. A COPY OF THE AGREEMENT IS ON FILE AT THE PRINCIPAL
BUSINESS OFFICE OF NETCO COMMUNICATIONS CORPORATION, 102 UNION PLAZA,
333 N. WASHINGTON AVENUE, MINNEAPOLIS, MINNESOTA 55401.
(b) Driscoll and Witters each agree to promptly present the
certificates representing the Shares held by each, respectively, to Netco for
endorsement with the above referenced legend.
(c) Driscoll and Witters each agree that Netco may enter stop
transfer instructions against any transfer of any of the Shares made in
contravention of the provisions of Paragraph 2 of this Agreement, whether such
shares be represented by a certificate issued to them or be uncertificated
shares of Netco.
4.) Term of the Agreement. The restrictions on transfer of Shares set
---------------------
forth in Paragraph 1 of this Agreement together with the obligations of Notice
and offer set forth in Paragraph 2 of this Agreement shall immediately terminate
upon the earlier to occur of any of the following:
(a) Upon the dissolution or bankruptcy of Netco.
Exhibit 8-3
<PAGE>
(b) Upon Netco's becoming required to file periodic reports under
Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
(c) Upon December 31, 2000.
(d) Upon consummation of a sale made in accordance with Paragraph 2
of this Agreement to a person who is not a party to this
Agreement.
5.) Modification. This Agreement, as applied to any Shareholder, may
------------
be amended at any time by the written agreement of WorldCom and a Shareholder
affected thereby.
6.) Notice. Any Notice required or permitted hereunder shall be
------
delivered in person or sent by telecopier, air courier, or certified mail,
return receipt requested, postage and fees prepaid in all cases to the person
entitled to receive such Notice addressed as follows:
Exhibit 8-4
<PAGE>
(a) If to Driscoll:
Edward J. Driscoll
2500 Christian Drive
Chaska, Minnesota 55318
(b) If to Witters:
Allen L. Witters
9640 Eden Prairie Road
Eden Prairie, Minnesota 55437
(c) If to WCOM:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
(b) If to Netco:
Netco Communications Corporation
104 Union Plaza
333 North Washington Ave.
Minneapolis, MN 55401
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
Notice shall be effective upon delivery if it is hand delivered; upon receipt if
it is transmitted by telecopier, air courier or registered, certified, or
express mail; upon expiration of the third business day after deposit on the
United States mail if mailed from and to an address in the United States; and
upon expiration of the tenth (10th) business day after deposit on the United
States mail if mailed from or to an address outside the United States.
7.) Succession. This Agreement shall be binding upon and inure to the
----------
benefit of parties hereto and upon their permitted successors and interests of
any kind whatsoever, their heirs, executives, administrators and personal
representatives.
Exhibit 8-5
<PAGE>
8.) Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Minnesota as such laws are applied to agreements
between residents entered into and to be performed entirely within Minnesota and
without regard to the conflicts of law provisions thereof. The parties hereby
irrevocably consent to the exclusive jurisdiction and venue of the state or
federal courts located in the State of Minnesota, County of Hennepin, for the
resolution of any disputes arising out of this Agreement.
9.) Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
10.) Sole Agreement. This Agreement constitutes the entire agreement
--------------
and understanding of the parties hereto with respect to the subject matter
hereof and supersedes any and all prior or contemporaneous agreements and
understandings pertaining thereto whether oral or written.
11.) Construction. The titles of the sections of this Agreement are for
------------
convenience of reference only and are not to be considered in construing this
Agreement. The language of this Agreement shall be construed for its fair
meaning and not strictly for or against any party.
12.) Effectiveness. This Agreement shall become effective as of the day
-------------
and year first above written upon the acknowledgment and consent of Netco in
accordance with the Acknowledgment appended to this Agreement.
Exhibit 8-6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Right of Refusal
Agreement as of the day and year first above written.
WORLDCOM, INC. EDWARD J. DRISCOLL, III
By:___________________________ ____________________________
K. William Grothe, Jr. Edward J. Driscoll, III
Vice President
ALLEN L. WITTERS
____________________________
Allen L. Witters
EXHIBIT 8-7
<PAGE>
ACKNOWLEDGMENT
Netco Communications Corporation, a Minnesota corporation, acting in its
capacity as transfer agent for its Common Stock, hereby acknowledges its receipt
of the Right of Refusal Agreement, dated as of November__, 1996, among Edward
J. Driscoll, III, Allen L. Witters and WorldCom, Inc.
NETCO COMMUNICATIONS
CORPORATION
Date: _________________________ By:_____________________________
Edward J. Driscoll, III
President
Exhibit 8-8
<PAGE>
Exhibit 9
Opinion of Counsel
(date)
Board of Directors
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Ladies and Gentlemen:
I have acted as counsel for Netco Communications Corporation, a
Minnesota corporation (the "Company"), in connection with the execution and
delivery by the Company of a certain Preferred Stock, Subordinated Note and
Warrant Purchase Agreement (the "Investment Agreement") dated as of November 14,
--------------------
1996, between the Company and WorldCom Inc. ("WCOM"), together with the
execution and delivery by the Company of a 7% Subordinated Note due December 31,
2003 (the "Note") in principal face amount of Twenty Eight Million Five Hundred
----
Thousand Dollars ($28,500,000) in favor of WCOM, of a Warrant Certificate (the
"Warrants") representing the right to purchase up to Four Million One Hundred
--------
Fifty Seven Thousand Five Hundred (4,157,500) shares of the Company's Common
Stock, par value $.01 per share, and the issuance of 100,000 shares of $10,00
par value Class A Preferred Stock of the Company (the "Preferred Stock"), in
accordance with the terms thereof, and the execution of an Executive Employment
Agreement (the "Driscoll Employment Agreement") dated as of ___________, 1996,
-----------------------------
between the Company and Edward J. Driscoll, III, and of an Executive Employment
Agreement (the "Witters Employment Agreement") dated as of _____________, 1996,
----------------------------
between the Company and Allen L. Witters. This opinion is delivered to you
pursuant to Paragraph 8.02(h) of the Investment Agreement.
The Investment Agreement, the Note, the Warrants, the Preferred Stock,
the Driscoll Employment Agreement and the Witters Employment Agreement are
sometime collectively referred to herein as the "Agreements." Capitalized terms
----------
appearing herein that are not otherwise defined shall have the meanings ascribed
to them in the Agreements.
For purposes of this opinion, I have reviewed such questions of law
and examined such corporate records, certificates and other documents as I have
Exhibit 9-1
<PAGE>
Board of Directors
WorldCom Inc.
__________________,1996
page 2
considered necessary or appropriate. As to various questions of fact, I have
relied without investigation upon representations made in the Agreements and
upon certificates of officers of the Company. I have also examined such
certificates of public officials, corporate documents and records, and other
certificates and instruments, and have engaged in such other investigation as I
have deemed necessary in connection with the opinions hereinafter set forth. I
have assumed the authenticity of all documents submitted to me as originals,
the genuineness of all signatures, the legal capacity of natural persons, the
conformity to the originals of all documents submitted to me as copies, the
valid execution of all agreements and documents referred to herein by all
parties thereto other than the Company and the enforceability of such agreements
against all parties other than the Company.
Whenever the opinions expressed herein or matters set forth in "Scope
of Opinion" are qualified by or use the phrase "to my knowledge," "known to me"
or words of like import, it indicates that during the course of my
representation of the Company and after reasonable inquiry limited as described
in this letter with respect to the subject matter of any such opinion, no
information has come my attention for such purpose, which would give me
knowledge of the existence or nonexistence of relevant facts. No inference as to
my knowledge of the existence or nonexistence of any facts should, or may be,
drawn merely from the fact that I represent the Company.
Based upon and subject to the foregoing and subject to the limitations
and qualifications set forth in "Scope of Opinion," I am of the opinion that,
under applicable law in effect on the date of this opinion:
1. The Company is duly organized, validly existing and in good
standing as a corporation under the laws of the state of Minnesota,
has all corporate power and authority to own its properties and to
carry on its businesses as now being conducted, and is duly qualified
and in good standing as a foreign corporation, and is authorized to do
business, in all jurisdictions in which the character of its
properties or the nature of its businesses requires such qualification
or authorization, except for qualifications and authorizations the
lack of which, singly or in the aggregate, have not had a materially
adverse effect on the Company.
2. The Company has full corporate power and authority to enter
into the Agreements, and the Agreements have been duly authorized,
executed and delivered, and, in the case of the Preferred Stock,
issued by the Company, and constitute valid, legal and binding
obligations of the Company, and, in the case of the Driscoll
Employment Agreement and the Witters Employment Agreement, of Driscoll
and Witters respectively,
Exhibit 9-2
<PAGE>
Board of Directors
WorldCom Inc.
__________________,1996
page 3
enforceable in accordance with their respective terms (except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity); the execution,
delivery and performance of the Agreements and the consummation of the
transactions therein contemplated will not result in breach or
violation of any of the terms and provisions of, or constitutes a
default under, any applicable statute, rule or regulation, any
material agreement or instrument known to me to which the Company is a
party or by which it is bound or to which any of its property is
subject, the Company's articles of incorporation or by-laws, or any
order or decree known to me of any court or governmental agency or
body having jurisdiction over the Company or any of its respective
properties; and no additional consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement, or for the consummation of the transactions contemplated
hereby and thereby.
Scope of Opinion
----------------
The foregoing opinions are limited to the laws of the state of
Minnesota and the laws of the United States of America, and the opinions given
hereunder are limited thereto.
I express no opinion as to the enforceability of cumulative remedies
to the extent such cumulative remedies purport to compensate, or would have the
effect of compensating, the party entitled to the benefits thereof in an amount
in excess of the actual loss suffered by such party.
Insofar as this opinion relates to the enforceability of any document
or instrument, it is subject to (a) all applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally, (b) judicial limitations on the right of specific performance and
other general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law which may affect the remedies
provided therein and (c) limitations on the enforceability of any
indemnification or contribution provisions thereof as may be limited by federal
or state securities laws or other applicable laws.
In rendering the opinions expressed above, I have relied upon the
representation of WCOM set forth in the Investment Agreement, without
investigation, that WCOM is an "accredited" investors, as such term is defined
under Rule 501(a) of Regulation D under the Securities Act of 1933 (the "1933
Exhibit 9-3
<PAGE>
EXHIBIT 10.4
Registered Holder: WorldCom Inc.
$28,500,000.00
NETCO COMMUNICATIONS CORPORATION
102 UNION PLAZA
333 NORTH WASHINGTON AVENUE
MINNEAPOLIS, MINNESOTA 55401
7% Subordinated Note
Due December 31, 2003
For Value Received, NETCO COMMUNICATIONS CORPORATION, a Minnesota
corporation, (hereinafter called the "Issuer") hereby promises to pay to the
order of WorldCom Inc., or the registered holder (hereinafter referred to as the
"Holder") the principal amount of Twenty Eight Million Five Hundred Thousand
Dollars ($28,500,000), or such lesser amount as has been actually advanced to
Issuer by Holder pursuant to that certain Preferred Stock, Subordinated Note and
Warrant Purchase Agreement dated November 14, 1996, as amended, upon
presentation of this certificate, in legal tender of the United States of
America at the time of payment hereof, to the account of holder according to
Holder's written instructions, on December 31, 2003, or sooner as hereinafter
provided.
The Issuer further agrees to pay interest on the principal amount remaining
unpaid from time to time thereon from the date hereof at the rate of seven
percent (7%) per annum. Interest shall accrue from the date of purchase of this
Note (hereinafter, the "Note"), and be payable on June 30 and December 31 of
each year, commencing with the first interest payment on December 31, 1996. The
Issuer shall, upon request of the registered Holder, mail a check or draft
representing such interest to the registered holder at the address designated by
the registered holder and appearing on the books of registration maintained by
the Issuer. Except as otherwise provided in Atricle 2, no interest shall accrue
or be paid on this Note after December 31, 2003.
If any payment due hereunder is not received by the Holder within 15 days
from the date due, Issuer shall pay a late payment charge of Five Dollars
($5.00) or four percent (4%) of the amount of the delinquency, whichever is
greater.
The following terms, covenants, and conditions shall apply to this Note.
<PAGE>
ARTICLE 1
SUBORDINATION
1.1) The Issuer and the Holder of this Note, by acceptance hereof,
agree that the payment of the principal and interest on this Note is, to the
extent stated herein, expressly subordinated to the prior payment of the
principal and interest on all existing or future obligations of the Issuer for
money borrowed from a bank, trust, insurance, or other financial institution
engaged in the business of lending money, which is hereinafter referred to as
"Senior Indebtedness." In the event of any receivership, insolvency, assignment
for the benefit of creditors, bankruptcy, reorganization, or arrangement with
creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale
of all or substantially all of the assets, dissolution, liquidation, or any
other marshaling of the assets and liabilities of the Issuer, or in the event
the Note shall be declared due and payable upon the occurrence of an event of
default (as specified herein), (1) no amount shall be paid by the Issuer in
respect of the principal or interest on this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall have been paid in full, and (2) no claim or proof of claim
shall be filed with the Issuer by or on behalf of the holder of this Note which
shall assert any right to receive any payments in respect of the principal of
and interest on this Note except subject to the payment in full of the principal
and interest of all of the Senior Indebtedness then outstanding.
ARTICLE 2
EVENT OF DEFAULT
2.1) Each of the following shall constitute an Event of Default:
(a) Failure to pay interest when due, continued for thirty (30) days;
(b) Failure to pay principal or premium when due;
(c) An assignment for the benefit of creditors of the Issuer,
adjudication of Issuer as a bankrupt, or petition for the reorganization of the
Issuer pursuant to Chapter 7 or 11 of the United States Bankruptcy Code, as the
same may be amended.
2.2) Upon the occurrence of any Event of Default specified in Section
2.1(c) above, the entire unpaid principal balance hereof, together with all
accrued and unpaid interest thereon and all other sums owing hereunder, shall
become immediately due and payable, without presentation, demand or further
action of any kind. Upon the occurrence of any Event of Default specified in
Section 2.1 (a) or Section 2.1 (b) above, the holder of this Note shall have the
sole option of declaring the unpaid principal
2
<PAGE>
balance hereof together with all other sums owing hereunder immediately due and
payable, without presentation, demand or further action of any kind.
2.3) Upon the occurrence of any Event of Default and before and after
acceleration of the entire unpaid principal balance of this Note, interest shall
continue to accrue thereafter at a rate equal to two percent (2%) per annum in
excess of the then applicable rate of interest under this Note until this Note
is paid in full, including the period following entry of any judgment. Both
before and after any default, interest shall be calculated on the basis of a
360-day year but charged on the basis of actual number of days elapsed in any
calendar year of part thereof.
2.4) Holder may waive any default before or after the same has been
declared without impairing the Holder's right to declare a subsequent default
hereunder, this right being a continuing right.
2.5) Upon an Event of Default, Holder shall not be deemed, by any act
of omission or commission to have waived any of its rights or remedies unless
such waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. A waiver as to one event shall not be
construed as continuing or as a bar to or waiver of any right or remedy as to a
subsequent event.
ARTICLE 3
PREPAYMENT
3.1) This Note may be prepaid at any time, in whole or in part, prior
to maturity at the option of the Issuer, upon payment of all, or such lesser
portion of the principal amount as specified in the notice, together with
interest accrued to the date fixed for payment. If the Holder hereof fails or
neglects to present this Note for payment at the time and place specified in
such notice, this Note shall cease to bear interest on the portion to be
prepaid, as set forth in the notice, unless payment hereof is refused upon the
presentation of the same at or after the time specified in such notice.
ARTICLE 3
PAYMENT
4.1) Payment to the Holder of principal and interest shall be a complete
discharge of the Issuer's liability with respect to such payment, but the Issuer
may, at any time, require the presentation hereof as a condition precedent to
such payment.
4.2) No recourse shall be had for the payment of the principal, or
interest, or for any claim based thereon, or otherwise, against any
incorporator, shareholder, officer, director, or agent, past, present, or
future, of the Issuer, whether by virtue of any
3
<PAGE>
constitution, statute, rule of law, enforcement of any assessment, or penalty,
or by reason of any matter prior to delivery of this Note, or otherwise. All
such liability, by the acceptance hereof, is a part of the consideration to the
Issuer hereof, and is expressly waived.
ARTICLE 5
DIVIDENDS
5.1) Until payment in full of this Note, the Issuer may not declare any
dividend payable in cash or property on its Common Stock, with the sole
exception of any stock split in the form of a dividend payable in shares of
common stock.
ARTICLE 6
NOTICE
6.1) All notices, requests, demands and other communications under this
Note shall be in writing and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day after mailing if mailed to the party to whom notice is to be given
by first class mail, registered or certified, postage prepaid to the Issuer at
its address stated on the front page of this Note and to the Holder at its
address as listed in the register of the Issuer. Either party may change its
address for purposes of this Article 6.1 by giving the other party written
notice of the new address in the manner set forth above.
ARTICLE 7
MISCELLANEOUS
7.1) All parties liable for the payment of this Note agree to pay on
demand, all costs of collection and to cure any default under this Note
including, but not limited to, reasonable attorneys' fees actually incurred.
7.2) The undersigned and all endorsers, sureties and guarantors of this
Note, jointly and severally waive notice of and consent to any and all
extensions of this Note or any part hereof without notice, and each hereby
waives presentment, demand for payment, protest and notice of dishonor, demand,
protest and nonpayment.
7.3) The remedies of Holder as provided herein shall be cumulative and
concurrent, and may be pursued singly, successively or together against Issuer
at the
4
<PAGE>
sole discretion of Holder, and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release of the same.
7.4) Issuer's obligations hereunder shall extend to and bind Issuer's
successors and assigns. This Note may be amended only by an instrument in
writing signed by both Issuer and Holder.
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed by its
President and Secretary.
Dated: December 16, 1996 NETCO COMMUNICATIONS CORPORATION
By: /s/ Edward J. Driscoll, III
--------------------------------
Edward J. Driscoll, III
President and Secretary
5
<PAGE>
EXHIBIT 10.5
NUMBER SHARES
- --------------- -----------------
A-1 100,000
- --------------- -----------------
[LOGO OF NETCO COMMUNICATIONS CORPORATION APPEARS HERE]
THIS CERTIFIES THAT WorldCom Inc. is the
-----------------------------------------------------
registered holder of One Hundred Thousand
----------------------------------------------------- Shares
of Class A Preferred Stock, par value $10.00 per share (see reverse),
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 16th day of December A.D. 96
/s/ Edward J. Driscoll, III
----------------------------------
Edward J. Driscoll, III, President
<PAGE>
EXHIBIT 10.6
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME DECEMBER 31, 2000
Certificate for 4,157,500 Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
NETCO COMMUNICATIONS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that WORLDCOM INC., ("Holder") or assigns, is the owner of
the number of Warrants set forth above, each of which represents the right to
purchase from Netco Communications Corporation, a Minnesota corporation (the
"Company"), at any time on or before 5:00 Minneapolis time, December 31, 2000,
upon compliance with and subject to the conditions set forth herein, one share
(subject to adjustments referred to below) of the Common Stock of the Company,
par value $.01 per share (such shares or other securities or property
purchasable upon exercise of the Warrants being herein called the "Shares").
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability. The rights represented by this Warrant may
-------------------------
be exercised by the Holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), by written notice of exercise delivered to
the Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and by paying in full, as provided herein, the purchase
price of $4.81 per share (the "Initial Exercise Price" subject to adjustments as
noted subsequently).
Payment upon exercise of the rights represented by this Warrant may be
made at the option of the Holder (a) in cash or by certified or official bank
check payable to the order of the Company, (b) by surrendering to the Company
for cancellation and retirement any number shares of Class A Preferred Shares,
par value $10.00 per share, which shares shall each be valued for purposes
hereof at
<PAGE>
their par value of $10.00 plus the sum of any then accumulated and unpaid
dividends thereon, (c) by cancellation and discharge of the Company from all or
any portion of any debt in the amount then owed by the Company to the Holder on
a dollar for dollar basis, including principal whether or not then due and
payable together with any interest accrued and unpaid thereon, or (d) by any
combination of any or all of the foregoing.
This Warrant may not be transferred or divided into two or more Warrants of
smaller denominations, nor may any Common Stock issued pursuant to exercise of
this Warrant be transferred unless this Warrant or shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") and applicable
state laws, or unless the Holder of the certificate obtains an opinion of
counsel satisfactory to the Company and its counsel that the proposed transfer
may be effected without registration pursuant to exemptions under the Securities
Act and applicable state laws.
2. Issuance of Shares. The Company agrees that the shares purchased
------------------
hereby shall be deemed to be issued to the record Holder hereof as of the close
of business on the date on which this Warrant shall have been surrendered and
the payment made for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
shall be delivered to the Holder hereof within a reasonable time, not exceeding
ten (10) days after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to the Holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of stock upon exercise of this Warrant,
except in accordance with the provisions, and subject to the limitations, of
paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all
--------------------
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at all
times equal to or less than the then effective purchase price per share of the
Common Stock issuable pursuant to this Warrant. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its
2
<PAGE>
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Adjustments. The above provisions are, however, subject to the
-----------
following provisions:
(a) The Initial Exercise Price of $4.81 per share shall increase to $4.91
per share on March 31, 1997, and shall thereafter increase by the
amount of $.08 per share on the last day of each calendar quarter
during the term of the Warrant, commencing with the calendar quarter
ending June 30, 1997 (such increases beginning with the calendar
quarter ending June 30, 1997, being referred to as the "Quarterly
Increase"); provided, that to encourage earlier partial exercise of
the Warrants, the amount of each Quarterly Increase shall be abated at
the rate of $.00875 per share (the "Abatement") for each incremental
purchase of aggregated amounts of Five Hundred Thousand (500,000)
shares upon partial exercise of this Warrant. Each Abatement shall
take effect on the last day of the calendar quarter during which such
partial exercise and purchase occurred, as illustrated by the
following examples: (i) the purchase of One Million Five Hundred
Thousand (1,500,000) shares during the second calendar quarter of 1998
would result in a reduction, commencing June 30, 1998, of the
Quarterly Increase to .05375 per share for each subsequent calendar
quarter; (ii) the further purchase of Five Hundred Thousand (500,000)
shares during the third calendar quarter of 1998 would result in a
further reduction, commencing September 30, 1998, of the Quarterly
Increase to $.045 per share for each subsequent calendar quarter. The
exercise price computed from time to time in accordance with this
provision shall be referred to as the "Current Exercise Price."
(d) In case the Company shall at anytime hereafter subdivide or combine
the outstanding shares of Common Stock or declare a dividend payable
in Common Stock, the exercise price of this Warrant in effect
immediately prior to the subdivision, combination or record date for
such dividend payable in Common Stock shall forthwith be
proportionately increased, in the case of combination, or decreased,
in the case of subdivision or dividend payable in Common Stock, and
each share of Common Stock purchasable upon exercise of the Warrant
shall be changed to the number determined by dividing the then Current
Exercise Price by the exercise price as adjusted after the
subdivision, combination, or dividend payable in Common Stock.
(e) No fractional shares of Common Stock are to be issued upon the
exercise of the Warrant, but the Company shall pay a cash
3
<PAGE>
adjustment in respect of any fraction of a share which would otherwise
be issuable in an amount equal to the same fraction of the market
price per share of Common Stock on the date of exercise as determined
in good faith by the Company.
(f) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock then, as a condition
of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provision shall be made whereby the Holder
hereof shall hereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant and
in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may
be issued and payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and
in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder of this Warrant to the end that
the provisions hereof (including without limitation provisions for
adjustments of the Warrant purchase price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation, merger, or
the corporation purchasing such assets shall assume by written
instrument executed and mailed to the registered Holder hereof at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder
may be entitled to purchase.
(g) If the Company shall at any time or from time to time (i) distribute
(otherwise than as a dividend in cash or in Common Stock or securities
convertible into or exchangeable for Common Stock) to the holders of
Common Stock any property or other securities, or
4
<PAGE>
(ii) declare a dividend upon the Common Stock (to the extent payable
otherwise than out of earnings or earned surplus, as indicated by the
accounting treatment of such dividend in the books of the Company, and
otherwise than in Common Stock or securities convertible into or
exchangeable for Common Stock), the Company shall reserve and the
Holder of this Warrant shall thereafter upon exercise hereof be
entitled to receive, with respect to each share of Common Stock
purchased hereunder, without any change in, or payment in addition to,
the exercise price, the amount of any property or other securities
which would have been distributable to such holder had such holder
been a holder of one share of Common Stock on the record date of such
distribution or dividend (or if no record date was established by the
Company, the date such distribution or dividend was paid).
(h) Upon any adjustment of the Current Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered holder of
this Warrant at the address of such holder as shown on the books of
the Company, which notice shall state the exercise price resulting
from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
5. Common Stock. As used herein, the term "Common Stock" means the
------------
Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
6. No Voting Rights. This Warrant shall not entitle the Holder hereof
----------------
to any voting rights or other rights as a stockholder of the Company.
7. Notice of Transfer of Warrant or Resale of Shares. The Holder of this
-------------------------------------------------
Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, or transferring any Common Stock issued upon
the exercise hereof, of such holder's intention to do so, describing briefly the
manner of any proposed transfer. Promptly upon receiving such written notice the
Company shall present copies thereof to the Company counsel and if in the
opinion of such counsel the proposed transfer complies with federal and state
securities laws and may be effected without registration or qualification (under
any Federal or State law), the Company, as promptly as practicable, shall notify
such holder of such opinion, whereupon such holder shall be entitled to transfer
5
<PAGE>
this Warrant or to dispose of shares of Common Stock received upon the previous
exercise of this Warrant, provided that an appropriate legend may be endorsed on
this Warrant or the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfers which would be in violation of Section 5 of the
Securities Act of 1933.
If in the opinion of Company's counsel referred to in this paragraph 7
hereof, the proposed transfer or disposition of shares described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. Registration Rights. If the Company, at any time after three (3) years
-------------------
from the date hereof until two (2) years after the complete exercise of this
Warrant, but in any event no later March 31, 2003, proposes to claim an
exemption under Section 3(b) for a public offering of any of its securities or
to register under the Securities Act of 1933 (except by a Form S-8 or other
inappropriate Form for registration) any of its securities, it will give written
notice to all registered holders of Warrants, and all registered holders of
shares of Common Stock acquired upon the exercise of Warrants, of its intention
to do so and, on the written request of any registered holders given within
twenty (20) days after receipt of any such notice (which request shall specify
the Warrants or shares of Common Stock intended to be sold or disposed of by
such registered holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrants and/or shares, the registered holders of which shall have requested the
registration or qualification thereof, to be included in such notification or
registration statement proposed to be filed by the Company; provided, however,
that no such inclusion shall be required (i) if the Shares may then be sold by
the holder thereof without limitation under Rule 144(k), or comparable successor
rule of the Securities and Exchange Commission, or (ii) if the managing
underwriter of such offering reasonably determines that including such Shares
would unreasonably interfere with such offering. The Company will pay all
expenses of registration. The Warrant holders shall pay all commissions or
discounts applicable to the sale of the included Shares, together with any
expenses of counsel retained by them in connection with their sale of the
Shares.
6
<PAGE>
IN WITNESS WHEREOF, Netco Communications Corporation, Inc. has caused this
Warrant to be signed by its duly authorized officer and this Warrant to be dated
December 16, 1996.
NETCO COMMUNICATIONS CORPORATION
By: /s/ Edward J. Driscoll, III
----------------------------------
Edward J. Driscoll, III
President
7
<PAGE>
EXHIBIT 10.7
RIGHT OF REFUSAL AGREEMENT
THIS RIGHT OF REFUSAL AGREEMENT (Agreement) is made effective as of
this 16th day of December, 1996, by and among WorldCom, Inc., a Georgia
corporation ("WCOM"), Edward J. Driscoll, III ("Driscoll") and Allen L. Witters
("Witters").
RECITALS
Netco Communications Corporation, a Minnesota Corporation ("Netco"), is
engaged in the design, development and deployment of a high-speed, transaction
based electronic data transportation and delivery service. Netco presently
serves as its own transfer agent for its Common Stock.
Driscoll is the Chief Executive Officer of Netco. Driscoll owns four
hundred thousand (400,000) shares of the Common Stock of Netco represented by
Certificate No. 1 standing in his name on the books and records of Netco, and
also enjoys an option to acquire, according to the terms thereof, an additional
four hundred thousand (400,000) shares of the Common Stock of Netco. The four
hundred thousand (400,000) shares of Netco Common Stock presently owned by
Driscoll, together with any additional shares of Netco Common Stock which
Driscoll may acquire in the future by reason of the exercise of the option or
otherwise are herein referred to as the "Driscoll Shares".
Witters is the Chief Technology Officer of Netco. Witters owns four
hundred thousand (400,000) shares of the Common Stock of Netco represented by
Certificate No. 2 standing in his name on the books and records of Netco, and
also enjoys an option to acquire, according to the terms thereof, an additional
four hundred thousand (400,000) shares of the Common Stock of Netco. The four
hundred thousand (400,000) shares of Netco Common Stock presently owned by
Witters, together with any additional shares of Netco Common Stock which Witters
may acquire in the future by reason of the exercise of the option or otherwise
are herein referred to as the "Witters Shares".
Driscoll and Witters are each founders of Netco and comprise its
principal executive and technical management. The Driscoll Shares and the
Witters Shares are sometimes referred to herein as "Shares."
WCOM and Netco have, contingent upon the execution hereof, entered
into a certain Preferred Stock, Subordinated Note and Warrant Purchase
Agreement, dated November 14, 1996, as amended (the "WCOM Agreement"),
contemplating a substantial investment by WCOM into Netco.
<PAGE>
WCOM, Driscoll and Witters each desire preserve and provide for the
successful continuity of Netco's management and thereby to provide for the
orderly disposition of the Driscoll Shares and the Witters Shares under the
circumstances contemplated in this Agreement.
In consideration of WCOM entering into the WCOM Agreement with Netco,
and in the further consideration of the mutual promises, covenants and
conditions herein contained, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, Driscoll, Witters and WCOM agree as
follows:
1.) Restriction on Transfer. Neither Driscoll nor Witters may sell or
-----------------------
engage in any transaction which will result in a change of beneficial or record
ownership of any of the Shares held by them including, without limitation, a
voluntary or involuntary sale, assignment, transfer, pledge, hypothecation,
encumbrance, disposal, loan, gift, attachment or levy (a transfer) except as
provided in this Agreement, and any transfer of the Shares or attempt to
transfer the Shares in contravention of this Agreement shall be void and
ineffective for any purpose or confer in any transferee or purported transferee
any rights whatsoever. This restriction shall apply only to the Shares
identified in the Recitals, and shall not apply to other shares of Netco which
either Driscoll or Witters may acquire in the future.
2.) Rights of First and Second Refusal. In the event either Driscoll or
----------------------------------
Witters (the "Selling Shareholder") proposes to transfer or is required by
operation of law or other involuntary transfer any or all of the Shares (the
"Offered Shares") then standing in the his name during the term of this
Agreement, he shall first offer such shares to the other ("Offeree") in
accordance with the following provisions:
(a) The Selling Shareholder shall deliver written notice (Notice) to
the Offeree, to WCOM and to NETCO stating (i) the Selling Shareholder's
intention to transfer the Offered Shares, (ii) the identity of the
proposed transferee, (iii) the price at which the Selling Shareholder
proposes to transfer the Offered Shares, and (iv) the terms of payment
upon which the Offered Shares are proposed to be transferred.
(b) Within thirty (30) days after receipt of the Notice, the Offeree
shall have the first right to purchase or obtain such shares, upon the
price and the terms of payment designated in the Notice.
(c) If the Offeree elects not to purchase or obtain all of the Offered
Shares designated the Notice, then WorldCom shall have thirty (30) days
to purchase or obtain such of the Shares not acquired by the Offeree,
at the price and terms of payment designated in the Notice.
2
<PAGE>
(d) If neither the Offeree nor WCOM elect to purchase or obtain all of
the shares designated in the Notice, then the Selling Shareholder may
transfer the shares referred to in the Notice to the proposed
transferee named therein, providing (i) such transfer is completed
within sixty (60) days following expiration of WorldCom's right to
purchase or obtain such shares, and (ii) is made at the price and on
the terms designated in the Notice.
(e) Any of the Shares once offered pursuant to this Paragraph 2 which
are not sold and transferred in accordance with the provisions of
Subparagraph 2(d) must be again offered to the Offeree Shareholder and
to WCOM by Notice in accordance with this Paragraph 2 prior to any
other or subsequent proposed transfer of Shares.
3.) Legend on Stock Certificates. (a) Each certificate representing the
----------------------------
Shares now owned (or hereafter issued pursuant to exercise of the stock options
referred to in the Recitals) shall be endorsed prominently with the following
legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDER
RIGHT OF FIRST AND SECOND REFUSAL AGREEMENT BETWEEN WORLDCOM, INC., AND
THE SHAREHOLDERS THAT ARE SIGNATORY THERETO, PROVIDING FOR, AMONG OTHER
MATTERS, A RIGHT OF FIRST REFUSAL IN FAVOR OF THE SIGNATORY
SHAREHOLDERS AND WORLDCOM TO PURCHASE THE SECURITIES REPRESENTED BY
THIS CERTIFICATE. A COPY OF THE AGREEMENT IS ON FILE AT THE PRINCIPAL
BUSINESS OFFICE OF NETCO COMMUNICATIONS CORPORATION, 102 UNION PLAZA,
333 N. WASHINGTON AVENUE, MINNEAPOLIS, MINNESOTA 55401.
(b) Driscoll and Witters each agree to promptly present the
certificates representing the Shares held by each, respectively, to Netco for
endorsement with the above referenced legend.
(c) Driscoll and Witters each agree that Netco may enter stop transfer
instructions against any transfer of any of the Shares made in contravention of
the provisions of Paragraph 2 of this Agreement, whether such shares be
represented by a certificate issued to them or be uncertificated shares of
Netco.
4.) Term of the Agreement. The restrictions on transfer of Shares set
---------------------
forth in Paragraph 1 of this Agreement together with the obligations of Notice
and offer set forth in Paragraph 2 of this Agreement shall immediately terminate
upon the earlier to occur of any of the following:
3
<PAGE>
(a) Upon the dissolution or bankruptcy of Netco.
(b) Upon Netco's becoming required to file periodic reports under
Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
(c) Upon December 31, 2000.
(d) Upon consummation of a sale made in accordance with Paragraph 2 of
this Agreement to a person who is not a party to this Agreement.
5.) Modification. This Agreement, as applied to any Shareholder, may
------------
be amended at any time by the written agreement of WorldCom and a
Shareholder affected thereby.
6.) Notice. Any Notice required or permitted hereunder shall be
------
delivered in person or sent by telecopier, air courier, or certified mail,
return receipt requested, postage and fees prepaid in all cases to the person
entitled to receive such Notice addressed as follows:
(a) If to Driscoll:
Edward J. Driscoll
2500 Christian Drive
Chaska, Minnesota 55318
(b) If to Witters:
Allen L. Witters
9640 Eden Prairie Road
Eden Prairie, Minnesota 55437
(c) If to WCOM:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
(b) If to Netco:
Netco Communications Corporation
104 Union Plaza
333 North Washington Ave.
Minneapolis, MN 55401
4
<PAGE>
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
Notice shall be effective upon delivery if it is hand delivered; upon receipt if
it is transmitted by telecopier, air courier or registered, certified, or
express mail; upon expiration of the third business day after deposit on the
United States mail if mailed from and to an address in the United States; and
upon expiration of the tenth (10th) business day after deposit on the United
States mail if mailed from or to an address outside the United States.
7.) Succession. This Agreement shall be binding upon and inure to the
----------
benefit of parties hereto and upon their permitted successors and interests of
any kind whatsoever, their heirs, executives, administrators and personal
representatives.
8.) Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Minnesota as such laws are applied to agreements
between residents entered into and to be performed entirely within Minnesota and
without regard to the conflicts of law provisions thereof. The parties hereby
irrevocably consent to the exclusive jurisdiction and venue of the state or
federal courts located in the State of Minnesota, County of Hennepin, for the
resolution of any disputes arising out of this Agreement.
9.) Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
10.) Sole Agreement. This Agreement constitutes the entire agreement
--------------
and understanding of the parties hereto with respect to the subject matter
hereof and supersedes any and all prior or contemporaneous agreements and
understandings pertaining thereto whether oral or written.
11.) Construction. The titles of the sections of this Agreement are
------------
for convenience of reference only and are not to be considered in construing
this Agreement. The language of this Agreement shall be construed for its fair
meaning and not strictly for or against any party.
12.) Effectiveness. This Agreement shall become effective as of the
-------------
day and year first above written upon the acknowledgment and consent of Netco in
accordance with the Acknowledgment appended to this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Right of Refusal
Agreement as of the day and year first above written.
WORLDCOM, INC. EDWARD J. DRISCOLL, III
By: /s/ K. William Grothe, Jr. /s/ Edward J. Driscoll, III
-------------------------- ----------------------------
K. William Grothe, Jr. Edward J. Driscoll, III
Vice President
ALLEN L. WITTERS
/s/ Allen L. Witters
----------------------------
Allen L. Witters
6
<PAGE>
ACKNOWLEDGMENT
Netco Communications Corporation, a Minnesota corporation, acting in its
capacity as transfer agent for its Common Stock, hereby acknowledges its receipt
of the Right of Refusal Agreement, dated as of December 16th, 1996, among Edward
J. Driscoll, III, Allen L. Witters and WorldCom, Inc.
NETCO COMMUNICATIONS
CORPORATION
Date: December 16, 1996 By: /s/ Edward J. Driscoll, III
------------------------------
Edward J. Driscoll, III
President
7
<PAGE>
Exhibit 10.8
GUARANTY AGREEMENT
NETCO COMMUNICATIONS CORPORATION
and
WORLDCOM INC.
September 26, 1997
<PAGE>
GUARANTY AGREEMENT
Guaranty Agreement (herein "Agreement") made this 26th day of September,
1997, by and between NETCO COMMUNICATIONS CORPORATION, a Minnesota corporation,
having its principal place of business at 102 Union Plaza, 333 North Washington
Avenue, Minneapolis, Minnesota 55401 ("NETCO") and WORLDCOM INC., a Georgia
corporation, having its principal place of business at 515 East Amite Street,
Jackson, Mississippi 39201 ("WCOM").
Whereas, NETCO is engaged in the development and implementation of high
speed, digital data transportation delivery and ancillary data storage and
remote proofing services addressed initially to the printing and prepress
industries, and requires significant permanent financing to accomplish such
development and implementation; and
Whereas, WCOM is engaged in the sale and marketing of voice and data
transmission over its multinational communications infrastructure; and
Whereas, WCOM and NETCO are parties to a certain Convertible Note Purchase
Agreement dated September 12, 1996 (the "Convertible Note Agreement") pursuant
to which WCOM purchased from NETCO a 10% Convertible Subordinated Note due
September 30, 1999, (the "Convertible Note") in principal amount of $5,000,000;
and
Whereas, WCOM and NETCO are parties to a certain Preferred Stock,
Subordinated Note and Warrant Purchase Agreement dated November 14, 1996
pursuant to which WCOM purchased from NETCO 100,000 shares of Preferred Stock
for $10,000,000 and 4,157,500 warrants to purchase Common Stock for
$19,000,000.00 (the "Stock, Note and Warrant Purchase Agreement"); and
Whereas, NETCO desires that WCOM agree to guaranty a certain three year
revolving credit loan facility in favor of NETCO in the maximum principal amount
of $35,000,000 by the First National Bank of Chicago ("FNBC") (the "First
Chicago Facility") for the purpose of providing NETCO with long term financing
to fund and facilitate the deployment and implementation of NETCO's services
over WCOM's communications infrastructure; and
Whereas, WCOM is agreeable to guaranteeing NETCO's obligations under the
First Chicago Facility on the terms and conditions and for the consideration set
forth in this Agreement; and
Whereas, NETCO is unable to obtain long term financing on terms as favorable
as those provided in the First Chicago Facility and this Agreement without the
guaranty of WCOM, which WCOM is not obligated to provide.
<PAGE>
NOW THEREFORE, in consideration of the foregoing premises, and of the
consideration provided herein, the parties agree as follows:
I. THE GUARANTY
1.01 Guaranty of the First Chicago Facility. Subject to the terms and
--------------------------------------
conditions set forth in this Agreement, and provided that the First Chicago
Facility is acceptable to WCOM in form and content, WCOM hereby agrees to
provide its limited guaranty, in form attached hereto as Exhibit A (the "WCOM
Guaranty"), of the obligations of NETCO arising under the First Chicago
Facility, not to exceed the principal amount of Thirty-Five Million Dollars
($35,000,000), in form acceptable to WCOM and NETCO.
II. GRANT TO WCOM OF WARRANTS
2.01 Grant of the Warrants. Subject to the terms and conditions set forth
---------------------
in this Agreement, and in consideration of the WCOM Guaranty, NETCO grants to
WCOM 1,679,234 Class A and 2,840,967 Class B Common Stock Purchase Warrants
entitling WCOM to purchase, until December 31, 2000, subject to the terms and
conditions hereof, up to an aggregate total of 4,520,201 shares of NETCO's
authorized and unissued Common Stock, par value $.0l per share, at an initial
exercise price of Nineteen Dollars Fifty Cents ($19.50) per share, subject to
adjustment, and upon the additional terms and conditions, set forth in the
"Common Stock Purchase Warrant" in form appended to this Agreement as Exhibit B
and incorporated herein by this reference.
III. CREDIT FACILITIES
3.01 Provision of Credit Facilities. As further consideration for the
------------------------------
WCOM Guaranty, NETCO agrees that the WCOM Guaranty will satisfy all obligations
of WCOM under Article V of the Stock, Note and Warrant Purchase Agreement.
IV. REPRESENTATIONS AND WARRANTIES OF NETCO
4.01 NETCO hereby represents and warrants to WCOM that, as of the date
hereof and as of the Closing provided for in Section 7.01 hereof:
(a) Corporate Organization and Power; Qualification. NETCO is duly
-----------------------------------------------
organized, validly existing and in good standing as a corporation under the laws
of the state of Minnesota, has all corporate power and authority to own its
properties and to carry on its businesses as now being and hereafter proposed to
be conducted and is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in all jurisdictions in which the
character of its properties or the nature of its businesses requires such
qualification or authorization, except for qualifications and authorizations the
lack of which, singly or in the aggregate, has not had and will not have a
materially adverse effect on NETCO.
<PAGE>
(b) Subsidiaries. NETCO does not own, directly or indirectly, any capital
------------
stock or other equity securities of any corporation nor does NETCO have any
direct or indirect ownership interest, including interests in partnerships and
joint ventures, in any other entity or business, with the sole exceptions of
WAMNET, Inc., a Minnesota corporation and Netco Communications Corporation of
Canada, Inc., a Canadian corporation, each of which is a wholly owned subsidiary
of NETCO.
(c) Authorization; Enforceability. NETCO has the power, and has taken, or
-----------------------------
will take prior to closing, all necessary action (including any necessary
stockholder action) to authorize it, to execute, deliver and perform in
accordance with their respective terms this Agreement, the First Chicago
Facility and the Common Stock Purchase Warrant. This Agreement has been, and
the First Chicago Facility and the Common Stock Purchase Warrant, when executed
and delivered by NETCO to WCOM and FNBC, respectively, will have been, duly
executed and delivered by NETCO and is, and when so delivered will be, legal,
valid and binding obligations of NETCO, enforceable against NETCO in accordance
with their respective terms.
(d) No Violations; Consent. The execution, delivery and performance in
----------------------
accordance with their respective terms by NETCO of this Agreement, and of the
First Chicago Facility and the Common Stock Purchase Warrant, do not and will
not as of closing or thereafter (i) require any governmental approval or any
other consent or approval, including any consent or approval of the stockholders
of NETCO, other than governmental approvals and other consents and approvals
that have been obtained, are final and not subject to review on appeal or to
collateral attack, are in full force and effect or (ii) violate, conflict with,
result in a breach of, constitute a default under, or result in or require the
creation of any lien upon any assets of NETCO under, any contract to which NETCO
is a party or by which NETCO or any of its properties may be bound. WCOM agrees
that neither the First Chicago Facility nor the issuance of the Warrants
hereunder is a violation of the Convertible Note Agreement.
(e) Litigation. There are not, in any court or before any arbitrator of
----------
any kind or before or by any governmental or non-governmental body, any actions,
suits or proceedings pending or threatened (nor, to the knowledge of NETCO, is
there any basis therefor) against or in any other way relating to or affecting
(a) NETCO or (b) any of its businesses or properties, other than as is disclosed
in Schedule 4.01(e) hereto.
(f) Taxes. NETCO has filed (or obtained extensions of the time by which it
-----
is required to file) all United States federal, state and local income tax
returns and all other material tax returns required to be filed by it and has
paid all taxes shown due on the returns so filed as well as the other taxes,
assessments and governmental charges which have become due, except such taxes,
if any, as are being contested in good faith and as to which adequate reserves
have been provided. NETCO will continue to make all such filings in a timely
manner and pay all such taxes, assessments and other governmental charges
required of it.
(g) Capitalization. (i) As of the date hereof, the authorized capital
--------------
stock of NETCO consists of 20,000,000 shares of which 15,000,000 are Common
Shares and 5,000,000 are undesignated shares. NETCO does not hold any of its
shares in treasury.
(ii) 1,295,971 Common Shares are issued and outstanding and have been
validly issued and are fully paid and nonassessable and are not subject to
preemptive rights.
(iii) 100,000 of the undesignated shares have been designated as the
Preferred Stock having the rights and preferences set forth on Exhibit 1 to the
Stock, Note and Warrant Purchase Agreement, and have been duly authorized and
validly issued to WCOM.
<PAGE>
(iv) Except as contemplated by this Agreement and the Stock, Note and
Warrant Purchase Agreement, and as disclosed on Schedule 1 to that Agreement or
Schedule 4.01 (g) (iv) to this Agreement, there are no outstanding
subscriptions, options, warrants or other rights of any kind to acquire any
additional shares of capital stock of NETCO, or other instruments or securities
convertible into or exchangeable for, or which otherwise confer on the holder
thereof any right to acquire, any such additional shares, nor is NETCO committed
to issue any such option, warrant, right, or security, or any other instrument
convertible into a security.
(v) Except as expressly provided for in the Stock, Note and Warrant
Purchase Agreement, there are no agreements relating to voting, purchase or sale
of capital stock between NETCO and any of its stockholders or affiliates, and to
the best of NETCO's knowledge, among any of its stockholders.
(h) NETCO has delivered to WCOM copies of its financial statements
(including balance sheets, income statements, changes in stockholders equity and
statements of cash flow) for the period from inception [September 1994] through
December 31, 1996 and for the six month period ended June 30, 1997. Such
financial statements (x) fairly present the financial condition, assets and
liabilities of NETCO at their respective dates and the results of its operations
and changes in its cash flows for the periods covered thereby, (y) were prepared
in accordance with generally accepted accounting principles except as may be
noted therein, and (z) were prepared from the books and records of NETCO, which
books and records are complete and correct and fairly reflect all material
transactions of NETCO's business.
V. REPRESENTATIONS AND WARRANTIES OF WCOM
5.01 WCOM hereby represents and warrants to NETCO that:
(a) WCOM has been given access to full and complete information regarding
the Company and has utilized such access to its satisfaction for the purpose of
obtaining information WCOM desires or deems relevant to the decision to grant
the WCOM Guaranty.
(b) WCOM is an "accredited investor" within the meaning of Rule 501(a) of
the General Rules and Regulations under the Securities Act of 1933.
VI. COVENANTS OF NETCO
6.01 Affirmative Covenants. NETCO hereby agrees that until the payment in
---------------------
full of all amounts due under, and the termination or the expiration of, the
First Chicago Facility, and the payment and performance of all of its
obligations under this Agreement, except with the prior written consent of WCOM,
it shall:
(a) Payment of Obligations. Pay, discharge or otherwise satisfy at or
----------------------
before maturity or before they become delinquent, as the case may be, all its
material obligations and liabilities of whatever nature, including without
limitation those arising under the First Chicago Facility, except when the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings.
<PAGE>
(b) Conduct of Business and Maintenance of Existence. Continue to engage
------------------------------------------------
in business of the same general type as currently conducted by it and preserve,
renew and keep in full force and effect its corporate existence; take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business; and comply with all applicable
requirements of law except to the extent that the failure to comply therewith
would not, individually or in the aggregate, have a material adverse effect on
the business, operations, property, condition (financial or otherwise) or
prospects of NETCO.
(c) Use of Proceeds. NETCO will, and will cause each of its subsidiaries
---------------
to, use the proceeds of any amounts drawn under the First Chicago Facility only
for capital expenditures and operating capital expenditures approved by the
Board of Directors of NETCO.
(d) Insurance. NETCO will, and will cause each subsidiary to, maintain
---------
with financially sound and reputable insurance companies insurance on all their
property in such amounts and covering such risks as is consistent with sound
business practice, and NETCO will furnish WCOM upon request full information as
to the insurance carried.
(e) Maintenance of Properties. NETCO will, and will cause each subsidiary
-------------------------
to, do all things necessary to maintain, preserve, protect and keep its property
in good repair, working order and condition, and make all necessary and proper
repairs, renewals, and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
(f) Additional Covenants. Comply with the additional covenants and
--------------------
agreements set forth in Schedule 6.01(f) hereof.
(g) Notices. Promptly give notice to WCOM:
-------
(i) of the occurrence of any Event of Default as that may be defined
in the First Chicago Facility or this Agreement;
(ii) of any (i) default or event of default under any contractual
obligation of NETCO or any of its Subsidiaries or (ii) litigation, investigation
or proceeding which may exist at any time between NETCO or any of its
Subsidiaries and any governmental authority, which in the case of either (i) or
(ii) above, if not cured or if adversely determined, as the case may be, would
have a material adverse effect on the business, operations, properties,
condition (financial or otherwise) or prospects of NETCO;
(iii) of any litigation or proceeding affecting NETCO or any of its
Subsidiaries in which the amount claimed is $100,000.00 or more and not covered
by insurance or (ii) in which injunctive or similar relief is sought which, if
obtained, would have a material adverse effect on the business, operations,
properties, condition (financial or otherwise) or prospects of NETCO or (iii)
arising out of this Agreement.
6.02 Negative Covenants. NETCO agrees that until payment in full of all
------------------
amounts due under, and the termination or expiration of, the First Chicago
Facility, and the payment and performance by NETCO of all its obligations under
this Agreement, except with the prior written consent of WCOM, it shall not:
(a) Limitation on Indebtedness and Guarantee Obligations. Create, incur,
----------------------------------------------------
assume or suffer to exist any Indebtedness or Guarantee Obligations other than:
(i) Indebtedness arising under this Agreement;
<PAGE>
(ii) Indebtedness and Guaranty Obligations of NETCO and its
Subsidiaries existing on the date of this Agreement and listed in Schedule 6.02;
(iii) Additional Indebtedness incurred to finance the acquisition of
equipment or indebtedness incurred as a part of the sale and leaseback of NETCO
equipment in an aggregate principal amount not exceeding the amount which may be
approved by NETCO's Board of Directors from time to time for such purposes;
(iv) Indebtedness arising under (i) standby letters of credit issued
to secure performance obligations in the ordinary course of business, and (ii)
Indebtedness of NETCO or any Subsidiary in respect of surety, utility, appeal or
similar bond issued in the ordinary course of business, the aggregate amount of
such Indebtedness not exceeding the amount which may be approved by NETCO's
Board of Directors from time to time for such purposes;
(v) any extension, renewal or refinancing of the Indebtedness
permitted pursuant to clause (b) above on terms and conditions satisfactory to
WCOM and in an aggregate principal amount not exceeding the amount of such
Indebtedness outstanding at the time of such extension, renewal or refinancing;
and
(vi) in addition to the Indebtedness permitted by clauses (a) through
(c) above, Indebtedness of NETCO incurred in the ordinary course of business in
an aggregate principal amount not to exceed the amount which may be approved by
NETCO's Board of Directors from time to time for such purposes.
(b) Prohibition of Fundamental Changes. Make any material change in the
----------------------------------
present method of conducting business or engage in any type of business other
than of the same general type now conducted by it.
(c) Prohibition of Investments, Loans and Advances. Make any advance,
----------------------------------------------
loan, extension of credit or capital contribution to, purchase or acquire any
stock, bonds, notes, debentures or other securities of, purchase or acquire any
assets constituting an ongoing business of or make any other investment in, any
other person, except:
------
(i) investments in Cash Equivalents;
(ii) extensions of trade credit in the ordinary course of business;
and
(iii) acquisitions approved by NETCO's Board of Directors and
consented to by WCOM pursuant to the Convertible Note Agreement.
(d) Limitation on Capital Expenditures. Make or commit to make (by way of
----------------------------------
the acquisition of securities of a person or otherwise) any expenditures in
respect of the purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired in connection with normal replacement and
maintenance programs properly charged to current operations) except for
expenditures in the ordinary course of business not exceeding the amount
approved by NETCO's Board of Directors during any fiscal year of NETCO.
(e) Liens. NETCO will not, nor will it permit any subsidiary to, create,
-----
incur, or suffer to exist any lien in, of or on any property of NETCO or any of
its subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies
on its Property if the same shall not at the time be delinquent
or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate
<PAGE>
proceedings and for which adequate reserves in accordance with
Generally Accepted Accounting Principles shall have been set
aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or which are being contested in good faith
by appropriate proceedings and for which adequate reserves shall
have been set aside on its books.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or
other social security or retirement benefits, or similar
legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar
character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in
the business of NETCO or its Subsidiaries.
(v) Liens existing on the date hereof and described in Schedule
6.02(e).
(f) Sale of Accounts. NETCO will not, nor will it permit any Subsidiary
----------------
to, sell or otherwise dispose of any notes receivable or accounts receivable,
with or without recourse, except as may be permitted by the Board of Directors
of NETCO.
(g) Amendment of Credit Agreement. Agree or consent or otherwise permit
-----------------------------
any amendment to the Credit Agreement without the prior written consent of WCOM.
6.03 Reimbursement and Indemnification.
---------------------------------
(a) Reimbursement. Upon notice by WCOM that it has paid or advanced
-------------
pursuant to the WCOM Guaranty any funds to FNBC in payment of any principal,
interest or any other amounts whatever due or payable, or asserted by FNBC to be
due or payable, under the First Chicago Facility, NETCO shall immediately pay
and reimburse WCOM all such funds before 1:00 p.m. on the first business day
following the date of such notice.
(b) Indemnification. NETCO shall indemnify and hold harmless WCOM, and
---------------
its directors, officers, employees, agents and representatives, from and against
any and all claims, demands, actions, causes of action, payments, losses, costs,
damages, liabilities and expenses, including, without limitation, reasonable
legal fees (collectively, "Losses") arising out of (i) any breach by NETCO of
any representation, warranty, covenant or obligation in the First Chicago
Facility, and (ii) any breach by NETCO of any representation, warranty, covenant
or obligation in this Agreement. Upon notice by WCOM that it has incurred
Losses, NETCO shall immediately pay such Losses to WCOM before 1:00 p.m. on the
first business day following the date of such notice.
VII. CLOSING
7.01 Closing. Closing shall occur at the offices of NETCO, at such time
-------
as may be agreed by NETCO and WCOM, on or before September 26, 1997.
<PAGE>
7.02 Conditions to Closing. The Closing shall be conditioned upon
---------------------
satisfaction of all of the following requirements;
(a) The approval of this Agreement by NETCO's Board of Directors and by
WCOM;
(b) The due authorization and approval by NETCO's Board of Directors of
the Common Stock Purchase Warrant;
(c) Such certificates, dated as of the Closing, from officers of NETCO as
WCOM may reasonably request relating to the representations, warranties and
covenants given by NETCO herein or to the satisfaction of these conditions of
closing;
7.03 Delivery. At Closing, NETCO shall deliver the Common Stock Purchase
--------
Warrant to WCOM upon WCOM's execution of the Guaranty Agreement required in
connection with the First Chicago Facility.
VIII. TERMINATION; EVENTS OF DEFAULT
8.01 Termination.
-----------
(a) Prior to Closing. Either party may terminate this Agreement prior to
----------------
Closing upon any failure, including its own failure, to satisfy any of the
Conditions to Closing set forth in Section 7.02 hereof.
(b) Post Closing. Either party may terminate this Agreement if, within
------------
30 days after Closing, NETCO has not entered into the First Chicago Facility,
and, in such event, the Warrants issued at Closing shall be deemed cancelled.
8.02 Consequences of Termination. Neither party shall be liable to the
---------------------------
other upon any termination in accordance with Section 8.01 hereof.
8.03 Events of Default. Upon the occurrence of any of the following
-----------------
events:
(a) NETCO shall fail to pay any principal of or interest on the First
Chicago Facility when due in accordance with the terms thereof or shall fail to
pay any amount payable hereunder within five days after any such amount becomes
due in accordance with the terms thereof or hereof;
(b) Any representation or warranty made or deemed made by NETCO in the
First Chicago Facility or in this Agreement or in any certificate or other
statement furnished at any time under or in connection with the First Chicago
Facility or this Agreement shall prove to have been incorrect in any material
respect on or as of the date made or deemed made;
(c) NETCO shall default in the observance or performance of any agreement
contained in this Agreement;
(d) NETCO shall default in the observance or performance of any other
covenant or agreement contained in the First Chicago Facility or this Agreement;
<PAGE>
(e) NETCO or any of its Subsidiaries shall default in any payment of
principal of or interest on any Indebtedness (other than indebtedness under the
First Chicago Facility) or in the payment of any Guarantee Obligation, in either
case where the principal amount thereof then outstanding exceeds $25,000.00
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness or Guarantee Obligation was created; or (ii)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or Guarantee Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity, any applicable grace
period having expired, or such Guarantee Obligation to become payable, any
applicable grace period having expired;
(f) (i) NETCO or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or NETCO or any of its
Subsidiaries shall make a general assignment for the benefit of its creditors;
or (ii) there shall be commenced against NETCO or any of its Subsidiaries in any
case, proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded for a period
of 60 days; or (iii) there shall be commenced against NETCO or any of its
Subsidiaries any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) NETCO or any of
its Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) NETCO or any of its Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or
(g) One or more judgments or decrees shall be entered against NETCO or any
of its Subsidiaries involving in the aggregate a liability (not paid or fully
covered by insurance) of $25,000.00 or more and all such judgments or decrees
shall not have been vacated, discharged, stayed or bonded pending appeal within
30 days from the entry thereof; then, and in any such event, (a) if such event
is an Event of Default specified in clause (i) or (ii) of paragraph (f) above
with respect to NETCO, automatically this Agreement shall immediately terminate
and the reimbursement and indemnification obligations of NETCO hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement shall
immediately become due and payable notwithstanding any provision herein which
may otherwise require the giving of prior notice by WCOM and (b) if such event
is any other Event of Default, so long as any such Event of Default shall be
continuing, either or both of the following actions may be taken: (i) WCOM may
by notice to NETCO and FNBC declare the WCOM Guaranty and this Agreement
terminated immediately, provided that Section VI, Section VIII and Section IX of
this Agreement shall survive any such termination until all NETCO's obligations
to WCOM under Sections VI and VIII have been fully paid and discharged, and (ii)
WCOM may by notice to NETCO declare all reimbursement and indemnification
obligations hereunder and all other amounts owing under this
<PAGE>
Agreement to be due and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided above in this Section
8.03, presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
IX. MISCELLANEOUS
-------------
9.01 Amendments, Waivers and Consents. No provision in this Agreement may
--------------------------------
be altered or amended, and compliance with any covenant or provision set forth
herein may not be omitted or waived, except by an instrument in writing duly
executed by WCOM and NETCO. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
9.02 Notices. All notices required or permitted by this Agreement shall be
-------
in writing, and shall be hand delivered, sent by facsimile or sent by nationally
recognized overnight delivery service or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If to WCOM:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
Telephone: (601)360-8051
Telecopy: (601)974-8233
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: William Anderson
General Counsel
Telephone: (601)360-8977
(601)360-8282
(b) If to the NETCO:
Netco Communications Corporation
102 Union Plaza
333 North Washington Ave.
Minneapolis, MN 55401
Attention: Edward J. Driscoll, III
President
Telephone: (612)204-3100
Telecopy: (612)204-3101
<PAGE>
with a copy to:
George H. Frisch
5030 Woodlawn Boulevard
Minneapolis, Minnesota 55417
Telephone: (612)724-2929
Telecopy: (612)724-8387
or to such other person or address as any party hereto shall specify by notice
in writing to the other parties. All such notices and other communications
shall be effective when received.
9.03 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the NETCO and WCOM. No assignment of rights or
delegation of duties arising under this Agreement may be made by any party
hereto without the prior written consent of the other parties.
9.04 Third-Party Beneficiaries. This Agreement is for the sole benefit of
-------------------------
the parties hereto and their permitted assigns and nothing herein expressed or
implied shall give or be construed to give to any person, other than the parties
hereto and such assigns, any legal or equitable right hereunder.
9.05 Entire Agreement; Savings. This Agreement, the Stock, Note and
-------------------------
Warrant Purchase Agreement and the Convertible Note and Convertible Note
Agreement and the Common Stock Purchase Warrant constitute the entire agreement
between the parties hereto with respect to the subject matter contained herein
and therein and supersede all other prior understandings or agreements, both
written and oral, between the parties with respect to the matters contained
herein and therein; provided, however, that nothing in this Agreement shall be
deemed in any way to affect the Convertible Note Agreement or the Convertible
Note, or the Stock, Note and Warrant Purchase Agreement or the instruments
contemplated thereby or hereby which shall each continue in accordance with
their respective terms, unaffected by this Agreement.
9.06 Severability. The provisions of this Agreement are severable and, in
------------
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement; but this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of a provision, had never been contained herein, and such
provisions or part reformed so that it would be valid, legal and enforceable to
the maximum extent possible.
9.07 Governing Law. This Agreement shall be governed by, and construed in
---------
accordance with, the law of the State of Minnesota without regard to its
principles of conflicts of laws.
9.08 Headings. Article, Section and subsection headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
9.09 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart by original or facsimile signature.
<PAGE>
9.10 Expenses. Each of the parties hereto shall pay the fees and expenses
--------
of its respective counsel, accountants and other experts (including any broker,
finder, advisor or intermediary) and shall pay all other expenses incurred by it
in connection with the negotiation, preparation and execution of this Agreement
and the consummation of the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
day and year first above written.
"NETCO"
NETCO COMMUNICATIONS CORPORATION
By: /s/ Edward J. Driscoll, III
-----------------------------------
Edward J. Driscoll, III
Its: President and Secretary
"WCOM"
WORLDCOM INC.
By: /s/ K. William Grothe, Jr.
____________________________________
K. William Grothe, Jr.
Its: Vice President
<PAGE>
Schedule 4.01 (e)
1. Arbitration proceeding entitled, Piper Jaffray, Inc., Claimant vs.
Netco Communications Corporation, Respondent, before the National Association of
Securities Dealers, Inc., case no. 9703288, claiming a commission of $1,450,000.
2. Related litigation being commenced by NETCO against Piper Jaffray,
Inc., and Joseph Caruso in the District Court of Hennepin, County, State of
Minnesota. The suit against Piper Jaffray seeks a declaratory judgment
invalidating the engagement letter upon which the claim identified above is
based, on the grounds that the engagement letter violates a particular provision
of Minnesota law which requires all fees and commissions charged by a licensed
broker-dealer to be "reasonable" and also violates a related rule requiring a
licensed broker-dealer to abide by "high standards of commercial honor and just
and equitable principles of trade." The suit against Caruso will seek damages
arising from his representations and conduct in connection with his obtaining
and performing the engagement.
<PAGE>
EXHIBIT 10.9
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME DECEMBER 31, 2000
Certificate for 1,679,234 Class A Warrants
2,840,967 Class B Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
NETCO COMMUNICATIONS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that THE HOLDER INC., ("Holder") or assigns, is the owner of
the number of Warrants set forth above, each of which represents the right to
purchase from Netco Communications Corporation, a Minnesota corporation (the
"Company"), at any time on or before 5:00 Minneapolis time, December 31, 2000,
upon compliance with and subject to the conditions and limitations set forth
herein, one share (subject to adjustments referred to below) of the Common Stock
of the Company, par value $.0l per share (such shares or other securities or
property purchasable upon exercise of the Warrants being herein called the
"Shares").
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability. The rights represented by this Warrant may
-------------------------
be exercised by the Holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), by written notice of exercise delivered to
the Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and by paying in full, as provided herein, the purchase
price of $19.50 per share (the "Initial Exercise Price" is subject to
adjustments as noted subsequently. For purposes hereof, "Current Exercise
Price" means the Initial Exercise Price as may be adjusted from time to time in
accordance with the provisions hereof).
Payment upon exercise of the rights represented by this Warrant may be made
at the option of the Holder (a) in cash or by certified or official bank check
payable to the order of the Company, (b) by surrendering to the Company for
cancellation and retirement any number of shares of Class A Preferred Shares,
par value $10.00 per share, which shares shall each be valued for purposes
hereof at their par value of
<PAGE>
$10.00 plus the sum of any then accumulated and unpaid dividends thereon, (c) by
cancellation and discharge of the Company from all or any portion of any debt in
the amount then owed by the Company to the Holder on a dollar for dollar basis,
including principal whether or not then due and payable together with any
interest accrued and unpaid thereon, or (d) by any combination of any or all of
the foregoing.
This Warrant may not be transferred or divided into two or more Warrants of
smaller denominations, nor may any Common Stock issued pursuant to exercise of
this Warrant be transferred unless this Warrant or shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") and applicable
state laws, or unless the Holder of the certificate obtains an opinion of
counsel satisfactory to the Company and its counsel that the proposed transfer
may be effected without registration pursuant to exemptions under the Securities
Act and applicable state laws.
2. Issuance of Shares. The Company agrees that the shares purchased
------------------
hereby shall be deemed to be issued to the record Holder hereof as of the close
of business on the date on which this Warrant shall have been surrendered and
the payment made for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
shall be delivered to the Holder hereof within a reasonable time, not exceeding
ten (10) days after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be delivered to the Holder hereof within such
time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of stock upon exercise of this Warrant,
except in accordance with the provisions, and subject to the limitations, of
paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all shares
--------------------
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
<PAGE>
4. The Class A and B Warrants; Adjustments. The above provisions are,
---------------------------------------
however, subject to the following provisions:
(a) The Class A Warrants. The total number of shares which may be
--------------------
purchased by the Holder upon exercise of the Class A Warrants shall be
the number set forth above, subject to adjustment as set forth in
Sections 4(e) and (h). The Class A Warrants may be exercised at any
time prior to expiration as set forth herein.
(b) The Class B Warrants. The total number of shares which may be
--------------------
purchased upon exercise of The Class B Warrants shall be a maximum of
the number set forth above, subject to adjustment as set forth in
Sections 4(e) and (h). The number of Class B Warrants which shall
accrue to the Holder hereunder shall be based on the maximum amount of
the Outstanding Balance, as defined in Section 4(c), which is
outstanding at any time during months 25-36 of the First Chicago
Facility prior to the time the First Chicago Facility is paid in full,
and based on the time when the Outstanding Balance is repaid by
Qualified Repayments, as defined in Section 4(d). Exhibit A hereto
contains a number of examples illustrating the determination of the
Outstanding Balance and the number of Class B Warrants to which the
Holder will be entitled hereunder. The Holder shall obtain the number
of Class B Warrants determined as follows:
(i) Determine the highest Outstanding Balance at any time
outstanding during months 25-36 ("Highest OB") and multiply the
amount thereof up to $25,000,000, times a factor of .06313259
and for any amount above $25,000,000 by a factor of .12626518
and credit the Holder with the number of Class B Warrants which
is the total of these calculations;
(ii) Reduce the number of Class B Warrants credited to the Holder by
virtue of Subsection (i) by that number of Class B Warrants
which is determined as follows: Determine the Net Qualified
Repayment ("NQR"), as defined in Subsection (iii), during months
25-30 (herein referred to as "NQRX") and the Net Qualified
Repayment during months 31-36 (herein referred to as "NQRY").
Multiply the amount of NQRX representing the net reduction of
the amount of the Highest OB in excess of $25,000,000 by
.0842189 and the remainder of NQRX by .04210944. Multiply the
amount of NQRY representing the net reduction of the amount of
the Highest OB in excess of $25,000,00 by .0420463 and the
remainder of NQRY by .02102316. The number of Class B Warrants
credited to the Holder by virtue of Subsection (i) shall be
reduced by the aggregate of these four calculations.
<PAGE>
(iii) For all purposes of this Section in calculating the Warrants
accruing to the Holder, the NQR shall be determined as the
amount, if any, by which the Highest OB, if it has been reached
prior to the end of that period, has been reduced as of the end
of that particular time period by Qualified Repayments; the sum
of NQRX and NQRY cannot exceed the Highest OB and will not equal
the Highest OB unless the Company repays all obligations under
the First Chicago Facility with Qualified Repayments; any
increases in the Outstanding Balance during months 31-36 shall
be deemed to offset dollar for dollar any Qualified Repayments
occurring during months 25-30; and obtaining the absolute
release of the WorldCom, Inc. Guaranty of the First Chicago
Facility shall be deemed to be a Qualified Repayment of the
Outstanding Balance at that time.
(iv) The accrued Class B Warrants may be exercised at any time after
they have accrued, prior to expiration as set forth herein.
(c) Determination of the Outstanding Balance.
----------------------------------------
The Outstanding Balance shall be calculated at any relevant point in
time as the aggregate of all draws by the Company against the First
Chicago Facility, all other amounts advanced or for which the Company
becomes obligated thereunder, including all accrued interest,
compounded monthly, reduced by Qualified Repayments, as hereinafter
defined in Section 4(d).
(d) Qualified Repayments. Repayments of the First Chicago Facility shall
--------------------
be considered Qualified Repayments if the Company repays amounts
borrowed under the First Chicago Facility using EBITDA, as defined
herein, and not funds from loans, sale of Company assets or equity
invested in the Company, except that the proceeds of a public offering
of the securities of the Company which is used to repay the First
Chicago Facility may be considered as Qualified Repayments.
Furthermore, if the Company obtains the absolute release of the
WorldCom, Inc. Guaranty of the First Chicago Facility, it shall be
deemed to be a Qualified Repayment of the Outstanding Balance at that
time. "EBITDA" shall mean earnings before interest, taxes,
depreciation and amortization or is otherwise stated as gross revenue,
less cost of goods sold, less operating expenses, determined in
accordance with generally accepted accounting principles applied on a
consistent basis.
(e) In case the Company shall at any time hereafter subdivide or combine
the outstanding shares of Common Stock or declare a dividend payable
in Common Stock, the exercise price of this Warrant in effect
<PAGE>
immediately prior to the subdivision,, combination or record date for
such dividend payable in Common Stock shall forthwith be
proportionately increased, in the case of combination, or decreased,
in the case of subdivision or dividend payable in Common Stock, and
each share of Common Stock purchasable upon exercise of the Warrant
shall be changed to the number determined by dividing the Current
Exercise Price by the exercise price as adjusted after the
subdivision, combination, or dividend payable in Common Stock.
(f) If the Company shall at any time issue any Common Stock, or any
option, warrant, right or interest excercisable or convertible into
Common Stock, at a price per share that is less than the then Current
Exercise Price, then and in each such case such Current Exercise Price
shall be adjusted to the equivalent price of the Common Stock or
exercise of conversion price, as the case may be.
(g) No fractional shares of Common Stock are to be issued upon the
exercise of the Warrant, but the Company shall pay a cash adjustment
in respect of any fraction of a share which would otherwise be
issuable in an amount equal to the same fraction of the market price
per share of Common Stock on the date of exercise as determined in
good faith by the Company.
(h) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock then, as a condition
of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provision shall be made whereby the Holder
hereof shall hereafter have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant and
in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivables upon the exercise of the
rights represented hereby, such shares of stock, securities or assets
as may be issued and payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the number
of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the
number of shares purchasable upon the exercise of this Warrant) shall
<PAGE>
thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation, merger, or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the registered
Holder hereof at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to purchase.
(i) If the Company shall at any time or from time to time (i) distribute
(otherwise than as a dividend in cash or in Common Stock or securities
convertible into or exchangeable for Common Stock) to the holders of
Common Stock any property or other securities, or (ii) declare a
divide upon the Common Stock (to the extent payable otherwise than out
of earnings or earned surplus, as indicated by the accounting
treatment of such dividend in the books of the Company, and otherwise
than in Common Stock or securities convertible into or exchangeable
for Common Stock), the Company shall reserve and the Holder of this
Warrant shall thereafter upon exercise hereof be entitled to receive,
with respect to each share of Common Stock purchased hereunder,
without any change in, or payment in addition to, the exercise price,
the amount of any property or other securities which would have been
distributable to such holder had such holder been a holder of one
share of Common Stock on the record date of such distribution or
dividend (or if no record date was established by the Company, the
date such distribution or dividend was paid).
(j) Upon any adjustment of the Current Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered holder of
this Warrant at the address of such holder as shown on the books of
the Company, which notice shall state the exercise price resulting
from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
5. Common Stock. As used herein, the term "Common Stock" means the
------------
Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
<PAGE>
6. No Voting Rights. This Warrant shall not entitle the Holder hereof to
----------------
any voting rights or other rights as a stockholder of the Company.
7. Notice of Transfer of Warrant or Resale of Shares. The Holder of this
-------------------------------------------------
Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, or transferring any Common Stock issued upon
the exercise hereof, of such holder's intention to do so, describing briefly the
manner of any proposed transfer. Promptly upon receiving such written notice
the Company shall present copies thereof to the Company counsel and if in the
opinion of such counsel the proposed transfer complies with federal and state
securities laws and may be effected without registration or qualification (under
any Federal or State law), the Company, as promptly as practicable, shall notify
such holder of such opinion, whereupon such holder shall be entitled to transfer
this Warrant or to dispose of shares of Common Stock received upon the previous
exercise of this Warrant, provided that an appropriate legend may be endorsed on
this Warrant or the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfers which would be in violation of Section 5 of the
Securities Act of 1933.
If in the opinion of Company's counsel referred to in this paragraph 7
hereof, the proposed transfer or disposition of shares described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. Registration Rights. If the Company, at any time after three (3) years
-------------------
from the date hereof until two (2) years after the complete exercise of this
Warrant, but in any event no later than March 31, 2003, proposes to claim an
exemption under Section 3(b) for a public offering of any of its securities or
to register under the Securities Act of 1933 (except by a Form S-8 or other
inappropriate Form for registration) any of its securities, it will give written
notice to all registered holders of Warrants, and all registered holders of
shares of Common Stock acquired upon the exercise of Warrants, of its intention
to do so and, on the written request of any registered holders given within
twenty (20) days after receipt of any such notice (which request shall specify
the Warrants or shares of Common Stock intended to be sold or disposed of by
such registered holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrants and/or shares, the registered holders of which shall have requested the
registration or qualification thereof, to be included in such notification or
registration statement proposed to be filed by the Company; provided, however,
that no such inclusion shall be required (i) if the Shares may then be sold by
the holder thereof without limitation under Rule 144(k), or comparable successor
rule of the Securities and Exchange Commission, or (ii) if the managing
underwriter of such
<PAGE>
offering reasonably determines that including such Shares would unreasonably
interfere with such offering. The Company will pay all expenses of registration.
The Warrant holders shall pay all commissions or discounts applicable to the
sale of the included Shares, together with any expenses of counsel retained by
them in connection with their sale of the Shares.
9. Related Agreement. The Class A Warrants and the Class B Warrants
-----------------
provided herein are being issued pursuant to, and in connection with a certain
Guaranty Agreement ("Guaranty Agreement") of even date herewith between the
Company and the Holder. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Guaranty Agreement.
IN WITNESS WHEREOF, Netco Communications Corporation, Inc. has caused this
Warrant to be signed by its duly authorized officer and this Warrant to be dated
September 26, 1997.
NETCO COMMUNICATIONS CORPORATION
By: /s/ Edward J. Driscoll, III
-----------------------------
Edward J. Driscoll, III
President
<PAGE>
EXHIBIT 10.10
SUBLEASE
This Building Sublease ("Sublease") is made this 24th day of September,
1997, by and between NETCO COMMUNICATIONS CORPORATION, a Minnesota corporation
("Sublessee"), and 1250895 Ontario Limited, an Ontario corporation
("Sublessor").
RECITALS:
A. Bradley A. Hoyt ("Prime Landlord") is the fee owner of the land and
improvements, consisting of approximately 44,977 square feet of office and
warehouse, commonly known as 6100 110th Street West, Bloomington, Minnesota
("Premises").
B. Prime Landlord, as landlord, and Technology Marketing Group, Inc. (now
known as Globelle, Inc.), as tenant, have heretofore entered into that certain
Standard Commercial Lease dated July 11, 1995, as amended, (the "Prime Lease").
C. Globelle, Inc. has assigned all of its right, title and interest in the
Prime Lease to Sublessor;
D. Sublessee desires to lease the Premises and Sublessor desires to
sublease the Premises to Sublessee, all on the terms and conditions hereafter
set forth.
NOW, THEREFORE, in consideration of the foregoing recitals incorporated
herein by this reference, and the mutual covenants and agreements hereinafter
set forth, the receipt and adequacy of which are acknowledged, the parties agree
as follows:
1. BASIC SUBLEASE PROVISIONS AND IDENTIFICATIONS OF EXHIBITS
---------------------------------------------------------
1.01 BASIC SUBLEASE PROVISIONS:
-------------------------
A. PREMISES ADDRESS:
6100 110th Street West
Bloomington, Minnesota 55428
B. SUBLESSOR'S ADDRESS:
5101 Orbitor Drive
Mississauqa, Ontario, Canada L4W 4V1
C. SUBLESSEE'S ADDRESS:
6100 110th Street West
Bloomington, Minnesota 55428
<PAGE>
D. EXECUTION DATE: September 24th, 1997
E. TERM: The period beginning on the Commencement Date and ending on the
Expiration Date (hereafter defined), subject to earlier cancellation or
termination as herein provided.
F. COMMENCEMENT DATE: The last to occur of (x) September 15, 1997, and (y) the
date Sublessor, after obtaining Prime Landlord's mortgagee approval of the
Sublease, makes the Premises available for occupancy by the Subtenant.
G. EXPIRATION DATE: November 29, 2005, subject to earlier cancellation or
termination as herein provided.
H. SECURITY DEPOSIT: $150,528.00, subject to the provisions of Section 4.01.
I. EXHIBITS: The following Exhibits are attached hereto and incorporated
herein:
EXHIBIT A - Description of Subleased Premises
EXHIBIT B - Prime Lease
EXHIBIT C - Furniture, Fixtures and Equipment included in Sublease Premises
EXHIBIT D - Sublessee and Prime Landlord Non-Disturbance Agreement
2. SUBLEASED PREMISES AND TERM; PRIME LEASE
----------------------------------------
2.01 SUBLEASED PREMISES AND FURNITURE, FIXTURES AND EQUIPMENT LOCATED THEREON:
------------------------------------------------------------------------
A. Sublessor hereby leases to Sublessee and Sublessee hereby leases from
Sublessor approximately 41,699 square feet of office space and ?,278 square feet
of warehouse space in a two (2) story building (sometimes referred to herein as
the "Subleased Premises"), which Subleased Premises are described in Exhibit "A"
-----------
attached hereto, subject to all of the terms, covenants and conditions contained
herein and in the Prime Lease. The leasable area of the Subleased Premises
includes an allocation of the Common Areas (as defined in the Prime Lease).
B. Sublessee acknowledges that it has thoroughly inspected the Subleased
Premises. The Subleased Premises are accepted by the Sublessee in an AS IS,
WHERE IS condition without any representations or warranties, whatsoever,
express or implied, except as specifically set forth herein. More particularly,
Sublessee expressly acknowledges that Sublessor has not made and will not make
any warranties to the Sublessee with respect to the quality of construction of
any leasehold improvements or finishes or as to the condition of the Subleased
Premises, whether express,
2
<PAGE>
statutorily implied or otherwise, and that Sublessor expressly disclaims any
implied warranty that the Subleased Premises are or will be suitable for
Sublessee's use or intended commercial purposes. Sublessee shall have the right
to take possession of the Subleased Premises upon execution of this Sublease by
all parties hereto. Any construction, alterations or improvements made to the
Subleased Premises by Sublessee shall be subject to (i) the prior approval of
both Prime Landlord and Sublessor, including, without limitation, approval of
the plans, specifications, contractors and subcontractors therefor, (ii) all
applicable terms and conditions of the Prime Lease relating to construction,
alterations or improvements of the Subleased Premises, and (iii) such other
reasonable requirements or conditions as Prime Landlord may impose.
C. The Subleased Premises shall include the furniture, fixtures and
equipment set forth in the schedule attached hereto as Exhibit "C"; provided,
---
however, title to such furniture, fixtures and equipment shall remain in
Sublessor. Upon the expiration of the Sublease Term not resulting from a default
by Sublessee, title to such furniture, fixtures and equipment shall be deemed to
have been transferred to the Sublessee.
2.02 TERM:
----
A. The term of this Sublease ("Term") shall commence on the Commencement
Date as set forth in Section 1.01F.
B. The term shall end on the Expiration Date set forth in Subsection 1.01G,
unless sooner canceled or terminated as otherwise provided in this Sublease.
2.03 RELATION TO PRIME LEASE.
-----------------------
Except to the extent hereinafter provided, this Sublease is subject and
subordinate to all of the covenants, agreements, terms, provisions, conditions
and obligations of the Prime Lease. Sublessee agrees that all rights and
privileges granted hereunder are subject to the limitations imposed on the
Sublessor by the Prime Lease and that, except as expressly provided herein,
Sublessor is not granting any rights or privileges to Sublessee that are not
expressly granted to Sublessor under the Prime Lease. All of the covenants,
agreements, terms, provisions, conditions, obligations and rules and regulations
of the Prime Lease are incorporated herein, with the same force and effect as if
they were fully set forth herein. Sublessee agrees to be bound by and comply
with the terms of the Prime Lease and to perform Sublessor's obligations with
respect to the Subleased Premises for the benefit of Prime Landlord and
Sublessor, except that:
(x) Any reference in the Prime Lease to: (i) "Landlord" shall mean Prime
Landlord; (ii)"Tenant" shall mean
3
<PAGE>
Sublessee; and (iii) "Premises" shall mean Subleased Premises.
(y) In all instances where consent or approval of the Prime Landlord is
required pursuant to the Prime Lease, the consent or approval of each
of Prime Landlord and Sublessor shall be required hereunder and
Sublessor agrees to send to Prime Landlord, at Sublessee Is expense,
copies of Sublessee's written request for any consents required. In the
event Sublessor does not notify Sublessee of any objections to a
request for Sublessor's consent within ten (10) business days of
Sublessor's receipt of such request, such request shall be deemed
approved by Sublessor.
The Prime Lease is attached hereto as Exhibit "B". Each party agrees that it
-----------
will not, by its act or omission to act, cause a default under the Prime Lease.
In furtherance of the foregoing, Sublessor and Sublessee hereby confirm, each to
the other, that it is not practical in this Sublease to enumerate all of the
rights and obligations of the various parties under the Prime Lease and
specifically to allocate those rights and obligations in this Sublease.
Accordingly, in order to afford to Sublessee the benefits of this Sublease and
of those provisions of the Prime Lease which by their nature are intended to
benefit the party in possession of the Premises, and in order to protect
Sublessor against a default by Sublessee which might cause a default or event of
default by Sublessor under the Prime Lease:
A. Subject to the provisions of Section 3.03 herein, without limiting
the obligations of Sublessor under the Prime Lease, as between Sublessor
and Sublessee, Sublessor shall pay, when and as due, all Base Rent,
Additional Rent and other charges payable by Sublessor to Prime Landlord
under the Prime Lease provided Sublessee shall timely pay all Rent when and
as due under this Sublease.
B. Sublessee shall perform and observe all terms, affirmative covenants
and conditions and shall refrain from performing any act which is
prohibited by the negative covenants of the Prime Lease, where the
obligation to perform, observe or refrain from performing is by its nature
imposed upon the party in possession of the Premises and all such
affirmative covenants and negative covenants shall be deemed incorporated
herein and shall be performed or observed for the benefit of Sublessor as
though Sublessor were the landlord thereunder. If practicable, Sublessee
shall perform affirmative covenants which are also covenants of Sublessor
under the Prime Lease at least five (5) days prior to the date when
Sublessor's performance is required under the Prime Lease and shall
indemnify Sublessor and Guarantor (as defined in the Prime Lease) against
all claims liabilities, demands, losses,
4
<PAGE>
actions, causes of action, damages, costs and expenses (including
reasonable attorneys' fees) arising out of Sublessee's failure to perform
or observe any such terms, covenants or conditions, subject however to all
the express terms and conditions of this Sublease. Sublessor shall have the
right, after notice and failure to cure by Sublessee (except in events of
emergency), but not the obligation to enter the Subleased Premises to cure
any default by Sublessee under this Sublease.
C. Provided Sublessee is not in default hereunder and such default is
continuing uncured, Sublessor shall not agree to an amendment to the Prime
Lease, unless Sublessor shall first obtain Sublessee's prior written
approval thereof, not to be unreasonably withheld.
D. Sublessor shall not be required to make any improvements,
replacements or repairs of any kind or character to the Premises. Sublessor
hereby grants to Sublessee the right to receive all of the services and
benefits with respect to the Subleased Premises which are to be provided by
Prime Landlord under the Prime Lease; provided, however, Sublessor shall
have no duty to perform any terms, covenants, conditions to be performed or
observed by the Prime Landlord under the Prime Lease. For example, and
without limitation, Sublessor shall not be required to provide the services
or repairs which the Prime Landlord is required to provide under the Prime
Lease. Sublessor shall have no responsibility for or be liable to Sublessee
for any default, failure or delay on the part of Prime Landlord in the
performance or observance by Prime Landlord of any of the terms, covenants
and conditions under the Prime Lease, nor shall such default by Prime
Landlord affect this Sublease or waive or defer the performance of any of
Sublessee's obligations hereunder except to the extent that such default
by Prime Landlord excuses performance by Sublessor under the Prime
Lease. Notwithstanding the foregoing, the parties contemplate that Prime
Landlord shall, in fact, perform and observe its obligations under the
Prime Lease and in the event of any default or failure of such performance
by Prime Landlord, Sublessor agrees that it will, upon notice from
Sublessee, make demand upon Prime Landlord to perform its obligations under
the Prime Lease and, provided that Sublessee specifically agrees to pay all
reasonable costs and expenses of Sublessor and provides Sublessor with
security reasonably satisfactory to Sublessor to pay such costs and
expenses, Sublessor will take appropriate legal action to enforce the Prime
Lease.
E . Nothing contained in this Sublease shall be construed to create a
privity of estate of contract between
5
<PAGE>
Sublessee and Prime Landlord except as may be created pursuant to Exhibit
C.
F. Notwithstanding anything contained herein to the contrary,
Sublessee and Sublessor hereby acknowledge that the terms and provisions of
this Sublease are specifically contingent upon the delivery to Sublessee
and Sublessor of a fully executed agreement by and between Sublessee and
Prime Landlord in the same form attached hereto as Exhibit "D".
----------
G. Without limiting its obligations hereunder, Sublessee hereby
acknowledges the Prime Landlord's rights as set forth in Sections 10.1,
12.1, 13.3 and 14.10 of the Prime Lease.
3. RENT
3.01 BASE RENT. Sublessee shall pay Sublessor the Base Rent payable in
---------
equal monthly installments, set forth below on or before the first day of each
calendar month during the Term, except that Base Rent for the first full and
any initial partial calendar month shall be paid when Sublessee executes this
Sublease.
<TABLE>
<CAPTION>
Lease Year Annual Rate Monthly Installment
---------- ----------- -------------------
<S> <C> <C>
Commencement Date - Four Hundred Thirteen $34,432.00
November 30, 2000 Thousand One Hundred
Eighty-Four Dollars
($413,184)
</TABLE>
(except that the Sublessor will forbear from collecting Base Rent for the
four (4) calendar months commencing with the first full month next
succeeding the Commencement Date, provided, however, that if the
Commencement Date is on the first day of a calendar month, such month shall
be the first calendar month which Sublessor forbears collection, (Sublessee
shall pay all Additional Rent due for such period), and Sublessee shall
instead repay such amounts by way of payments to Sublessor, directly, of an
additional $8,500.00 per month in Base Rent from February 1, 1998 to
January 31, 1999)
December 1, 2000 - Four Hundred Sixty-one Thousand $38,432.00
November 29, 2005 One Hundred Eight-Four Dollars
($461,184)
Except as provided in Section 3.03 herein, Sublessee shall pay all Rent, and
forward all insurance certificates to Sublessor at the address set forth in
Section 1.01B, or such other address or to such other entity as Sublessor shall
designate from time to time in writing.
6
<PAGE>
3.02 ADDITIONAL RENT. If and to the extent that Sublessor is obligated to
---------------
pay Additional Rent under the Prime Lease, Sublessee shall, effective as of the
Commencement Date, pay to Sublessor such Additional Rent (to the extent such
Additional Rent is attributable to events occurring during the Term of this
Sublease). Such payment shall be due from Sublessee to Sublessor at least five
(5) days prior to the date upon which Sublessor's payment of such Additional
Rent is due to the Prime Landlord, provided that Sublessee shall have been
billed therefor at least ten (10) days prior to such due date (which bill shall
be accompanied by a copy of Prime Landlord's bill and other material furnished
to Sublessor in connection therewith). If any such payments are estimated and
paid monthly by Sublessor under the Prime Lease, Sublessee shall pay its share
of the estimated monthly payments on the first (1st) day of every month in
which a payment is due by Sublessor under the Prime Lease. As of the date
hereof, Sublessee's share of such expenses is 100%, subject to adjustment as
provided in Section 1.8 and 2.2 of the Prime Lease.
Section 2.2 of the Prime Lease provides for an adjustment of the monthly
operating Expenses actually paid by Prime Landlord during said year with
Sublessor's pro rata share of operating expenses actually paid with respect to
such year. To the extent Prime Landlord pays Sublessor any overpayment with
respect to Sublessor's pro rata share of operating expenses, Sublessor shall
remit to Sublessee such overpayment. Likewise, to the extent Sublessor is
obligated to pay any deficiency in the payment of Sublessor's pro rata share of
operating expenses, Sublessee shall, within five (5) days after written demand
therefor by Sublessor, pay to Sublessor such deficiency.
3.03 SUBLESSEE'S PAYMENT OF RENT DIRECTLY TO PRIME LANDLORD. Sublessee
------------------------------------------------------
shall make all Rent, including Base Rent and Additional Rent, payments due
under this Sublease directly to Landlord at Landlord's address set forth in the
Prime Lease, except that Sublessor agrees to pay to Prime Landlord the Base
Rent due for the four (4) calendar months commencing with the first full month
next succeeding the Commencement Date, and Sublessee agrees to pay the
additional $8,500.00 per month rent due during the year 1998 directly to the
Sublessor. Upon Sublessee's receipt of a notice from Sublessor directing Rent
to be paid to Sublessor, Sublessee shall thereafter make all such payments
directly to the Sublessor. Except as provided in the Prime Landlord and
Sublessee NonDisturbance Agreement, in the event the Sublessee fails to pay any
Rent, after notice and within the time set forth in the notice, thereafter,
until Sublessee has cured such failure to pay Rent, all Rent due under the
Sublease shall be paid directly to Sublessor at the address set forth in
Section 1.01 B herein.
4. SECURITY DEPOSIT.
----------------
7
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4.01 SECURITY DEPOSIT. The Sublessee has delivered to Sublessor a
----------------
security deposit in the amount of $150,528.00 as a security deposit for the
full and faithful performance of each and every provision of this Sublease to
be performed by Sublessee, on the understanding that: (a) the Security Deposit
or any portion thereof not previously applied, or from time to time, such one
or more portions thereof, may be applied to cure any default that may then
exist, without prejudice to any other remedy or remedies which Sublessor may
have on account thereof, and upon such application Sublessee shall pay
Sublessor on demand the amount so applied which shall be added to the Security
Deposit so the same may be restored to its original amount; (b) should the
Prime Lease be assigned by Sublessor, the Security Deposit or any portion
thereof not previously applied may be paid to the Sublessor's assignee and if
the same is paid as aforesaid, Sublessee hereby releases Sublessor from any and
all liability with respect to the Security Deposit and/or its application or
return; (c) if permitted by law, Sublessor or its successor shall not be
obligated to hold the Security Deposit as a separate fund, but on the contrary
may commingle the same with its other funds; (d) if Sublessee shall faithfully
perform and observe all of the terms, covenants, and conditions in this
Sublease and in the Prime Lease set forth and contained on the part of
Sublessee to be fulfilled, kept, performed and observed, the sum deposited or
the portion thereof not previously applied, shall be returned to Sublessee
without interest no later than thirty (30) days after the expiration of the
Term of this Sublease or any renewal or extension thereof, provided Sublessee
has vacated the Premises and surrendered possession thereof to Sublessor at the
expiration of the Term or any extension or renewal thereof as provided herein;
(e) in the event that Sublessor terminates this Sublease or Sublessee's right
to possession by reason of a Default by Sublessee, Sublessor may apply the
Security Deposit against damages suffered to the date of such termination
and/or may retain the Security Deposit to apply against such damages as may be
suffered or shall accrue thereafter by reason of Sublessee's default; (f) in
the event any bankruptcy, insolvency, reorganization or other creditor-debtor
proceedings shall be instituted by or against Sublessee, or its successors or
assigns, the Security Deposit shall be deemed to be applied first to the
payment of any Rent due Sublessor for all periods prior to the institution of
such proceedings, and the balance, if any, of the Security Deposit may be
retained or paid to Sublessor in partial liquidation of Sublessor's damages.
Sublessor's parent corporation, Globelle Corporation, an Ontario corporation,
("Guarantor") has executed the Sublease solely for the purpose of agreeing to
guaranty the performance of the Sublessor with respect to the Security Deposit.
The Guarantor hereby submits to personal jurisdiction in the State of Minnesota
for the enforcement of this Guaranty and waives any and all personal rights to
object to such jurisdiction for the purposes of litigation to enforce this
Guaranty. In the event such litigation is commenced at any time when Guarantor
is not permanently domiciled in the State of
8
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Minnesota, Guarantor agrees that service of process may be made and personal
jurisdiction over Guarantor obtained, by service of a copy of the summons,
complaint and other pleadings required to commence such litigation upon
appointed Agent for Service of Process in the State of Minnesota, which Agent
Guarantor hereby designates to be:
Mary L. Galvin, Bassford, Lockhart, Truesdell & Briggs, Lawyers, 3550
Multifoods Tower, 33 South Sixth Street, Minneapolis, Minnesota, 55402-3787,
(612) 333-3000. A copy of all documents served as aforesaid shall be
simultaneously sent by mail, Certified, postage prepaid to: Goodman and Carr,
Barristers and Solicitors, 200 King Street West, Toronto, Ontario, Canada M5H
3W5, Attention: Mr. J. Blidner
Guarantor agrees that this appointment of an agent for service of process is
made for the mutual benefit of Guarantor and Sublessee and may not be revoked
without Sublessee's consent. Guarantor hereby agrees and consents that any such
service of process upon such agent shall be taken and held to be valid personal
service upon Guarantor whether or not Guarantor shall be then physically
present, residing within, or doing business within the State of Minnesota, and
that any such service of process shall be of the same force and validity as if
service were made upon Guarantor when physically present, residing within, or
doing business in the State of Minnesota. Guarantor waives all claim of error
by reason of any such service. Guarantor hereby consents to the exclusive
jurisdiction of either the District Court of Hennepin County, Minnesota, or the
United States District Court for Minnesota, in any action, suit or proceeding
which Owner may at any time wish to file in connection with this Guaranty or
any related matter. Guarantor hereby agrees that an action, suit or proceeding
to enforce this Guaranty shall be brought in any State or Federal Court in the
State of Minnesota and hereby waives any objection which Guarantor may have to
the laying of the venue of any such action, suit or proceeding in any such
Court; provided, however, that the provisions of this Section shall not be
deemed to preclude Sublessee from filing any such action, suit or proceeding in
any other appropriate forum.
5. SUBLESSEE'S USE.
---------------
5.01 USE OF THE SUBLEASED PREMISES. Sublessee shall occupy and use the
-----------------------------
Subleased Premises only for warehouse and office uses. Sublessee's use of the
Subleased Premises shall comply in all respects with Section 3.1 of the Prime
Lease.
5.02 PERMITS/CERTIFICATE OF OCCUPANCY. If any governmental license or
---------------------------------
permit shall be required for the proper and lawful conduct of Sublessee's
business in or occupancy of the Subleased Premises, then Sublessee, at its sole
cost and expense, shall procure (and Sublessor and Prime Landlord shall assist
and fully cooperate in such efforts to procure, at Sublessee's cost and
expense), and thereafter maintain such license(s) or permit(s) and submit
the same to Sublessor for inspection. Sublessee shall also be responsible for
obtaining the certificate of occupancy, if any,
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<PAGE>
for the Subleased Premises. Sublessee shall comply with the terms and conditions
of each such license or permit.
6. RIGHT OF QUIET ENJOYMENT. If the Sublessee pays the Rent and other sums
------------------------
herein provided, and observes and performs all the terms, covenants and
conditions on the Sublessee's part to be observed and performed, Sublessee's
right of quiet enjoyment of the Subleased Premises, subject to the terms,
covenants and conditions of this Lease, shall not be disturbed by Sublessor or
those claiming through Sublessor.
7. LATE PAYMENT CHARGE. Other remedies for nonpayment of Rent notwithstanding,
-------------------
if the monthly rental payment or any other payment due from the Sublessee to
Sublessor is not received by the Sublessor or the Prime Landlord for the account
of Sublessor on or before the fifth (5th) day of the month for which rent or
such other payments are due, a late payment charge of five per cent (5%) of such
past due amount shall become due and payable in addition to such amounts owed
under the Sublease.
8. ASSIGNMENT AND SUBLETTING.
-------------------------
8.01 TRANSFER BY SUBLESSEE. Sublessee shall not sublease, assign, pledge,
---------------------
mortgage, hypothecate, grant licenses or concessions or otherwise transfer or
permit the transfer of Sublessee's interest in this Sublease or the Subleased
Premises, in whole or in part, by operation of law or otherwise (including
without limitation by transfer of a majority interest of stock, merger, or
dissolution, which transfer of majority interest of stock, merger or dissolution
shall be deemed an assignment) without the prior written consent of Sublessor
and Prime Landlord, which consents may be withheld or granted on the same
conditions as are applicable under the Prime Lease with respect to assignments
and other transfers of Sublessor's interest thereunder. Any assignee or
sublessee of Sublessee or any further assignment or sublease of the Subleased
Premises shall be subject to the same terms and provisions set forth in this
Section 8.01.
8.02 TRANSFER BY SUBLESSOR. Sublessor may, subject to the Prime Lease,
---------------------
assign, transfer, pledge, mortgage, hypothecate or otherwise transfer its
interest in this Sublease without consent of Sublessee, provided, Sublessor
shall not hereafter assign its interest under this Sublease separate from its
interest under the Prime Lease and any such assignee shall assume Sublessor's
obligations under this Sublease, including the return of any security deposit.
9. INDEMNITY
---------
9.01 SUBLESSOR INDEMNITY. Sublessor agrees to indemnify, defend, and hold
-------------------
harmless Sublessee and its agents and employees, against any and all claims,
liabilities, losses, actions, causes of action, judgments, awards, demands,
costs and expenses of every kind and nature (including reasonable attorneys'
fees and administrative costs), arising from (i) any injury or damage to any
10
<PAGE>
person, property or business resulting from the negligence of Sublessor, its
employees, agents, contractors, subcontractors, servants, invitees, licensees or
Sublessees or (ii) the breach or violation by Sublessor of any term, covenant or
condition of this Sublease or the Prime Lease; provided, however, that
Sublessor's obligations under this Section shall not apply to injury or damage
resulting from the negligence of Sublessee or its agents or employees, the
failure of Sublessee to perform its obligations hereunder or under the Prime
Lease, or for which Sublessee has insurance. If any such proceeding is brought
against Sublessee or its agents or employees, Sublessor covenants to defend such
proceeding at its sole cost by legal counsel reasonably satisfactory to
Sublessee. Sublessor may satisfy its obligations under this Section from
available insurance coverage.
9.02 SUBLESSEE INDEMNITY. Sublessee agrees to indemnify, defend, and hold
-------------------
harmless Sublessor, Guarantor and their respective agents and employees, against
any and all claims, liabilities, losses, actions, causes of action, judgments,
awards, demands, costs and expenses of every kind and nature (including
attorneys' fees and administrative costs), including, without limitation,
arising from (i) any injury or damage to any person or property resulting from
the negligence of Sublessee, its employees, agents, or contractors; or (ii) the
breach or violation by Sublessee of any term, covenant or condition of this
Sublease or the Prime Lease; provided, Sublessee's obligations under this
Section shall not apply to injury or damage resulting from the negligence of
Sublessor, its agents and employees, or the failure of Sublessor to perform its
obligations hereunder or under the Prime Lease for which Sublessor has insurance
coverage. If any such proceeding is brought against Sublessor or its agents or
employees, Sublessee covenants to defend such proceeding at its sole cost by
legal counsel reasonably satisfactory to Sublessor. Sublessee may satisfy its
obligations under the Section from available insurance coverage.
10. DEFAULT.
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10.01 EVENTS OF DEFAULT.
-----------------
(1) If a party fails to make any payment required when due hereunder, and
such failure continues for five (5) business days after written demand for
payment of such payment; or
(2) If a party fails in the prompt and full performance of any other
provisions of this Sublease (including, without limitation, the terms of the
Prime Lease which have been incorporated herein) other than the nonpayment of
Rent or other payments due under this Sublease, and does not cure such failure
within ten (10) days after written demand from the other party that the failure
be cured (unless the failure involves a hazardous
11
<PAGE>
condition, which shall be cured forthwith or as quickly as reasonably possible);
or
(3) Sublessee shall, by its act or omission to act, cause a default under
the Prime Lease and such default is not cured within the time, if any, permitted
for such cure under the Prime Lease;
(4) Sublessee shall abandon any substantial portion of the Subleased
Premises;
(5) Sublessee shall file a petition or, if an involuntary petition is
filed against Sublessee, or becomes insolvent, under any applicable federal or
state bankruptcy or insolvency law or admits that it cannot meet its financial
obligations, or a receiver or trustee shall be appointed for the benefit of
creditors; or
(6) Sublessee shall do or permit to be done any act which results in a
lien being filed against the Subleased Premises.
In the event that an order for relief is entered in any case under Title
11, U.S.C. (the "Bankruptcy Code") in which the Sublessee is the debtor and: (A)
Sublessee as debtor in possession, or any trustee who may be appointed in the
case (the "Trustee") seeks to assume the Sublease, then Sublessee, or Trustee,
if applicable, in addition to providing adequate assurance described in
applicable provisions of the Bankruptcy Code, shall provide adequate assurance
to Sublessor of Sublessee's future performance under the Sublease by depositing
with Sublessor a sum equal to the lesser of twenty-five per cent (25%) of the
rental and other charges due for the balance of the Sublease term of six (6)
months' rent ("Security"), to be held (without an allowance for interest
thereon) to secure Sublessee's obligations under the Sublease, and (B)
Sublessor, or Trustee, if applicable, seeks to assign the Sublease after
assumption of the same, then Sublessor, in addition to providing adequate
assurance described in applicable provisions of the Bankruptcy Code shall
provide Adequate assurance to Sublessor of the proposed assignee's future
performance under the Sublease by depositing with Landlord a sum equal to the
Security to be held (without any allowance or interest thereon) to secure
performance under the Lease by depositing with Sublessor a sum equal to the
Security to be held (without any allowance or interest thereon) to secure
performance under the Sublease. Nothing contained herein expresses or implies,
or shall be construed to express or imply, that Sublessor is consenting to
assumption and/or assignment of the Sublease. Neither Sublessee nor any Trustee
shall conduct or permit the conduct of any "lien," "bankruptcy," "going out of
business" or auction sale in or from the Subleased Premises.
Then, and in any such event (sometimes referred to as an "Event of Default")
such party ("Defaulting party") shall be in default.
12
<PAGE>
10.02 DEFAULT BY SUBLESSEE. Upon a default by Sublessee, Sublessor may
--------------------
exercise any remedy against Sublessee which Prime Landlord may exercise in the
event of a default by Sublessor under the Prime Lease, including, without
limitation, termination of the Sublease and termination of Sublessee's right to
possession of the Subleased Premises.
10.03 DEFAULT OF SUBLESSOR. Upon a default by Sublessor, Sublessee may
--------------------
exercise any remedy against Sublessor which Sublessor may exercise in the event
of a default by Prime Landlord under the Prime Lease, provided, however, so long
as Sublessor is not in default under the Prime Lease for a monetary amount in
excess of $5,000, Sublessee shall have no right to terminate this Sublease.
11. SURRENDER OF SUBLEASED PREMISES. Upon any expiration or termination of this
-------------------------------
Sublease or termination of Sublessee's right of possession of the Subleased
Premises, or any part thereof, Sublessee shall surrender and vacate the
Subleased Premises immediately and surrender the Subleased Premises to
Sublessor, including the alterations, additions, improvements, equipment, and
fixtures requested by Sublessor to remain on the Subleased Premises other than
Sublessee moveable trade fixtures, in good condition and repair, shall remove
all alterations, additions, improvements and fixtures not requested by Sublessor
to remain on the Subleased Premises and shall repair all damage to the Subleased
Premises caused by such removal prior to the Expiration Date. Any property not
removed from the Subleased Premises upon expiration or termination hereof shall,
subject to the rights of Prime Landlord under the Prime Lease, be conclusively
presumed to have been abandoned by Sublessee, and Sublessor, or Prime Landlord
may, at its option, retain, store and/or dispose of such property at Sublessee's
expense. All such property shall, at Sublessor's or Prime Landlord's option, be
conclusively deemed to have been conveyed to Sublessor by Sublessee as if by
bill of sale without payment by Sublessor.
12. UTILITIES. Sublessee shall obtain and pay for all utilities supplied to the
---------
Subleased Premises. Sublessor warrants that electrical, mechanical and plumbing
systems are in good working order.
13. INSURANCE. Sublessee shall procure and maintain, at its own cost and
---------
expense, such insurance as is required to be carried by Sublessor under the
Prime Lease, naming Sublessor as an additional insured, as well as Prime
Landlord, in the same manner required for naming Prime Landlord as provided
therein. Sublessee shall furnish Sublessor a certificate of Sublessee's
insurance required hereunder not later than Sublessee's taking possession of the
Subleased Premises. Each party hereby waives claims against the other for
property damage provided such waiver shall not invalidate the waiving party's
property insurance; each party shall attempt to obtain from its insurance
carrier a waiver of its right of
13
<PAGE>
subrogation. Sublessee hereby waives claims against Prime Landlord and
Sublessor for property damage to the Subleased Premises or its contents if and
to the extent that Sublessor waives such claims against Prime Landlord under
the Prime Lease. Sublessee agrees to obtain, for the benefit of Prime Landlord
and Sublessor, such waivers of subrogation rights from its insurer as are
required of Sublessor under the Prime Lease. Sublessor agrees to use reasonable
efforts in good faith to obtain from Prime Landlord a waiver of subrogation
rights in Prime Landlord's property insurance if and to the extent that Prime
Landlord waives such claims against Sublessor under the Prime Lease or is
required under the Prime Lease to obtain such waiver of subrogation rights.
14. HAZARDOUS SUBSTANCES.
--------------------
14.01 Representation By Sublessor. Sublessor represents that to the
---------------------------
best of Sublessor's knowledge there are no hazardous substances or hazardous
wastes, as those terms are defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (SS)9601, et seq. and the Resource
Conservation and Recovery Act, 42 U.S.C. (SS)960, et seq., in, on, or about the
Subleased Premises. If subsequent to the date Sublessee accepts possession of
the Subleased Premises it is determined that there are any Hazardous Materials
(as defined below) in the Subleased Premises which were installed after
Sublessor obtained possession of the Subleased Premises under the Prime Lease,
and such Hazardous Materials are required by applicable federal, state or local
law to be removed, encapsulated or otherwise treated ("Remediated"), Sublessor,
at Sublessor's expense, shall as soon as practicable after notice thereof from
Sublessee, remediate said Hazardous Materials as Sublessor deems appropriate so
that all applicable federal, state and local laws are complied with. Such
Remediation shall be Sublessee's sole remedy on account of such Hazardous
Materials.
14.02 REPRESENTATION BY SUBLESSEE. Sublessee shall not transport, use,
---------------------------
store, maintain, generate, manufacture, handle, dispose, release or discharge
any "Hazardous Material" (as defined below) upon or about the Subleased
Premises or permit Sublessee's employees, agents, contractors, invitees and
other occupants of the Subleased Premises to engage in such activities upon or
about the Subleased Premises. Sublessee shall promptly notify Sublessor of: (i)
any enforcement, cleanup or other regulatory action taken or threatened by any
governmental or regulatory authority with respect to the presence of any
Hazardous Material on the Subleased Premises or the migration thereof from or
to other property, (ii) any demands or claims made or threatened by any party
relating to any loss or injury resulting from any Hazardous Material on the
Subleased Premises, (iii) any release, discharge or nonrouting, improper or
unlawful disposal or transportation of any Hazardous Material on or from the
Subleased Premises or in violation of this Section, and (iv) any matters where
Sublessee is required by Law to
14
<PAGE>
give a notice to any governmental or regulatory authority respecting any
Hazardous Material on the Subleased Premises. Sublessor and Prime Landlord shall
have the right (but not the obligation) to join and participate, as a party, in
any legal proceedings or actions affecting the Subleased Premises initiated in
connection with any environmental, health or safety law. The term "Hazardous
Material" for purposes hereof shall mean any chemical, substance, material or
waste or component thereof which is now or hereafter listed, defined or
regulated as a hazardous or toxic chemical, substance, material or waste or
component thereof by any federal, state or local governing or regulatory body
having jurisdiction, or which would trigger any employee or community "right-to-
know" requirements adopted by any such body, or for which any such body has
adopted any requirements for the preparation or distribution of an Material
Safety Data Sheet.
14.03 USE OF HAZARDOUS MATERIAL. If any Hazardous Material is released,
-------------------------
discharged or disposed of by Sublessee or any other occupant of the Subleased
Premises, or their employees, agents or contractors, on or about the Subleased
Premises in violation of the foregoing provisions, Sublessee shall immediately,
properly and in compliance with applicable Laws clean up and remove the
Hazardous Material from the Subleased Premises and any other affected property
and clean or replace any affected personal property (whether or not owned by
Sublessor or Prime Landlord), at Sublessee's expense (without limiting
Sublessor's other remedies therefor). Such clean up and removal work shall be
subject to Sublessor's and Prime Landlord's prior written approval (except in
emergencies), and shall include, without limitation, any testing, investigation,
and the preparation and implementation of any remedial action plan required by
any court or governmental body having jurisdiction or reasonably required by
Sublessor or Prime Landlord. If Sublessor, Prime Landlord or any Lender or
governmental body arranges for any tests or studies showing that this Section
has been violated, Sublessee shall pay for the costs of such tests. If any
Hazardous Material is released, discharged or disposed of on or about the
Subleased Premises and such release, discharge or disposal is not caused by
Sublessee or other occupants of the Subleased Premises, or their employees,
agents or contractors, such release, discharge or disposal shall be deemed
casualty damages to the extent that the Subleased Premises are affected thereby;
in such case, Sublessee and Sublessor shall have the obligations and rights
respecting such casualty damage provided under such Section 15 of this Sublease.
15. DAMAGE BY FIRE OR OTHER CASUALTY. If (i) all or any portion of either the
--------------------------------
Subleased Premises are damaged by fire or other casualty, (ii) such event gives
Sublessor the right to terminate the Prime Lease or Prime Landlord the right to
terminate the Prime Lease, and (iii) either Sublessor (Sublessor shall not
exercise such right without the written consent of Sublessee) or Prime Landlord
exercises such right; then this Sublease shall terminate
15
<PAGE>
in accordance with the provisions of the Prime Lease and all Base Rent and
Additional Rent shall be apportioned in accordance with the provisions of the
Prime Lease. If Sublessor or Prime Landlord is not entitled to terminate or
does not exercise their respective right of termination with respect to a fire
or other casualty, then (i) this Sublease shall continue in full force and the
Subleased Premises shall be repaired or restored in the same manner and under
the same conditions for repair and restoration as provided and required in the
Prime Lease and (ii) Base Rent and Additional Rent shall abate in the same
manner and for such period as Rent abates under the Prime Lease.
16. EMINENT DOMAIN
--------------
16.01 RESULTING IN TERMINATION. In the event (i) any part of the
------------------------
Subleased Premises is taken or condemned by any competent authority for any
public use or purpose or conveyed under threat of such condemnation, (ii) such
event gives Prime Landlord the right to terminate the Prime Lease or Sublessor
(Sublessor shall not exercise such right without the prior written consent of
Sublessee) the right to terminate the Prime Lease, and (iii) either Sublessor
or Prime Landlord exercises such right; then this Sublease shall terminate in
accordance with the provisions of the Prime Lease, and all Base Rent and
Additional Rent shall be apportioned in accordance with the provisions of Prime
Lease.
16.02 RESTORATION. In the event any part of the Building or the
-----------
Subleased Premises is taken or condemned by any competent authority for any
public use or purpose, or is conveyed under threat of condemnation, and the
Prime Lease is not terminated by Sublessor or Prime Landlord as a result
thereof, then Base Rent and Additional Rent shall be adjusted in the same
manner as provided for the adjusted Rent under the Prime Lease.
16.03 CONDEMNATION AWARD. All condemnation awards shall, subject to the
------------------
rights of Prime Landlord under the Prime Lease, be allocated to Sublessee in
the manner set forth in Article 8 of the Prime Lease. Sublessee shall be
entitled to seek a separate award in accordance with the provisions of the
Prime Lease.
17. BROKERAGE COMMISSIONS. Sublessee and Sublessor represent and warrant to
---------------------
each other than no real estate brokers, consultants or finders have
participated in the negotiation or execution of this Sublease or the Prime
Lease, except for Cushman & Wakefield of Minnesota, Inc. Sublessor shall pay
Cushman & Wakefield of Minnesota, Inc. a commission of $1.70 per sq. foot, due
upon full execution of the Sublease and Sublessee's delivery of the Security
Deposit to Sublessor. Sublessee and Sublessor shall defend, indemnify and hold
each other and Prime Landlord harmless from all damages, judgments, liabilities
and expenses (including attorneys' fees) arising from any claims or demands of
any broker, agent or finder with whom Sublessee or Sublessor has dealt for any
16
<PAGE>
commission or fee alleged to be due in connection with its participation in the
procurement of Sublessee or the negotiation with Sublessee of this Sublease,
other than Cushman & Wakefield of Minnesota, Inc.
18. ESTOPPEL CERTIFICATE
--------------------
18.01 Each party shall from time to time, upon not less than ten (10)
days prior written request by the other, deliver a statement in writing
certifying, if such is the case, (1) this Sublease is unmodified and in full
force and effect or, if there have been modifications, that this Sublease, as
modified, is in full force and effect; (2) the Commencement Date and the
Expiration Date of the Term; (3) all work to be completed by Sublessee to the
Subleased Premises has been completed and if not, specifying what has not been
completed; (4) the amount of Base Rent then payable hereunder and the date to
which such rent has been paid; (5) the other party is not, to such party's
knowledge, in default under this Sublease or, if in default, a detailed
description of such default(s); and (6) such other information as Sublessee,
Sublessor or their respective mortgagee or third party may reasonably request.
Each party acknowledges that any statement delivered pursuant to this Section
may be relied upon by: (a) any purchaser or sublessee of the Premises or any
part thereof or any improvement thereon; (b) any holder of a mortgage (as
defined hereafter); and (c) any assignee of any mortgagee under any such
mortgage.
19. SIGNAGE. Subject to Prime Landlord's and Sublessor's prior written
-------
approval and provided said signage complies with the requirements set forth in
the Prime Lease and Exhibit E of the Prime Lease, Sublessee shall have the
right to place monument signage on the existing structure located on the
grounds of the Premises as well as signage above the entry door. Sublessor
shall provide Sublessee with an allowance of $5,000.00 in connection with such
signage.
20. NOTICES. All notices required or permitted to be given hereunder shall be
-------
in writing and shall be deemed given and delivered: (1) if by personal or
courier service delivery, on the date of such delivery; (2) if by mail, whether
or not received, three (3) business days after being deposited in the United
States Mail, postage prepaid and properly addressed, certified or registered
mail, return receipt requested; (3) if by recognized overnight mail,
air-express or courier service (or by telecopy if the addressed is not in the
United States), on the date of such delivery, at the following addressed: (1)
To Sublessee at the address specified in Section 1.01B or such other address as
Sublessee shall designate by written notice to Sublessor and a copy to Larkin,
Hoffman, Daly and Lindgren, Ltd., Attention: Thomas P. Stoltman, 1500 Norwest
Financial Center, 7900 Xerxes Avenue South, Bloomington, Minnesota 55431; and
(2) To Sublessor at the address specified in Subsection 1.01C, with a copy to
Holleb & Coff, 55 E.
17
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Monroe Street, Suite 4100, Chicago, IL 60603, Attention: Allan S. Brilliant, or
at such other address(es) as Sublessor shall hereafter designate by written
notice to Sublessee.
21. MISCELLANEOUS.
-------------
21.01 ENTIRE AGREEMENT. This Sublease and the Exhibits attached hereto
----------------
contain the entire agreement between Sublessee and Sublessor concerning the
Subleased Premises and supersedes all other prior agreements, either oral or
written, except the Prime Lease. Sublessee acknowledges that neither Sublessor
nor its respective agents or employees have made any representations, warranties
or promises with respect to the Subleased Premises or the making or entry into
of this Sublease except as expressly set forth in this Sublease.
21.02 EXECUTION. This Sublease shall be of no force or effect unless
---------
and until executed and delivered by all parties hereto. No provision of this
Sublease may be amended except in writing signed by all parties hereto or their
successors. By execution hereof, Sublessee acknowledges that it has receive a
complete and correct copy of the Prime Lease.
21.03 BINDING EFFECT. This Sublease shall be binding upon and inure to
--------------
the benefit of Sublessee and Sublessor and their respective permitted legal
representatives, successors and assigns.
21.04 FORCE MAJEURE. Except as otherwise provided in the Prime Lease,
-------------
neither party shall be deemed to be in default with respect to any of the terms,
covenants and conditions of this Sublease on the part of such party to be
performed if the party whose performance is delayed fails to timely perform the
same and such failure is due in whole or in part to any strike, lockout, labor
trouble (whether legal or illegal), civil disorder, inability to procure
required materials, failure of power, restrictive governmental laws and
regulations, riots, insurrections, war, fuel shortages, accidents, casualties,
acts of God, acts caused directly or indirectly by the other party (or such
other party's agents or employees) or any other cause beyond the reasonable
control of the party whose performance is so delayed; provided, however, that
the time for performance shall in no event be extended due to financial or
economic problems of either party, their architects, contractors, agents or
employees. It shall be a condition of either party's right to claim an extension
of time under this Section that such party notify the other in writing within
ten (10) days after the occurrence of such cause, specifying the nature thereof
and the period of time contemplated or necessary for performance.
21.05 CAPTIONS. The Article and Section captions in this Sublease are
--------
inserted only as a matter of convenience and in no way
18
<PAGE>
define, limit, construe, or describe the scope or intent of such Articles and
Sections.
21.06 DEFINITIONS. All capitalized terms not defined herein shall have
-----------
the meanings ascribed thereto in the Prime Lease.
21.07 APPLICABLE LAW. This Sublease shall be construed in accordance
--------------
with the laws of the State of Minnesota.
21.08 TIME. Time is of the essence of this Sublease with respect to the
----
performance of all monetary obligations hereunder.
21.09 PARTIAL INVALIDITY. Each term, covenant and condition of this
------------------
Sublease shall be valid and be enforced to the fullest extent permitted by law.
If any term, covenant, or condition of this Sublease or the application thereof
to any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Sublease, or the application of such term, covenant or
condition to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby.
21.10 TRIAL BY JURY. SUBLESSEE AND SUBLESSOR AGREE THAT THEY HEREBY
-------------
WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER
OF THE PARTIES TO THIS SUBLEASE AGAINST THE OTHER ON ANY MATTERS WHATSOEVER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SUBLEASE, THE RELATIONSHIP OF
SUBLESSEE AND SUBLESSOR, THE USE OR OCCUPANCY OF THE SUBLEASED PREMISES, AND/OR
ANY CLAIM OF INJURY OR DAMAGE, OR FOR THE ENFORCEMENT OF ANY REMEDY UPON ANY
STATUTE, EMERGENCY OR OTHERWISE.
21.11 CUSTOM AND USAGE; CONSTRUCTION. Failure of either party to
------------------------------
enforce its rights under any provision of this Sublease or any other agreement
between Sublessee and Sublessor shall not be construed as having created a
custom in any way or course of dealing of manner contrary to the specific terms,
provisions and covenants of this Sublease or as having in any manner modified
the same. If any term, covenant, condition or agreement of this Sublease is
capable of two or more constructions, one or more of which would render the
provision void, and the other or others of which would render the provision
valid, then the provision shall have the meaning or meanings which would render
it valid. Both parties have participated in the negotiation and preparation of
this Sublease with the assistance of competent legal counsel. Accordingly, this
Sublease shall not be construed for or against Sublessee or Sublessor, but this
Sublease shall be interpreted in accordance with the general tenor of the
language in an effort to reach the intended result.
21.12 RECORDING. Upon written request of either party, the parties
---------
shall execute and acknowledge a memorandum of this Sublease in form contained in
Exhibit "E" which shall be recorded at the
- -----------
19
<PAGE>
expense of the party requesting such recording. Sublessor shall record no other
memorandum, affidavit or copy of this Sublease.
21.13 JURISDICTION. Sublessee hereby consents to the jurisdiction of
------------
either the District Court of Hennepin County, Minnesota, or the United States
District Court for Minnesota, in any action, suit or proceeding which Sublessor
may at any time wish to file in connection with this Sublease or any related
matter. Sublessee hereby agrees that an action, suit or proceeding to enforce
this Sublease shall be brought in any State or Federal Court in the State of
Minnesota and hereby waives any objection which Sublessee may have to the laying
of the venue of any such action, suite or proceeding in any such Court;
provided, however, that the provisions of this Section shall not be deemed to
preclude Sublessor from filing any such action, suit or proceeding in any other
appropriate forum.
21.14 ATTORNEYS' FEES. If any legal action, arbitration or other
---------------
proceeding is brought for the enforcement of this Sublease, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Sublease, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other expenses and costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled. As used herein, the term "successfully or prevailing
party" shall be the party which by law is entitled to recover its costs of suit,
whether or not the action proceeds to final judgment. If the party which
instituted the suit shall dismiss as against the other party without the
concurrence of the other party, the nondismissing party shall be deemed the
successful or prevailing party.
21.15 CONSENT BY MORTGAGEE. This Sublease shall not become effective
--------------------
and Sublessee shall not take possession of the Subleased Premises until such
time as Prime Landlord's mortgagee, IDS Life Insurance Company, has consented
in writing, to the Sublease and entered into an agreement with Sublessee
providing for the Sublessee's continued possession of the Subleased Premises if
Sublessee is not in default under the Sublease and Sublessee's agreement to
attorn to such mortgagee.
20
<PAGE>
21.16 COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, both of which shall constitute one and the same instrument.
Additionally, this Agreement may contain more than one counterpart of the
signature page and this Agreement may be executed by affixing counterpart
signature page(s) containing the signatures of both of the parties hereto. All
of such counterpart signature pages shall be read as though one and they shall
have the same force and effect as though all of the signers had signed a single
signature page.
IN WITNESS WHEREOF, this Sublease has been executed as of the date set
forth above.
SUBLESSOR: SUBLESSEE:
1250895 ONTARIO LIMITED, NETCO COMMUNICATIONS CORPORATION,
an Ontario corporation a Minnesota corporation
By [SIGNATURE ILLEGIBLE] By______________________________
----------------------------
Its___________________________ Its_____________________________
Executed this ____ day of September, 1997, solely for the purposes described in
Section 4.01 of the Sublease:
GLOBELLE CORPORATION, an Ontario
corporation
By [SIGNATURE ILLEGIBLE]
------------------------------
Its_____________________________
21
<PAGE>
21.16 COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, both of which shall constitute one and the same instrument.
Additionally, this Agreement may contain more than one counterpart of the
signature page and this Agreement may be executed by affixing counterpart
signature page(s) containing the signatures of both of the parties hereto. All
of such counterpart signature pages shall be read as though one and they shall
have the same force and effect as though all of the signers had signed a single
signature page.
IN WITNESS WHEREOF, this Sublease has been executed as of the date set
forth above.
SUBLESSOR: SUBLESSEE:
1250895 ONTARIO LIMITED, NETCO COMMUNICATIONS CORPORATION,
an Ontario corporation a Minnesota corporation
By______________________________ By /s/ John Washburn
-----------------------------
Its_____________________________ Its Executive Vice President
-----------------------------
Executed this ____ day of September, 1997, solely for the purposes described in
Section 4.01 of the Sublease:
GLOBELLE CORPORATION, an Ontario
corporation
By______________________________
Its_____________________________
22
<PAGE>
LEGAL DESCRIPTION
-----------------
6100 West 110th Street
Bloomington, MN
Block 1, Lot 2, Nesbitt Industrial Park 2nd Addition
EXHIBIT A
<PAGE>
EXHIBIT 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
AGREEMENT, made and entered into as of the 14th day of November, 1996,
by and between Netco Communications Corporation, a Minnesota corporation (the
"Corporation"), and Edward J. Driscoll, III ("Executive").
RECITALS:
--------
WHEREAS, the Executive is the President and Chief Executive Officer of
the Corporation;
WHEREAS, the Executive's leadership and services have constituted a
major factor in the successful growth and development of the Corporation's
business; and
WHEREAS, the Corporation desires to employ and retain the unique
experience, ability and services of the Executive as a principal executive
officer; and
WHEREAS, the Corporation and the Executive desire to record the terms
of Executive's continued employment by the Corporation;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1.) Term of Employment. Subject to the terms and conditions of this
------------------
Agreement, the Corporation hereby employs Executive and Executive hereby
accepts employment for the period commencing October 1, 1996, and ending
December 31, 1998, and thereafter for successive one year periods ending
December 31 of each succeeding year unless and until the employment is
terminated in accordance with the provisions of this Agreement. Each December
31, commencing December 31, 1998, shall be designated the "Annual Renewal Date."
2) Duties, Responsibilities, and Authority. During the term of this
---------------------------------------
Agreement, Executive shall serve as Chief Executive Officer of the Corporation.
As such, Executive shall be responsible for the overall direction of the
Corporation and he shall have such duties as are generally appropriate to his
1
<PAGE>
position and such authority as shall be required to enable him to perform these
duties, including but not limited to the authorities and duties currently
prescribed in the Articles of Incorporation and the Bylaws of the Corporation,
subject to the power of the shareholders and/or directors of the Corporation to
amend or modify such Articles of Incorporation or Bylaws. The Executive shall
exert his best efforts and devote substantially all of his time and attention to
the Corporation's business. The Executive shall be in complete charge of the
operations of the Company, and shall have full authority and responsibility,
subject only to the general direction, approval, and control of the
Corporation's Board of Directors, for formulating policies and administering
the Corporation in all respects. His powers shall include authority to hire and
fire Corporation personnel, except for members of the Board of Directors who are
also employees of the Corporation, and to retain consultants when he deems
necessary to implement Corporation policies.
3.) Location of Employment. Executive's services shall be rendered
----------------------
principally in Minneapolis, Minnesota and Executive shall not be required,
without his consent, to change his residence or work location from either
Hennepin County or Ramsey County, Minnesota by virtue of his employment with the
Corporation.
4.) Compensation, Benefits, Expenses.
--------------------------------
(a) Salary. The Corporation shall pay Executive a base salary at an
------
annual rate of $150,000.00 commencing October 1, 1996. Salary shall be
paid in accordance with the Corporation's regular payroll procedure,
but not less frequently than monthly. Executive's base salary shall be
reviewed periodically (at intervals of not more than 12 months) by the
Board of Directors of the Corporation ("the Board of Directors" or
"Board") or a committee thereof for the purpose of considering
increases thereof. In evaluating increases in salary, such factors as
corporate performance, individual merit, inflation and other
appropriate considerations shall be taken into account.
(b) Stock Option. In addition to any other compensation or benefits
------------
to which the Executive may be entitled under this Agreement or
otherwise, Executive shall receive options to acquire Four Hundred
Thousand (400,000) shares of the capital stock of the Corporation in
accordance with the terms of that certain Stock Option Agreement which
is attached hereto and marked Exhibit A.
(c) Bonus and Other Compensation. The Executive shall be entitled to
----------------------------
additional bonus and other compensation as may be established from
time to time by the Board of Directors based upon an annual business
plan which shall set goals (which shall include achievement of revenue
and
2
<PAGE>
profit measures which are reasonable at the time established) for the
Corporation.
(d) Vacation. During each year of his employment, Executive will be
--------
entitled to reasonable vacations not exceeding five weeks per year,
holidays and time off when ill, all at full pay. Vacations shall be at
such time or times and for such periods as Employer and Executive
shall agree.
(e) Automobiles. The Corporation recognizes the Executive's need for
-----------
an automobile or automobiles for business purposes. It, therefore,
shall provide the Executive with a reasonably suitable automobile or
automobiles, including all related maintenance, repairs, insurance and
other costs associated with such automobiles during the term of this
Agreement or any renewal or extension thereof.
(f) Expenses. The Corporation recognizes that Executive will have to
--------
incur certain out-of-pocket expenses related to his services and the
Corporation's business and that it will be extremely difficult to
account for such expenses. It is understood that Executive's
compensation is intended to cover all such out-of-pocket expenses. The
Corporation, however, shall reimburse Executive for any specific
expenditures incurred for travel, lodging, entertainment, and the like
upon submission of appropriate receipts and documentation sufficient
to substantiate them as reasonable and necessary business expenses.
(g) Employee Benefits. This Agreement shall not be in lieu of any
-----------------
rights, benefits and privileges to which Executive may be entitled as
an employee of the Corporation under any retirement, pension,
profit-sharing, insurance, group life insurance, hospitalization,
surgical and major medical coverage, and long-term disability or other
plans which may now be in effect or which may hereafter be adopted.
Executive shall have the same rights and privileges to participate in
such plans and benefits as any other employee during his period of
employment. In addition, to the extent appropriate for a senior
executive of the Corporation, Executive shall be entitled to
participate in any pension and retirement plans, bonus plans and such
other fringe benefit programs or plans as are or may be made available
from time to time to executive and/or other salaried Executives of the
Corporation.
5.) Termination.
-----------
(a) Events of Termination. This Agreement may be terminated upon
---------------------
the occurrence of any one of the following events:
3
<PAGE>
(1) Voluntary. Executive may terminate this Agreement at any time
---------
during the term of this Agreement by giving 30 days prior written
notice of termination to the Board.
(2) Involuntary Without Cause. The Board, without cause, may
-------------------------
terminate this Agreement on any Annual Renewal Date during the
term of this Agreement upon written notice to Executive at least
90 days prior to an Annual Renewal Date.
(3) Involuntary With Cause. The Board, upon written notice effective
----------------------
immediately, may terminate this Agreement at any time during the
term of this Agreement for cause. "Cause" for purposes of such
termination shall mean the following:
a. admission or conviction of an act of dishonesty by Executive
with respect to the material interests of the Corporation;
b. willful misfeasance or willful nonfeasance of a duty
intended to injure or having the effect of injuring the
reputation, business relationships of the Corporation,
provided that for purposes hereof Executive shall not be
deemed to have committed willful misfeasance or willful
nonfeasance by reason of any act or failure to act by
Executive done in good faith;
c. conviction of Executive upon a charge of any crime involving
moral turpitude or any felony reflecting unfavorably upon
the Corporation; or
d. Failure, neglect or refusal by Executive to perform his
duties and responsibilities as set forth in this agreement
(other than by reason of disability due to physical or
mental illness or by reason of permitted vacations or
holidays) without the same being corrected upon ninety (90)
business days prior written notice from the Corporation
specifying such non-performance.
(4) Bankruptcy. This Agreement may be terminated by either party upon
----------
written notice to the other effective immediately if the other
party to this Agreement:
a. is adjudicated as a bankrupt;
4
<PAGE>
b. is subject to the entry of an order, judgment, or decree by
any court of competent jurisdiction approving a petition
appointing a trustee, receiver, or liquidator of all or a
substantial part of the party's assets;
c. makes or attempts to make an assignment for the benefit of
creditors; or
d. institutes or attempts to institute voluntary bankruptcy
proceedings.
(5) Death. This Agreement shall terminate upon the death of the
-----
Executive.
(6) Disability. This Agreement shall terminate upon the permanent
----------
disability of Executive. For the purposes of this Agreement,
Executive shall be deemed permanently disabled if any ailment,
illness or other incapacity prevents him from performing his
duties as specified in this Agreement for a period of six
consecutive months or for an aggregate of six months in any
twelve month period from the date of this Agreement.
(7) Purchase of Executive's Shares by WorldCom Inc. This Agreement
----------------------------------------------
shall terminate on the Annual Renewal Date next following sale by
Executive of all shares and options to purchase shares of the
Corporation owned by him to WorldCom Inc. pursuant to Section
4.02 of that certain Preferred Stock, Subordinated Note and
Warrant Purchase Agreement between WorldCom Inc. and the
Corporation ("Preferred Stock Purchase Agreement").
(b) Consequences of Termination.
---------------------------
(1) In the event of the termination of this Agreement in accordance
with Subparagraph 5(a)(1) or 5(a)(3) above (voluntary termination
or involuntary termination with cause), Executive shall be
entitled to the base salary earned by him prior to the date of
termination as provided herein computed on a pro rata basis to
and including such date of termination. In addition, Executive
shall also be reimbursed for his reasonable business expenses
incurred prior to the date of termination.
(2) In the event of the termination of this Agreement in accordance
with Subparagraph 5(a)(7) above (purchase of
5
<PAGE>
Executive's shares by WorldCom), Executive shall be entitled to
the base salary earned by him prior to the date of termination as
provided herein computed on a pro rata basis to and including
such date of termination. In addition, Executive shall also be
reimbursed for his reasonable business expenses incurred prior to
the date of termination. In the event termination pursuant to
Subparagraph 5(a)(7) above occurs on or prior to December 31,
1999, then, to the extent that the consideration received by
Executive in exchange for his options to purchase shares of the
Corporation is a non-cash consideration, all stock options under
the Stock Option Agreement (Exhibit A) that have not theretofore
vested (including any and all options or rights received or
exchanged therefor by Executive as a consequence of the
transaction occurring pursuant to Section 4.02 of the Preferred
Stock Purchase Agreement) shall immediately vest and become
exercisable in accordance with the provisions of said Stock
Option Agreement thereto applicable. In addition, in the event
termination pursuant to Subparagraph 5(a)(7) occurs on or prior
to December 31, 2000, then Executive shall also receive a lump
sum payment in the amount of Seventy Five Thousand Dollars
($75,000).
(3) If the Corporation terminates this Agreement without cause
pursuant to Subparagraph 5(a)(2) above (involuntary without
cause), Executive shall be entitled to receive a severance cash
payment as liquidated damages for, and in lieu of, any and all
damages which he may incur as a result of such termination in an
amount equal to the greater of (i) the Executive's then base
salary for two years, or (ii) the amounts reasonably estimated to
be due hereunder for the two year period following the Annual
Renewal Date upon which the termination becomes effective, which
shall be payable within 30 days from the date of termination
plus, in either case, one half of the cash bonus (determined
pursuant to Paragraph 4(c) above relating to Bonus and Other
Compensation), to which Executive would have been entitled had he
continued in the employment of the Corporation for the year
following termination, which payment shall be payable in
accordance with Paragraph 4(b). Additionally, If the Corporation
terminates this Agreement without cause pursuant to Subparagraph
5(a)(2) above, an stock options under the Stock Option Agreement
(Exhibit A) that have not theretofore vested shall immediately
vest and become exercisable in
6
<PAGE>
accordance with the provisions of said Stock Option Agreement.
(4) In the event this Agreement is terminated due to the death
(pursuant Subparagraph 6(a)(5)) or disability (pursuant to
Subparagraph 6(a)(6)) of Executive, Executive (or his estate)
shall be entitled to his then base salary for a period of six
months, plus the cash bonus payable with respect to the fiscal
year of death or disability, in accordance with normal payment
procedures under this Agreement.
6.) Non-Competition. Executive covenants and agrees that:
---------------
(a) During the term of this Agreement, he shall not without the prior
written consent of the Corporation, directly or indirectly, as an
Executive, employer, agent, principal, proprietor, partner, stockholder,
consultant, director, or corporate officer, engage in any business engaged
in the high-speed, transaction based electronic data transportation and
delivery business (the "Competitive Business") or render any services to
any business that is engaged in a Competitive Business.
(b) For a period of two years (the "Non-Competition Period") after
Executive has ceased to be employed by the Corporation or any subsidiary of
the Corporation, Executive shall not without the prior written consent of
the Corporation:
(1) directly or indirectly engage in, or
(2) be employed by any person, firm, partnership, association,
corporation or business organization, entity or enterprise that
is, or is about to become, directly or indirectly engaged in,
any Competitive Business. For purposes hereof, "Competitive Business" shall
mean engaging or having a material interest, directly or indirectly as
owner, employee, officer, director, partner, venturer or stockholder,
capital investor, consultant, agent, principal advisor or otherwise, either
alone or in association with others, in the operation of a high speed,
transaction based, electronic data transportation and delivery business;
provided, however, that the restrictions contained in this Subparagraph (b)
shall not apply to any business that does not meet both of the following
requirements:
(1) the Corporation or a subsidiary of the Corporation shall have
operated such business, or had such business in the planning or
development stage therein, during the 120-day period
7
<PAGE>
immediately prior to Executive's ceasing to be employed by the
Corporation or any subsidiary of the Corporation, and
(2) Executive, during such period, shall have had substantial
planning, development, administrative or operational
responsibilities for such business of the corporation or such
subsidiary of the Corporation in such area.
(c) Executive shall not during the Non-Competition Period (i) solicit any
employee of the Corporation to engage in a Competitive Business, or (ii)
personally solicit customers of the Corporation in a manner which is
competitive with the Corporation.
(d) If the scope of any restrictions contained in Subparagraphs 6(a), (b)
or (c) hereof are too broad to permit enforcement of such restrictions to
their full extent, then such restrictions shall be enforced to the maximum
extent permitted by law, and Executive hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restrictions. Ownership of less than five (5%) percent of the
outstanding stock of a corporation traded on a national securities exchange
shall not be deemed to breach or conflict with the provisions of
Subparagraphs (a) or (b) of this Section 6.
7.) Trade Secrets. Executive shall not at any time during the term of
-------------
this Agreement or thereafter, or in any manner, either directly or indirectly,
divulge, disclose or communicate to any person, firm or corporation in any
manner whatsoever any information concerning any matters affecting or relating
to the business of the Corporation, including without limiting the generality of
the foregoing, any of its customers, the prices it obtains or has obtained from
the sale of, or at which it sells or has sold, its products, or any other
information concerning the business of the Corporation, its manner of operation,
its plans, processes, or other data without regard to whether all of the
foregoing matters will be deemed confidential, material, or important, the
parties hereto stipulating that as between them, the same are important,
material, and confidential and gravely affect the effective and successful
conduct of the business of the Corporation, and the Corporation's good will, and
that any breach of the terms of this paragraph shall be a material breach of
this Agreement.
8.) Disclosure and Assignment. Except as provided elsewhere in this
-------------------------
Agreement, Executive shall treat as for the Corporation's sole benefit and fully
and promptly disclose to the Corporation, without additional compensation, all
ideas, discoveries, inventions and improvements, whether patentable or not,
relating to high-speed, transaction based electronic data transportation and
delivery services, which while the Executive is employed by the Corporation are
made, conceived or reduced to practice by Executive, alone or with others,
during or after usual working hours, either on or off the job, and Executive
hereby
8
<PAGE>
assigns to the Corporation all such ideas, discoveries, inventions and
improvements relating to high-speed, transaction based electronic data
transportation and delivery to be the Corporation's exclusive property.
9.) Disclosure and Right of First Refusal. Paragraph 8 of this Agreement
-------------------------------------
shall not apply to any ideas, discoveries, inventions and improvements for which
no equipment, supplies, facility or trade secret information of the Corporation
was used, and which was developed entirely on Executive's own time, and (1)
--- ---
which does not relate (a) directly to high-speed, transaction based electronic
data transportation and delivery or (b) to the Corporation's actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Executive for the Corporation. Executive will,
nonetheless, promptly disclose all such ideas, discoveries, inventions and
improvements to the Corporation and offer to the Corporation the right of first
refusal to enter into a license or purchase agreement covering the subject idea,
discovery, invention or improvement on terms mutually agreed to by Executive and
the Corporation. In the event the Corporation and Executive cannot agree on
terms and Executive receives an offer to enter into a license or purchase
agreement with some other party on terms more favorable to that other party than
the terms offered to the Corporation, then the Corporation shall have the right
and Executive shall have the obligation to offer to the Corporation the idea,
discovery, invention or improvement on such terms as offered to the other party.
When such an offer is made to the Corporation pursuant to the preceding
sentence, it must be accepted by the Corporation within thirty (30) days; or if
not accepted, the right of first refusal hereunder as to that offer shall
terminate.
NOTICE: Paragraph 9 hereof requires Executive to assign rights to
inventions to the Corporation or its successors. Minnesota Statutes (S) 181.78
limits the scope of agreements requiring the inventions be assigned to
employers. The statute states that such assignment agreements do not apply:
"to an invention for which no equipment, supplies, facility or trade
secret information of the employer was used and which was developed
---
entirely on the Executive's own time, and (1) which does not relate
---
(a) directly to the business of the employer or (b) to the employer's
actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the Executive for the
employer." (Underlining added).
Please note that Paragraph 9 of this Agreement uses these statutory terms
to define the inventions which are not automatically assigned to the Corporation
but instead are subject to a right of first refusal in favor of the Corporation.
9
<PAGE>
10.) Assistance to the Corporation. Executive shall give the Corporation,
-----------------------------
at the Corporation's expense, all assistance the Corporation reasonably requires
to perfect, protect, and exercise the rights to all ideas, discoveries,
inventions or improvements acquired by the Corporation pursuant to the
assignment provisions of Paragraph 8 of this Agreement or the right of first
refusal provisions of Paragraph 9 of this Agreement.
11.) Documents and Tangible Property. All documents or other tangible
--------------------------------
property relating in any way to the business of the Corporation which are
conceived or generated by Executive or come into Executive's possession during
Executive's employment shall be and remain the Corporation's exclusive property,
and Executive agrees to return all such documents and tangible property to the
Corporation upon termination of Executive's employment by the Corporation or at
such earlier or later time the Corporation may request Executive to do so.
12.) Remedies for Breach of Covenants of Executive. The covenants set
---------------------------------------------
forth in Paragraphs 6, 7, 8, 9, 10 and 11 of this Agreement shall continue to be
binding upon Executive, notwithstanding the termination of his employment with
the Corporation for any reason whatsoever. Such covenants shall be deemed and
construed as separate agreements independent of any other provisions of this
Agreement. The existence of any claim or cause of action by Executive against
the Corporation, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Corporation or any or all of such
covenants. It is expressly agreed that the remedy at law for the breach of any
such covenant is inadequate and that temporary and permanent injunctive relief
shall be available to prevent the breach or any threatened breach thereof,
without the necessity of proof of actual damages; provided, however, that it is
expressly agreed that the provisions of Subparagraph 6(b) shall immediately
become void and no longer of any effect whatsoever in the event of a merger or
consolidation of the Corporation into another corporation in which the
Corporation is not the surviving corporation or which requires the stockholders
of the Corporation to exchange their shares of Common Stock of the Corporation
for any other class of capital stock, expressly excepting any transaction
involving the issuance of the capital stock of WorldCom Inc. The termination of
such provision shall be effective on the effective date of such merger or
consolidation.
13.) Notices. Any notices to be given hereunder by either party to the
-------
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Personal delivery to the Corporation shall mean personal delivery to the
Chairman of the Board of Directors. Mailed notices shall be addressed to the
respective addresses shown below. Either party may change its address for notice
by giving written notice in accordance with the terms of this Paragraph 13.
10
<PAGE>
(a) If to Executive:
Edward J. Driscoll
2500 Christian Drive
Chaska, Minnesota 55318
(b) If to the Corporation:
Netco Communications Corporation
104 Union P1aza
333 North Washington Ave.
Minneapolis, MN 55401
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
14.) Successors and Assigns: Sale of Business.
----------------------------------------
(a) The Corporation's rights and obligations under this Agreement shall
inure to the benefit of and shall be binding upon the Corporation's
successors and assigns.
(b) In the event of a merger or consolidation of the Corporation with
any other corporation or corporations, the sale by the Corporation of a
major portion of its assets or of its business and goodwill, or any
other corporate reorganization involving the Corporation, this Agreement
shall be assigned and transferred to such successor in interest as an
asset of the Corporation; and the Corporation agrees that it shall make
it a condition of such sale or transfer agreement that the purchaser or
assignee shall assume the Corporation's obligations under this
Agreement.
(c) In the event of any such assignment, the Executive agrees to
continue to perform his duties according to the terms of this Agreement
to or for such assignee or transferee of this Agreement; provided,
however, the Corporation shall remain secondarily liable as a guarantor
of such assignee's or transferee's obligations to the Executive under
this Agreement. The Executive acknowledges that his services are unique
and personal, and, accordingly, the Executive may not assign his rights
(except the right to receive payments due to him) or delegate his duties
or obligations under this Agreement.
11
<PAGE>
15.) General Provisions.
------------------
(a) Law Governing. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota.
(b) Invalid Provisions. If any provision of this Agreement is held to
------------------
be illegal, invalid, or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid, or unenforceable provision as may be
possible and still be legal, valid or enforceable.
(c) Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. The prior Employment Agreement dated September 24, 1994
between the parties hereto is terminated. No terms, conditions,
warranties, other than those contained herein, and no amendments or
modifications hereto shall be binding unless made in writing and signed
by the parties hereto.
(d) Binding Effect. This Agreement shall extend to and be binding upon
--------------
and inure to the benefit of the parties hereto, their respective heirs,
representatives, successors and assigns. This Agreement may not be
assigned by Executive.
(e) Waiver. The failure of either party to insist in any one or more
------
instances upon performance of any term or condition of this Agreement
shall not be construed a waiver of its future performance. The
obligations of either party with respect to such term, covenant or
condition shall continue in full force and effect.
(f) Titles. Titles of the paragraphs herein are used solely for
------
convenience and shall not be used for interpretation or construing any
word, clause, paragraph, or provision of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
12
<PAGE>
IN WITNESS WHEREOF, the Corporation and Executive have executed this
Agreement as of the date and year first written
"EXECUTIVE" NETCO COMMUNICATIONS CORPORATION
/s/ Edward J. Driscoll, III /s/ Edward J. Driscoll, III
________________________________ By:_________________________________
Edward J. Driscoll, III Edward J. Driscoll, III
Chief Executive Officer
13
<PAGE>
Exhibit A to
Executive Employment Agreement
STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of and effective this 14th
day of November 1996, by and between NETCO COMMUNICATIONS CORPORATION, a
Minnesota corporation (hereinafter referred to as the "Corporation") and EDWARD
J. DRISCOLL, III, a resident of the State of Minnesota (hereinafter referred to
as the "Executive").
WHEREAS, the Corporation considers it desirable and in its best
interests that the Executive be given an inducement to acquire a proprietary
interest in the Corporation and an added incentive to advance the interests of
the Corporation, by possessing an option to purchase common shares of the
Corporation.
NOW THEREFORE, in consideration of the premises and of the mutual
promises and consideration provided herein, the parties agree as follows:
Section I - Grant of Option
1.01 Grant of Option. The Corporation grants to Executive an Option
---------------
(the "Option") to purchase FOUR HUNDRED THOUSAND (400,000) common shares of the
Corporation at a purchase price of $4.81 per share.
Section II - Term and Duration
2.01 Term and Duration. The Option shall have a term commencing with
-----------------
the date first above written and expiring on December 31, 2007.
Section III - Vesting
3.01 Vesting of Option. Subject to earlier vesting and exercise
-----------------
provisions of Paragraph 3.02 hereof, the Option shall vest and may be exercised
in incremental amounts at the rate of fifty (50) shares for each Installed
Customer Site that becomes first installed during a calendar quarter during the
term of the Option, commencing with the calendar quarter ending March 31, 1997,
and for each successive calendar quarter through expiration of the term of the
Option.
3.02 Earlier Vesting of Option. The provisions of Paragraph 3.01 to
-------------------------
the contrary notwithstanding, the Option shall immediately vest and become
immediately exercisable in its entirety in any of the following events:
A-1
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
November 14, 1996
(a) Executive's employment by the Corporation is terminated "involuntarily
without cause" as that phrase is defined in that certain Employment
Agreement (the "Employment Agreement") between the Corporation and the
Executive, dated of even date with this Stock Option Agreement;
(b) The Employment Agreement is terminated pursuant to Section 5(a)(7) of
the Employment Agreement prior to December 31, 1999.
(c) An Acquisition or Change of Control occurs during the period
commencing January 1, 1997 and ending January 31, 1999.
3.03 Definitions. For purposes of this Section 3, the following words
-----------
shall have the meanings ascribed to them.
(a) Acquisition. "Acquisition" means either (i) the purchase of all or
-----------
substantially all of the assets of the Corporation by any person or
party, or (ii) the merger or consolidation of the Corporation with any
person or party; provided that neither (i) the purchase of all or
substantially all of the assets of the Corporation by WorldCom Inc.,
nor (ii) a merger or consolidation in which the shares of the
Corporation are exchanged for shares WorldCom Inc., of a class that is
registered under the Securities Exchange Act of 1934 shall be deemed
to be an "acquisition" for purposes hereof.
(b) Change of Control. "Change of Control" means the election by
-----------------
shareholders of the Corporation of a majority of directors of the
Corporation who were not recommended by the Corporation's executive
management for nomination for election as directors, provided that
election of a majority of the directors of the Corporation who receive
the affirmative vote of WorldCom Inc., shall not be deemed a change of
control.
(c) Customer. "Customer" shall mean a customer of the Corporation
--------
who has subscribed to, and agreed to pay for, Use Fees for use of the
Corporation's WAM!NET Service.
(d) Installed Customer Site. "Installed Customer Site" shall mean a
-----------------------
customer that has been continually connected to the Corporation's
WAM!NET Service for at least Ninety (90) days or has begun either (i)
to pay minimum monthly Use Fees under a service agreement or (ii) to
incur use charges under an agreement having no minimum monthly Use
Fees.
A-2
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
November 14, 1996
(e) Use Fees. "Use Fees" shall mean fees payable by a Customer for use of
--------
WAM!NET Services, and shall include fees payable by a Customer
relating to remote proofing and digital image archiving and retrieval
services.
(f) WAM!NET Service. "WAM!NET Service" shall mean the Corporation's
---------------
WAM!NET(TM) Electronic Data Transportation and Delivery Service (the
"WAM!NET Service") as presently configured or as may be configured in
the future, and shall include services relating to remote proofing and
digital image archiving and retrieval services.
Section IV - Exercise and Payment
4.01 Method of Exercise. The Option shall be exercised by written notice to
------------------
the Board of the Corporation at the Corporation's principal place of business,
accompanied by payment in cash or exercise of the Conversion Right as provided,
respectively, in Paragraphs 4.02 or 4.03 hereof, or by some combination thereof.
The notice shall specify how many shares are being acquired for cash in
accordance with Paragraph 4.02 hereof, and how many by exercise of the
Conversion Right in accordance with Paragraph 4.03 hereof. The notice shall also
be accompanied by any document reasonably required by the Corporation to be
executed by Executive acknowledging the applicable restrictions on the transfer
of the common shares being purchased as set forth under Section 7.02 of this
Agreement.
4.02 Payment in Cash. The notice specified in Paragraph 4.01 hereof shall
---------------
be accompanied by payment of the option price for the shares being purchased for
cash, which shall be in the form of cash or cashier's check or certified check
or, in the sole discretion of the Board, or the Committee if such exists, by
such other form of payment acceptable to the Corporation.
4.03 Payment by Exercise of Conversion Right. In the alternative, the
---------------------------------------
notice specified in Paragraph 4.01 hereof shall be accompanied by payment for
the shares being purchased by exercise of the Conversion Right provided in this
paragraph. The holder of this option shall have the right to require the
Corporation to convert this option, to the extent then vested, to shares of
Common Stock of the Corporation at any time prior to December 31, 2006. Upon
exercise of the Conversion Right, the Corporation shall deliver to the holder of
this Option (without payment of the exercise price in cash or check as provided
in Paragraph 4.02 thereof) shares of the Corporation's common Stock in number
equal to the quotient obtained by dividing
A-3
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
November 14, 1996
(a) the value of the Option at the time the Conversion Right is exercised
(determined by subtracting the aggregate Option exercise price at the
time the Conversion Right is exercised) from the aggregate Fair Market
Value, as determined immediately prior to the exercise of the
Conversion Right, of the aggregate Fair Market Value of the shares for
which the Option may be exercised by
(b) the Fair Market Value of one share of common stock immediately prior
to the exercise of the Conversion Right.
The immediately preceding formula is illustrated by the following example where
(i) the number of optioned shares being acquired by exercise of the Conversion
Right is 10,000, (ii) the per share exercise price of the Option is $4.81, and
(iii) the applicable Fair Market Value is $14.43: [(10,000 x 14.43) - (10,000 x
4.81)] / 14.43 = [144,300 - 48,100] / 14.43 = 96,200 / 14.43 = 6,667 shares.
4.04 Delivery of Certificates. Upon receipt of the Notice of Exercise,
------------------------
together with any document specified in Paragraph 4.01 hereof accompanied by
payment in accordance with either Paragraph 4.02 or 4.03 hereof, the Corporation
will deliver to the holder of this Option a certificate or certificates for the
number of shares of common stock issuable thereupon, together with a payment in
cash in lieu of any fraction of a share. The Corporation shall make prompt
delivery of a certificate or certificates representing such common shares,
provided that if any law or regulation requires the Corporation to take any
action with respect to the common shares specified in such notice before the
issuance thereof, then the date of delivery of such common shares shall be
extended for the period necessary to take such action.
4.05 Fair Market Value. "Fair Market Value" of a share of the Corporation's
-----------------
common stock as of a particular date (the "Determination Date") shall mean:
(a) If the Corporation's common stock is traded on an exchange or is
quoted on NASDAQ, then the average closing or last sale prices,
respectively, reported for the ten (10) business days immediately
preceding the Determination Date;
(b) If the Corporation's common stock is not traded on an exchange or on
NASDAQ, but is traded in the over-the-counter securities market, then
the average closing bid and asked prices reported for the ten (10)
business days immediately preceding the Determination Date; and
A-4
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
November 14, 1996
(c) If the Corporation's common stock is not publicly traded, then the
Fair Market Value as determined in good faith by the Company's Board
of Directors upon advice of a national investment banking firm whom,
upon request of the holder of this Option, the Corporation shall
select and retain to render such valuation.
Section V - Termination
5.01 Termination of Option. Except as herein otherwise provided, the
---------------------
Option granted under this Agreement, to the extent not theretofore exercised,
shall terminate upon the first to occur of the following events:
(a) Ninety (90) days following the Executive's voluntary termination of
Executive's employment by the Corporation.
(b) Ninety (90) days following the Executive's termination of employment
by the Corporation "involuntarily for cause" as that phrase is defined
in the Employment Agreement.
(c) The expiration of twelve months from the date of Executive's death
should Executive die within three months of termination of employment
by the Corporation.
(d) 11:59 PM Minneapolis, Minnesota, local time on December 31, 2007.
5.02 Governing Date. No provision of this Agreement to the contrary
--------------
withstanding, neither the Option nor any right claimed thereby or hereby,
therein or herein, or thereunder or hereunder shall be exercisable by anyone
after Dec. 31, 2007.
Section VI - Reclassification, Consolidation or Merger
6.01 Reclassification, Split or Dividend. If and to the extent that
-----------------------------------
the number of issued common shares of the Corporation shall be increased or
reduced by change in par value, split up, reverse split, reclassification,
distribution of a dividend payable in stock, or the like, the number of common
shares subject to the Option and the option price per share shall be
proportionately adjusted.
6.02 Consolidation or Merger. If the Corporation is reorganized or
-----------------------
consolidated or merged with another corporation, the Executive shall be entitled
to receive an option (the "New Option") covering common shares of such
A-5
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
November 14, 1996
reorganized, consolidated or merged Corporation in the same proportion, at an
equivalent price, and subject to the same conditions as the Option. For purposes
of the preceding sentence, the excess of the fair market value of the common
shares subject to the Option immediately after the reorganization, consolidation
or merger over the aggregate option price of such common shares shall not be
more than the excess of the aggregate fair market value of all common shares
subject to the Option immediately before such reorganization, consolidation or
merger over the aggregate option price of such common shares, and the New
Option or assumption of the Option shall not give the Executive additional
benefits which he does not have under this Option, or deprive him of benefits
which he has under this Option.
VII - Rights and Restrictions
7.01 Rights Prior to Exercise of Option. This Option is non-transferable by
----------------------------------
Executive, except in the event of his death, and during his lifetime is
exercisable only by him. No person shall have any rights as a stockholder with
respect to any common shares purchasable hereunder until payment of the option
price in accordance with Section 4.02 or 4.03 hereof, and delivery to him of
such common shares as herein provided.
7.02 Restriction on Disposition. All common shares acquired by Executive
--------------------------
pursuant to this Agreement shall be subject to the restrictions on sale,
encumbrance and other disposition contained in the Corporation's By-Laws, or
imposed by applicable state and federal laws or regulations regarding the
registration or qualification of such acquisition of common shares, and may not
be sold or otherwise disposed of except in accordance with applicable exemptions
from registration under applicable federal and state laws or pursuant to
registration thereunder.
7.03 Refusal Option. All common shares acquired by Executive pursuant
--------------
to this Agreement shall be subject to the Right of Refusal Agreement among
Executive, Allen L. Witters and WorldCom Inc.
VIII - Miscellaneous
8.01 Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
8.02 Construction. This Agreement shall be construed in accordance with
------------
the laws of the State of Minnesota, excluding the conflicts of laws provisions
thereof. This Agreement shall also be construed, to the extent
A-6
<PAGE>
Edward J. Driscoll, III
Stock Option Agreement
November 14, 1996
practicable, consistently with the Employment Agreement between the Corporation
and the Executive dated as of the date first above written.
In witness whereof, the parties have signed this Incentive Stock Option
Agreement the day and year first above written.
"Executive" "Corporation"
Netco Communications Corporation
By: /s/ Edward J. Driscoll, III By: /s/ Edward J. Driscoll, III
___________________________ _______________________________
Edward J. Driscoll, III Edward J. Driscoll, III
A-7
<PAGE>
EXHIBIT 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
AGREEMENT, made and entered into as of the 14th day of November, 1996, by
and between Netco Communications Corporation, a Minnesota corporation (the
"Corporation"), and Allen L. Witters ("Executive").
RECITALS:
---------
WHEREAS, the Executive is the Chief Technology Officer of the Corporation;
WHEREAS, the Executive's leadership and services have constituted a
major factor in the successful growth and development of the Corporation's
business; and
WHEREAS, the Corporation desires to employ and retain the unique
experience, ability and services of the Executive as a principal executive
officer; and
WHEREAS, the Corporation and the Executive desire to record the terms of
Executive's continued employment by the Corporation;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1.) Term of Employment. Subject to the terms and conditions of this
------------------
Agreement, the Corporation hereby employs Executive and Executive hereby accepts
employment for the period commencing October 1, 1996, and ending December 31,
1998, and thereafter for successive one year periods ending December 31 of each
succeeding year unless and until the employment is terminated in accordance with
the provisions of this Agreement. Each December 31, commencing December 31,
1998, shall be designated the "Annual Renewal Date."
2.) Duties, Responsibilities, and Authority. During the term of this
---------------------------------------
Agreement, Executive shall serve as Chief Technology Officer of the Corporation.
As such, Executive shall be responsible for the overall management and direction
of the technology, infrastructure and technical network operations of the
Corporation, and he shall have such duties as are generally appropriate to his
position and such authority as shall be required to enable him to perform these
duties, including but not limited to the authorities and duties currently
prescribed in the Articles of Incorporation and the Bylaws of the Corporation,
subject to the power of the shareholders and/or directors of the Corporation to
amend or modify such Articles of Incorporation or Bylaws. The Executive shall
exert his best efforts and devote
1
<PAGE>
substantially all of his time and attention to the Corporation's business. The
Executive shall be in charge of the development of technology and infrastructure
of the Corporation, and shall have full authority and responsibility, subject
only to the direction, approval, and control of the Corporation's Chief
Executive Officer, and to the general direction, approval and control of the
Corporation's Board of Directors, for formulating technology policies and
administering the Corporation's technology services and products in all
respects. His powers shall include authority, upon consultation of the
Corporation's Chief Executive Officer, to hire and fire Corporation personnel in
his department and, with the permission of the Corporation's Chief Executive
Officer, to retain consultants when he deems necessary to implement Corporation
policies.
3.) Location of Employment. Executive's services shall be rendered
----------------------
principally in Minneapolis, Minnesota and Executive shall not be required,
without his consent, to change his residence or work location from either
Hennepin County or Ramsey County, Minnesota by virtue of his employment with the
Corporation.
4.) Compensation, Benefits, Expenses.
--------------------------------
(a) Salary. The Corporation shall pay Executive a base salary at an annual
------
rate of $150,000.00 commencing October 1, 1996. Salary shall be paid in
accordance with the Corporation's regular payroll procedure, but not less
frequently than monthly. Executive's base salary shall be reviewed
periodically (at intervals of not more than 12 months) by the Board of
Directors of the Corporation ("the Board of Directors" or "Board") or a
committee thereof for the purpose of considering increases thereof. In
evaluating increases in salary, such factors as corporate performance,
individual merit, inflation and other appropriate considerations shall be
taken into account.
(b) Stock Option. In addition to any other compensation or benefits to
------------
which the Executive may be entitled under this Agreement or otherwise,
Executive shall receive options to acquire Four Hundred Thousand (400,000)
shares of the capital stork of the Corporation in accordance with the terms
of that certain Stock Option Agreement which is attached hereto and marked
Exhibit A.
(c) Bonus and Other Compensation. The Executive shall be entitled to
----------------------------
additional bonus and other compensation as may be established from time to
time by the Board of Directors based upon an annual business plan which
shall set goals (which shall include achievement of revenue and profit
measures which are reasonable at the time established) for the Corporation.
(d) Vacation. During each year of his employment, Executive will be
--------
entitled to reasonable vacations not exceeding five weeks per year,
holidays
2
<PAGE>
and time off when ill, all at full pay. Vacations shall be at such time or
times and for such periods as Employer and Executive shall agree.
(e) Automobiles. The Corporation recognizes the Executive's need for an
-----------
automobile or automobiles for business purposes. It, therefore, shall
provide the Executive with a reasonably suitable automobile or automobiles,
including all related maintenance, repairs, insurance and other costs
associated with such automobiles during the term of this Agreement or any
renewal or extension thereof.
(f) Expenses. The Corporation recognizes that Executive will have to incur
--------
certain out-of-pocket expenses related to his services and the
Corporation's business and that it will be extremely difficult to account
for such expenses. It is understood that Executive's compensation is
intended to cover all such out-of-pocket expenses. The Corporation,
however, shall reimburse Executive for any specific expenditures incurred
for travel, lodging, entertainment, and the like upon submission of
appropriate receipts and documentation sufficient to substantiate them as
reasonable and necessary business expenses.
(g) Employee Benefits. This Agreement shall not be in lieu of any rights,
-----------------
benefits and privileges to which Executive may be entitled as an employee
of the Corporation under any retirement, pension, profit-sharing,
insurance, group life insurance, hospitalization, surgical and major
medical coverage, and long-term disability or other plans which may now be
in effect or which may hereafter be adopted. Executive shall have the same
rights and privileges to participate in such plans and benefits as any
other employee during his period of employment. In addition, to the extent
appropriate for a senior executive of the Corporation, Executive shall be
entitled to participate in any pension and retirement plans, bonus plans
and such other fringe benefit programs or plans as are or may be made
available from time to time to executive and/or other salaried Executives
of the Corporation.
5.) Termination.
-----------
(a) Events of Termination. This Agreement may be terminated upon the
---------------------
occurrence of any one of the following events:
(1) Voluntary. Executive may terminate this Agreement at any time
---------
during the term of this Agreement by giving 30 days prior written
notice of termination to the Board.
(2) Involuntary Without Cause. The Board, without cause, may
-------------------------
terminate this Agreement on any Annual Renewal Date during the
term of this Agreement upon written notice to Executive at least
90 days prior to an Annual Renewal Date.
3
<PAGE>
(3) Involuntary With Cause. The Board, upon written notice effective
----------------------
immediately, may terminate this Agreement at any time during the
term of this Agreement for cause. "Cause" for purposes of such
termination shall mean the following:
a. admission or conviction of an act of dishonesty by Executive
with respect to the material interests of the Corporation;
b. willful misfeasance or willful nonfeasance of a duty
intended to injure or having the effect of injuring the
reputation, business relationships of the Corporation,
provided that for purposes hereof Executive shall not be
deemed to have committed willful misfeasance or willful
nonfeasance by reason of any act or failure to act by
Executive done in good faith;
c. conviction of Executive upon a charge of any crime involving
moral turpitude or any felony reflecting unfavorably upon
the Corporation; or
d. Failure, neglect or refusal by Executive to perform his
duties and responsibilities as set forth in this agreement
(other than by reason of disability due to physical or
mental illness or by reason of permitted vacations or
holidays) without the same being corrected upon ninety (90)
business days prior written notice from the Corporation
specifying such non-performance.
(4) Bankruptcy. This Agreement may be terminated by either party
----------
upon written notice to the other effective immediately if the
other party to this Agreement:
a. is adjudicated as a bankrupt;
b. is subject to the entry of an order, judgment, or decree by
any court of competent jurisdiction approving a petition
appointing a trustee, receiver, or liquidator of all or a
substantial part of the party's assets;
c. makes or attempts to make an assignment for the benefit of
creditors; or
d. institutes or attempts to institute voluntary bankruptcy
proceedings.
4
<PAGE>
(5) Death. This Agreement shall terminate upon the death of the Executive.
-----
(6) Disability. This Agreement shall terminate upon the permanent
----------
disability of Executive. For the purposes of this Agreement, Executive
shall be deemed permanently disabled if any ailment, illness or other
incapacity prevents him from performing his duties as specified in
this Agreement for a period of six consecutive months or for an
aggregate of six months in any twelve month period from the date of
this Agreement.
(7) Purchase of Executive's Shares by WorldCom Inc. This Agreement shall
---------------------------------------------
terminate on the Annual Renewal Date next following sale by Executive
of all shares and options to purchase shares of the Corporation owned
by him to WorldCom Inc. pursuant to Section 4.02 of that certain
Preferred Stock, Subordinated Note and Warrant Purchase Agreement
between WorldCom Inc. and the Corporation ("Preferred Stock Purchase
Agreement").
(b) Consequences of Termination.
---------------------------
(1) In the event of the termination of this Agreement in accordance with
Subparagraph 5(a)(1) or 5(a)(3) above (voluntary termination or
involuntary termination with cause), Executive shall be entitled to
the base salary earned by him prior to the date of termination as
provided herein computed on a pro rata basis to and including such
date of termination. In addition, Executive shall also be reimbursed
for his reasonable business expenses incurred prior to the date of
termination.
(2) In the event of the termination of this Agreement in accordance with
Subparagraph 5(a)(7) above (purchase of Executive's shares by
WorldCom), Executive shall be entitled to the base salary earned by
him prior to the date of termination as provided herein computed on a
pro rata basis to and including such date of termination. In addition,
Executive shall also be reimbursed for his reasonable business
expenses incurred prior to the date of termination. In the event
termination pursuant to Subparagraph 5(a)(7) above occurs on or prior
to December 31, 1999, then, to the extent that the consideration
received by Executive in exchange for his options to purchase shares
of the Corporation is a non-cash consideration, all stock options
under the Stock Option Agreement (Exhibit A) that have not theretofore
vested (including any and all options or rights received or exchanged
therefor by Executive as a consequence of
5
<PAGE>
the transaction occurring pursuant to Section 4.02 of the Preferred
Stock Purchase Agreement) shall immediately vest and become
exercisable in accordance with the provisions of said Stock Option
Agreement thereto applicable. In addition, in the event termination
pursuant to Subparagraph 5(a)(7) occurs on or prior to December 31,
2000, then Executive shall also receive a lump sum payment in the
amount of Seventy Five Thousand Dollars ($75,000).
(3) If the Corporation terminates this Agreement without cause pursuant to
Subparagraph 5(a)(2) above (involuntary without cause), Executive
shall be entitled to receive a severance cash payment as liquidated
damages for, and in lieu of, any and all damages which he may incur as
a result of such termination in an amount equal to the greater of (i)
the Executive's then base salary for two years, or (ii) the amounts
reasonably estimated to be due hereunder for the two year period
following the Annual Renewal Date upon which the termination becomes
effective, which shall be payable within 30 days from the date of
termination plus, in either case, one half of the cash bonus
(determined pursuant to Paragraph 4(c) above relating to Bonus and
Other Compensation), to which Executive would have been entitled had
he continued in the employment of the Corporation for the year
following termination, which payment shall be payable in accordance
with Paragraph 4(b). Additionally, If the Corporation terminates this
Agreement without cause pursuant to Subparagraph 5(a)(2) above, all
stock options under the Stock Option Agreement (Exhibit A) that have
not theretofore vested shall immediately vest and become exercisable
in accordance with the provisions of said Stock Option Agreement.
(4) In the event this Agreement is terminated due to the death (pursuant
to Subparagraph 6(a)(5)) or disability (pursuant to Subparagraph
6(a)(6)) of Executive, Executive (or his estate) shall be entitled to
his then base salary for a period of six months, plus the cash bonus
payable with respect to the fiscal year of death or disability, in
accordance with normal payment procedures under this Agreement.
6.) Non-Competition. Executive covenants and agrees that:
---------------
(a) During the term of this Agreement, he shall not without the prior written
consent of the Corporation, directly or indirectly, as an Executive, employer,
agent, principal, proprietor, partner, stockholder, consultant, director, or
corporate officer, engage in any business engaged in the high-
6
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speed, transaction based electronic data transportation and delivery business
(the "Competitive Business") or render any services to any business that is
engaged in a Competitive Business.
(b) For a period of two years (the "Non-Competition Period") after Executive
has ceased to be employed by the Corporation or any subsidiary of the
Corporation, Executive shall not without the prior written consent of the
Corporation:
(1) directly or indirectly engage in, or
(2) be employed by any person, firm, partnership, association, corporation
or business organization, entity or enterprise that is, or is about to
become, directly or indirectly engaged in,
any Competitive Business. For purposes hereof, "Competitive Business" shall mean
engaging or having a material interest, directly or indirectly as owner,
employee, officer, director, partner, venturer or stockholder, capital investor,
consultant, agent, principal advisor or otherwise, either alone or in
association with others, in the operation of a high speed, transaction based,
electronic data transportation and delivery business; provided, however, that
the restrictions contained in this Subparagraph (b) shall not apply to any
business that does not meet both of the following requirements:
(1) the Corporation or a subsidiary of the Corporation shall have operated
such business, or had such business in the planning or development
stage therein, during the 120-day period immediately prior to
Executive's ceasing to be employed by the Corporation or any
subsidiary of the Corporation, and
(2) Executive, during such period, shall have had substantial planning
development, administrative or operational responsibilities for such
business of the corporation or such subsidiary of the Corporation in
such area.
(c) Executive shall not during the Non-Competition Period (i) solicit any
employee of the Corporation to engage in a Competitive Business, or (ii)
personally solicit customers of the Corporation in a manner which is competitive
with the Corporation.
(d) If the scope of any restrictions contained in Subparagraphs 6(a), (b) or
(c) hereof are too broad to permit enforcement of such restrictions to their
full extent, then such restrictions shall be enforced to the maximum extent
permitted by law, and Executive hereby consents and agrees that such scope may
be judicially modified accordingly in any proceeding brought to enforce such
restrictions. Ownership of less than five (5%) percent of the outstanding
7
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stock of a corporation traded on a national securities exchange shall not
be deemed to breach or conflict with the provisions of Subparagraphs (a) or
(b) of this Section 6.
7.) Trade Secrets. Executive shall not at any time during the term of
-------------
this Agreement or thereafter, or in any manner, either directly or indirectly,
divulge, disclose or communicate to any person, firm or corporation in any
manner whatsoever any information concerning any matters affecting or relating
to the business of the Corporation, including without limiting the generality of
the foregoing, any of its customers, the prices it obtains or has obtained from
the sale of, or at which it sells or has sold, its products, or any other
information concerning the business of the Corporation, its manner of operation,
its plans, processes, or other data without regard to whether all of the
foregoing matters will be deemed confidential, material, or important, the
parties hereto stipulating that as between them, the same are important,
material, and confidential and gravely affect the effective and successful
conduct of the business of the Corporation, and the Corporation's good will, and
that any breach of the terms of this paragraph shall be a material breach of
this Agreement.
8.) Disclosure and Assignment. Except as provided elsewhere in this
-------------------------
Agreement, Executive shall treat as for the Corporation's sole benefit and fully
and promptly disclose to the Corporation, without additional compensation, all
ideas, discoveries, inventions and improvements, whether patentable or not,
relating to high-speed, transaction based electronic data transportation and
delivery services, which while the Executive is employed by the Corporation are
made, conceived or reduced to practice by Executive, alone or with others,
during or after usual working hours, either on or off the job, and Executive
hereby assigns to the Corporation all such ideas, discoveries, inventions and
improvements relating to high-speed, transaction based electronic data
transportation and delivery to be the Corporation's exclusive property.
9.) Disclosure and Right of First Refusal. Paragraph 8 of this Agreement
-------------------------------------
shall not apply to any ideas, discoveries, inventions and improvements for which
no equipment, supplies, facility or trade secret information of the Corporation
was used, and which was developed entirely on Executive's own time, and (1)
--- ---
which does not relate (a) directly to high-speed, transaction based electronic
data transportation and delivery or (b) to the Corporation's actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Executive for the Corporation. Executive will,
nonetheless, promptly disclose all such ideas, discoveries, inventions and
improvements to the Corporation and offer to the Corporation the right of first
refusal to enter into a license or purchase agreement covering the subject idea,
discovery, invention or improvement on terms mutually agreed to by Executive and
the Corporation. In the event the Corporation and Executive cannot agree on
terms and Executive receives an offer to enter into a license or purchase
agreement with some other party on terms more favorable to that other party than
the terms offered to the
8
<PAGE>
Corporation, then the Corporation shall have the right and Executive shall
have the obligation to offer to the Corporation the idea, discovery, invention
or improvement on such terms as offered to the other party. When such an offer
is made to the Corporation pursuant to the preceding sentence, it must be
accepted by the Corporation within thirty, (30) days; or if not accepted, the
right of first refusal hereunder as to that offer shall terminate.
NOTICE: Paragraph 9 hereof requires Executive to assign rights to
inventions to the Corporation or its successors. Minnesota Statutes (S) 181.78
limits the scope of agreements requiring the inventions be assigned to
employers. The statute states that such assignment agreements do not apply:
"to an invention for which no equipment, supplies, facility
or trade secret information of the employer was used and
---
which was developed entirely on the Executive's own time,
and (1) which does not relate (a) directly to the business
---
of the employer or (b) to the employer's actual or
demonstrably anticipated research or development, or (2)
which does not result from any work performed by the
Executive for the employer." (Underlining added).
Please note that Paragraph 9 of this Agreement uses these statutory terms
to define the inventions which are not automatically assigned to the Corporation
but instead are subject to a right of first refusal in favor of the Corporation.
10.) Assistance to the Corporation. Executive shall give the Corporation,
-----------------------------
at the Corporation's expense, all assistance the Corporation reasonably requires
to perfect, protect, and exercise the rights to all ideas, discoveries,
inventions or improvements acquired by the Corporation pursuant to the
assignment provisions of Paragraph 8 of this Agreement or the right of first
refusal provisions of Paragraph 9 of this Agreement.
11.) Documents and Tangible Property. All documents or other tangible
-------------------------------
property relating in any way to the business of the Corporation which are
conceived or generated by Executive or come into Executive's possession during
Executive's employment shall be and remain the Corporation's exclusive property,
and Executive agrees to return all such documents and tangible property to the
Corporation upon termination of Executive's employment by the Corporation or at
such earlier or later time the Corporation may request Executive to do so.
12.) Remedies for Breach of Covenants of Executive. The covenants set
---------------------------------------------
forth in Paragraphs 6, 7, 8, 9, 10 and 11 of this Agreement shall continue to be
binding upon Executive, notwithstanding the termination of his employment with
the Corporation for any reason whatsoever. Such covenants shall be deemed and
construed as separate agreements independent of any other provisions of this
Agreement. The existence of any claim or cause of action by Executive against
the
9
<PAGE>
Corporation, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Corporation or any or all of such
covenants. It is expressly agreed that the remedy at law for the breach of any
such covenant is inadequate and that temporary and permanent injunctive relief
shall be available to prevent the breach or any threatened breach thereof,
without the necessity of proof of actual damages; provided, however, that it is
expressly agreed that the provisions of Subparagraph 6(b) shall immediately
become void and no longer of any effect whatsoever in the event of a merger or
consolidation of the Corporation into another corporation in which the
Corporation is not the surviving corporation or which requires the stockholders
of the Corporation to exchange their shares of Common Stock of the Corporation
for any other class of capital stock, expressly excepting any transaction
involving the issuance of the capital stock of WorldCom Inc. The termination of
such provision shall be effective on the effective date of such merger or
consolidation.
13.) Notices. Any notices to be given hereunder by either party to the
-------
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Personal delivery to the Corporation shall mean personal delivery to the
Chairman of the Board of Directors. Mailed notices shall be addressed to the
respective addresses shown below. Either party may change its address for notice
by giving written notice in accordance with the terms of this Paragraph 13.
(a) If to Executive:
Allen L. Witters
9640 Eden Prairie Road
Eden Prairie, Minnesota 55487
(b) If to the Corporation:
Netco Communications Corporation
104 Union Plaza
333 North Washington Ave.
Minneapolis, MN 55401
with a copy to:
WorldCom Inc.
515 E. Amite
Jackson, Mississippi 39201
Attention: K. William Grothe, Jr.
Vice President
10
<PAGE>
14.) Successors and Assigns; Sale of Business.
----------------------------------------
(a) The Corporation's rights and obligations under this Agreement shall
inure to the benefit of and shall be binding upon the Corporation's
successors and assigns.
(b) In the event of a merger or consolidation of the Corporation with any
other corporation or corporations, the sale by the Corporation of a major
portion of its assets or of its business and goodwill, or any other
corporate reorganization involving the Corporation, this Agreement shall be
assigned and transferred to such successor in interest as an asset of the
Corporation; and the Corporation agrees that it shall make it a condition
of such sale or transfer agreement that the purchaser or assignee shall
assume the Corporation's obligations under this Agreement.
(c) In the event of any such assignment, the Executive agrees to continue
to perform his duties according to the terms of this Agreement to or for
such assignee or transferee of this Agreement; provided, however, the
Corporation shall remain secondarily liable as a guarantor of such
assignee's or transferee's obligations to the Executive under this
Agreement. The Executive acknowledges that his services are unique and
personal, and, accordingly, the Executive may not assign his rights (except
the right to receive payments due to him) or delegate his duties or
obligations under this Agreement.
15.) General Provisions.
------------------
(a) Law Governing. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota.
(b) Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of
this Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid or
enforceable.
(c) Entire Agreement. This Agreement sets forth the entire understanding
----------------
of the parties and supersedes all prior agreements or understandings,
whether written or oral, with respect to the subject matter hereof. The
prior Employment Agreement dated September 24, 1994 between the parties
hereto
11
<PAGE>
is terminated. No terms, conditions, warranties, other than those contained
herein, and no amendment or modifications hereto shall be binding unless
made in writing and signed by the parties hereto.
(d) Binding Effect. This Agreement shall extend to and be binding upon
--------------
and inure to the benefit of the parties hereto, their respective heirs,
representatives, successors and assigns. This Agreement may not be assigned
by Executive.
(e) Waiver. The failure of either party to insist in any one or more
------
instances upon performance of any term or condition of this Agreement
shall not be construed a waiver of its future performance. The obligations
of either party with respect to such term, covenant or condition shall
continue in full force and effect.
(f) Titles. Titles of the paragraphs herein are used solely for
------
convenience and shall not be used for interpretation or construing any
word, clause, paragraph, or provision of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Corporation and Executive have executed this
Agreement as of the date and year first written
"EXECUTIVE" NETCO COMMUNICATIONS
CORPORATION
/s/ Allen L. Witters /s/ Edward J. Driscoll, III
___________________________ By: ________________________________
Allen L. Witters Edward J. Driscoll, III
Chief Executive Officer
12
<PAGE>
Exhibit A to
Executive Employment Agreement
STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of and effective this 14th day of
November 1996, by and between NETCO COMMUNICATIONS CORPORATION, a Minnesota
corporation (hereinafter referred to as the "Corporation") and ALLEN WITTERS, a
resident of the State of Minnesota (hereinafter referred to as the "Executive").
WHEREAS, the Corporation considers it desirable and in its best
interests that the Executive be given an inducement to acquire a proprietary
interest in the Corporation and an added incentive to advance the interests of
the Corporation, by possessing an option to purchase common shares of the
Corporation.
NOW THEREFORE, in consideration of the premises and of the mutual promises
and consideration provided herein, the parties agree as follows:
Section I - Grant of Option
1.01 Grant of Option. The Corporation grants to Executive an Option
---------------
(the "Option") to purchase FOUR HUNDRED THOUSAND (400,000) common shares of the
Corporation at a purchase price of $4.81 per share.
Section III - Term and Duration
2.01 Term and Duration. The Option shall have a term commencing with the
-----------------
date first above written and expiring on December 31, 2007.
Section III - Vesting
3.01 Vesting of Option. Subject to earlier vesting and exercise provisions
-----------------
of Paragraph 3.02 hereof, the Option shall vest and may be exercised in
incremental amounts at the rate of fifty (50) shares for each Installed Customer
Site that becomes first installed during a calendar quarter during the term of
the Option, commencing with the calendar quarter ending March 31, 1997, and for
each successive calendar quarter through expiration of the term of the Option.
3.02 Earlier Vesting of Option. The provisions of Paragraph 3.01 to the
-------------------------
contrary notwithstanding, the Option shall immediately vest and become
immediately exercisable in its entirety in any of the following events:
A-1
<PAGE>
Allen Witters
Stock Option Agreement
November 14, 1996
(a) Executive's employment by the Corporation is terminated "involuntarily
without cause" as that phrase is defined in that certain Employment
Agreement (the "Employment Agreement") between the Corporation and the
Executive, dated of even date with this Stock Option Agreement;
(b) The Employment Agreement is terminated pursuant to Section 5(a)(7) of
the Employment Agreement prior to December 31, 1999.
(c) An Acquisition or Change of Control occurs during the period
commencing January 1, 1997 and ending January 31, 1999.
3.03 Definitions. For purposes of this Section 3, the following words shall
-----------
have the meanings ascribed to them.
(a) Acquisition. "Acquisition" means either (i) the purchase of all or
-----------
substantially all of the assets of the Corporation by any person or
party, or (ii) the merger or consolidation of the Corporation with any
person or party; provided that neither (i) the purchase of all or
substantially all of the assets of the Corporation by WorldCom Inc.,
nor (ii) a merger or consolidation in which the shares of the
Corporation are exchanged for shares WorldCom Inc., of a class that is
registered under the Securities Exchange Act of 1934 shall be deemed
to be an "acquisition" for purposes hereof.
(b) Change of Control. "Change of Control" means the election by
-----------------
shareholders of the Corporation of a majority of directors of the
Corporation who were not recommended by the Corporation's executive
management for nomination for election as directors, provided that
election of a majority of the directors of the Corporation who receive
the affirmative vote of WorldCom Inc., shall not be deemed a change of
control.
(c) Customer. "Customer" shall mean a customer of the Corporation who has
--------
subscribed to, and agreed to pay for, Use Fees for use of the
Corporation's WAM!NET Service.
(d) Installed Customer Site. "Installed Customer Site" shall mean a
-----------------------
customer that has been continually connected to the Corporation's
WAM!NET Service for at least Ninety (90) days or has begun either (i)
to pay minimum monthly Use Fees under a service agreement
A-2
<PAGE>
Allen Witters
Stock Option Agreement
November 14, 1996
or (ii) to incur use charges under an agreement having no minimum
monthly Use Fees.
(e) Use Fees. "Use Fees" shall mean fees payable by a Customer for use of
--------
WAM!NET Services, and shall include fees payable by a Customer
relating to remote proofing and digital image archiving and
retrieval services.
(f) WAM!NET Service. "WAM!NET Service" shall mean the Corporation's
---------------
WAM!NET(TM) Electronic Data Transportation and Delivery Service (the
"WAM!NET Service") as presently configured or as may be configured in
the future, and shall include services relating to remote proofing and
digital image archiving and retrieval services.
Section IV - Exercise and Payment
4.01 Method of Exercise. The Option shall be exercised by written notice to
------------------
the Board of the Corporation at the Corporation's principal place of business,
accompanied by payment in cash or exercise of the Conversion Right as provided,
respectively, in Paragraphs 4.02 or 4.03 hereof, or by some combination thereof.
The notice shall specify how many shares are being acquired for cash in
accordance with Paragraph 4.02 hereof, and how many by exercise of the
Conversion Right in accordance with Paragraph 4.03 hereof. The notice shall also
be accompanied by any document reasonably required by the Corporation to be
executed by Executive acknowledging the applicable restrictions on the transfer
of the common shares being purchased as set forth under Section 7.02 of this
Agreement.
4.02 Payment in Cash. The notice specified in Paragraph 4.01 hereof shall
---------------
be accompanied by payment of the option price for the shares being purchased for
cash, which shall be in the form of cash or cashier's check or certified check
or, in the sole discretion of the Board, or the Committee if such exists, by
such other form of payment acceptable to the Corporation.
4.03 Payment by Exercise of Conversion Right. In the alternative, the
---------------------------------------
notice specified in Paragraph 4.01 hereof shall be accompanied by payment for
the shares being purchased by exercise of the Conversion Right provided in this
paragraph. The holder of this option shall have the right to require the
Corporation to convert this option, to the extent then vested, to shares of
Common Stock of the Corporation at any time prior to December 31, 2006. Upon
exercise of the Conversion Right, the Corporation shall deliver to the holder of
this Option (without payment of the exercise price in cash or check as provided
A-3
<PAGE>
Allen Witters
Stock Option Agreement
November 14, 1996
in Paragraph 4.02 hereof) shares of the Corporation's common Stock in number
equal to the quotient obtained by dividing
(a) the value of the Option at the time the Conversion Right is exercised
(determined by subtracting the aggregate Option exercise price at the
time the Conversion Right is exercised) from the aggregate Fair Market
Value, as determined immediately prior to the exercise of the
Conversion Right, of the aggregate Fair Market Value of the shares for
which the Option may be exercised by
(b) the Fair Market Value of one share of common stock immediately prior
to the exercise of the Conversion Right.
The immediately preceding formula is illustrated by the following example where
(i) the number of optioned shares being acquired by exercise of the Conversion
Right is 10,000, (ii) the per share exercise price of the Option is $4.81, and
(iii) the applicable Fair Market Value is $14.43: [(10,000 x 14.43) - (10,000 x
4.81)] / 14.43 = [144,300 - 48,100] / 14.43 = 96,200/14.43 = 6,667 shares.
4.04 Delivery of Certificates. Upon receipt of the Notice of Exercise,
------------------------
together with any document specified in Paragraph 4.01 hereof accompanied by
payment in accordance with either Paragraph 4.02 or 4.03 hereof, the Corporation
will deliver to the holder of this Option a certificate or certificates for the
number of shares of common stock issuable thereupon, together with a payment in
cash in lieu of any fraction of a share. The Corporation shall make prompt
delivery of a certificate or certificates representing such common shares,
provided that if any law or regulation requires the Corporation to take any
action with respect to the common shares specified in such notice before the
issuance thereof, then the date of delivery of such common shares shall be
extended for the period necessary to take such action.
4.05 Fair Market Value. "Fair Market Value" of a share of the
-----------------
Corporation's common stock as of a particular date (the "Determination Date")
shall mean:
(a) If the Corporation's common stock is traded on an exchange or is
quoted on NASDAQ then the average closing or last sale prices,
respectively, reported for the ten (10) business days immediately
preceding the Determination Date;
(b) If the Corporation's common stock is not traded on an exchange or on
NASDAQ but is traded in the over-the-counter securities market, then
the average closing bid and asked prices reported for
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<PAGE>
Allen Witters
Stock Option Agreement
November 14, 1996
the ten (10) business days immediately preceding the Determination
Date; and
(c) If the Corporation's common stock is not publicly traded, then the
Fair Market Value as determined in good faith by the Company's Board
of Directors upon advice of a national investment banking firm whom,
upon request of the holder of this Option, the Corporation shall
select and retain to render such valuation.
Section V - Termination
5.01 Termination of Option. Except as herein otherwise provided, the
---------------------
Option granted under this Agreement, to the extent not theretofore exercised,
shall terminate upon the first to occur of the following events:
(a) Ninety (90) days following the Executive's voluntary termination of
Executive's employment by the Corporation.
(b) Ninety (90) days following the Executive's termination of employment
by the Corporation "involuntarily for cause" as that phrase is defined
in the Employment Agreement.
(c) The expiration of twelve months from the date of Executive's death
should Executive die within three months of termination of employment
by the Corporation.
(d) 11:59 PM Minneapolis, Minnesota, local time on December 31, 2007.
5.02 Governing Date. No provision of this Agreement to the contrary
--------------
withstanding, neither the Option nor any right claimed thereby or hereby,
therein or herein, or thereunder or hereunder shall be exercisable by anyone
after Dec. 31, 2007.
Section VI - Reclassification, Consolidation or Merger
6.01 Reclassification, Split or Dividend. If and to the extent that the
-----------------------------------
number of issued common shares of the Corporation shall be increased or reduced
by change in par value, split up, reverse split, reclassification, distribution
of a dividend payable in stock, or the like, the number of common shares subject
to the Option and the option price per share shall be proportionately adjusted.
A-5
<PAGE>
Allen Witters
Stock Option Agreement
November 14, 1996
6.02 Consolidation or Merger. If the Corporation is reorganized or
-----------------------
consolidated or merged with another corporation, the Executive shall be entitled
to receive an option (the "New Option") covering common shares of such
reorganized, consolidated or merged Corporation in the same proportion, at an
equivalent price, and subject to the same conditions as the Option. For purposes
of the preceding sentence, the excess of the fair market value of the common
shares subject to the Option immediately after the reorganization, consolidation
or merger over the aggregate option price of such common shares shall not be
more than the excess of the aggregate fair market value of all common shares
subject to the Option immediately before such reorganization, consolidation or
merger over the aggregate option price of such common shares, and the New
Option or assumption of the Option shall not give the Executive additional
benefits which he does not have under this Option, or deprive him of benefits
which he has under this Option.
VII - Rights and Restrictions
7.01 Rights Prior to Exercise of Option. This Option is non-
----------------------------------
transferable by Executive, except in the event of his death, and during his
lifetime is exercisable only by him. No person shall have any rights as a
stockholder with respect to any common shares purchasable hereunder until
payment of the option price in accordance with Section 4.02 or 4.03 hereof, and
delivery to him of such common shares as herein provided.
7.02 Restriction on Disposition. All common shares acquired by
--------------------------
Executive pursuant to this Agreement shall be subject to the restrictions on
sale, encumbrance and other disposition contained in the Corporation's By-Laws,
or imposed by applicable state and federal laws or regulations regarding the
registration or qualification of such acquisition of common shares, and may not
be sold or otherwise disposed of except in accordance with applicable exemptions
from registration under applicable federal and state laws or pursuant to
registration thereunder.
7.03 Refusal Option. All common shares acquired by Executive pursuant
--------------
to this Agreement shall be subject to the Right of Refusal Agreement among
Executive, Edward J. Driscoll, III and WorldCom Inc.
VIII - Miscellaneous
8.01 Binding Effect. This Agreement shall inure to the benefit of and
--------------
be binding upon the parties hereto and their respective heirs, executors,
administrators successors and assigns.
A-6
<PAGE>
Allen Witters
Stock Option Agreement
November 14, 1996
8.02 Construction. This Agreement shall be construed in accordance with
------------
the laws of the State of Minnesota, excluding the conflicts of laws provisions
thereof. This Agreement shall also be construed, to the extent practicable,
consistently with the Employment Agreement between the Corporation and the
Executive dated as of the date first above written.
In witness whereof, the parties have signed this Incentive Stock Option
Agreement the day and year first above written.
"Executive" "Corporation"
Netco Communications Corporation
By: /s/ Allen Witters By: /s/ Edward J. Driscoll, III
_______________________ _______________________________
Allen Witters Edward J. Driscoll, III
A-7
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made effective as of April 16,
1996, by and between NetCo Communications Corporation, ("NetCo"), of Union Plaza
- - Suite 102,333 North Washington Avenue, Minneapolis, MN 55401, and James R.
Clancy, ("the Employee") of 4363 Coolidge Avenue, St. Louis Park, MN 55424.
WHEREAS, NetCo is engaged in the business of marketing high speed electronic
courier services for the transportation, storage and retrieval of large
quantities of data for print and CD-ROM prepress publishing industries as well
as for medical imaging;
WHEREAS, NetCo desires to have the services of the Employee; and
WHEREAS, the Employee is willing to be employed by NetCo.
Therefore, the parties agree as follows:
1. EMPLOYMENT. Effective 5/14, 1996, Employee shall serve NetCo as Chief
Marketing Officer.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
all of the duties that may be required by the express and implicit terms of this
Agreement, to the reasonable satisfaction of NetCo. Such duties shall be
provided at such place(s) as the needs, business, or opportunities of NetCo may
require from time to time.
3. COMPENSATION OF EMPLOYEE. As compensation for the services provided by
Employee under this Agreement, NetCo will pay the Employee an annual salary of
$85,000.00 payable in accordance with NetCo's usual payroll procedures. Upon
termination of this Agreement, payments under this paragraph shall cease;
provided, however, that the Employee shall be entitled to payments for periods
or partial periods that occurred prior to the date of termination and for which
the Employee has not yet been paid. Accrued vacation will be paid in accordance
with state law and NetCo's customary procedures.
4. ACHIEVEMENT PAYMENTS. In addition to the payments under the preceding
paragraph, NetCo will make payments, not to exceed $40,000, to the Employee
based on achievement of four specific objectives that shall be established
between the Employee and NetCo. Payments will be made in increments of $10,000
each.
a. FIRST PAYMENT. The first payment shall be made at the end of the first
full payroll period following completion by the Employee and acceptance by
NetCo of the first objective, a detailed written plan and timeline
(hereinafter referred to as the "Plan") for development and implementation
of a comprehensive marketing plan for NetCo products during 1996 and 1997.
The written Plan will include at least three additional specific objectives
that the Employee must be achieve during the twelve month period following
the effective date of this Agreement, that will serve as the basis for
NetCo to make each of the payments of $10,000.
b. REMAINING THREE PAYMENTS. After achievement of the first objective in
the under "A." in the preceding paragraph, the Employee shall be
compensated for achieving the remaining three objectives in five equal
payments of $10,000 each (totaling an amount not to exceed $30,0000).
1
<PAGE>
c. DEATH OF EMPLOYEE. If Employee dies during the term of this Agreement,
Employee shall be entitled to partial achievement payments on a pro rata
basis for the period ending with the date of Employee's death.
d. DISABILITY OF EMPLOYEE. If the Employee becomes disabled during the term
of this Agreement. Employee shall be entitled to partial achievement
payments on a pro rata basis for the period ending on the date the
Employee's disability is determined to have occurred.
5. INCENTIVE STOCK OPTION. Subject to approval of the NetCo Board of Directors,
and in addition to any other compensation to which the employee may be entitled
by this agreement, Employee shall be entitled to receive an incentive Stock
Option for Seventy Five Thousand (75,000) shares of NetCo Communications
Corporation under the NetCo 1996 Stock Option Plan according to the incentive
Stock Option Agreement in Exhibit 1. The exercise price of the incentive Stock
Option shall be Seven and 50/100 dollars ($7.50) per share, being the fair
market value on the date of the grant.
6. REIMBURSEMENT FOR EXPENSES IN ACCORDANCE WITH NETCO POLICY. NetCo will
reimburse Employee for "out-of-pocket" expenses in accordance with NetCo
policies in effect from time to time.
7. RECOMMENDATIONS FOR IMPROVING OPERATIONS. Employee shall provide NetCo with
all information, suggestions, and recommendations regarding NetCo's business, of
which Employee has knowledge, that will be of benefit to NetCo.
8. CONFIDENTIALITY. Employee recognizes that NetCo has and will have information
regarding the following:
- - inventions - business affairs
- - machinery - processes
- - products - trade secrets
- - prices - technical matters
- - apparatus - customer lists
- - costs - product designs
- - discounts - copyrights
- - future plans
and other vital information (collectively, "Information") which are valuable,
special and unique assets of NetCo. Employee agrees that the Employee will not
at any time or in any manner, either directly or indirectly, divulge, disclose,
or communicate in any manner any Information to any third party without the
prior written consent of the NetCo. Employee will protect the Information and
treat it as strictly confidential. A violation by Employee of this paragraph
shall be a material violation of this Agreement and will justify legal and/or
equitable relief.
9. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that the Employee has
disclosed (or has threatened to disclose) Information in violation of this
Agreement, NetCo shall be entitled to an injunction to restrain Employee from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. NetCo shall not be prohibited by this provision from pursuing other
remedies, including a claim for losses and damages.
10. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT. The confidentiality
provisions of this Agreement shall remain in full force and effect for a One
year period after the termination of Employee's employment. During such One year
period, neither party shall make
2
<PAGE>
or permit the making of any public announcement or statement of any kind that
Employee was formerly employed by or connected with NetCo.
11. NON-COMPETE AGREEMENT. Recognizing that the various items of Information are
special and unique assets of the company, Employee agrees and covenants that for
a period of 18 months following the termination of this Agreement, whether such
termination is voluntary or involuntary, Employee will not directly or
indirectly engage in any business competitive with NetCo. This covenant shall
apply to the geographical area that includes the United States and Canada.
Directly or indirectly engaging in any competitive business includes, but is not
limited to, (i) engaging in a business as owner, partner, or agent, (ii)
becoming an employee of any third party that is engaged in such business, (iii)
becoming interested directly or indirectly in any such business, or (iv)
soliciting any customer of NetCo for the benefit of a third party that is
engaged in such business. Employee agrees that this non-compete provision will
not adversely affect the Employee's livelihood.
12. EMPLOYEE'S INABILITY TO CONTRACT FOR NETCO. Employee shall not have the
right to make any contracts or commitments for or on behalf of NetCo without
first obtaining the express written consent of NetCo.
13. HOLIDAYS. Employee shall be entitled to the following holidays with pay
during each calendar year:
- New Year's Day - Thanksgiving Day
- Memorial Day - Christmas Eve and Christmas Day
- Independence Day - The Friday after Thanksgiving Day
- Labor Day - Two weeks vacation
14. OTHER BENEFITS. Employee shall be entitled to insurance benefits, in
accordance with the NetCo's applicable insurance contract(s) and policies, and
applicable state law. These benefits shall include:
- Health insurance
- Short term Disability Insurance
- Dental
- 401 (k) Retirement Plan
- Life Insurance
as such benefits are provided in accordance with NetCo policies in effect from
time to time.
15. TERM/TERMINATION. Employee's employment under this Agreement shall be for an
unspecified term on an "at will" basis. This Agreement may be terminated, with
or without cause, by either party upon 30 days written notice. If Employee is in
violation of this Agreement, NetCo may terminate employment without prior notice
and with compensation to Employee only to the date of such termination. The
compensation paid under this Agreement shall be the Employee's exclusive remedy.
16. TERMINATION FOR DISABILITY. NetCo shall have the option to terminate this
Agreement, if Employee becomes permanently disabled and is no longer able to
perform the essential functions of the position with reasonable accommodation.
NetCo shall exercise this option by giving 30 days' written notice to
Employee.
17. RETURN OF PROPERTY. Upon termination of this Agreement, the Employee shall
deliver all property (including keys, records, notes, data, memoranda, models,
and equipment) that is in the Employee's possession or under the Employee's
control which is NetCo's property or related to NetCo's business
3
<PAGE>
18. NOTICES. All notices required or permitted under this Agreement shall be in
writing and shall be deemed delivered when delivered in person or deposited in
the United States mail, postage paid, addressed as follows:
NetCo:
-----
NetCo Communications Corporation
Edward J. Driscoll, III
President & CEO
Union Plaza - Suite 102
333 North Washington Avenue
Minneapolis, MN 55401
Employee:
--------
James R. Clancy
4363 Coolidge Avenue
St. Louis Park, MN 55424
Such addresses may be changed from time to time by either party by providing
written notice in the manner set forth above.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
20. AMENDMENT. This Agreement may be modified or amended, if the amendment is
made in writing and is signed by both parties.
21. SEVERABILITY. If any provisions of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
22. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation of
that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the State of
Minnesota.
AGREED TO AND ACCEPTED
NetCo: Employee:
NetCo Communications Corporation
By: /s/ Edward J. Driscoll III By: /s/ James R. Clancy
--------------------------------- -------------------------
Edward J. Driscoll III James R. Clancy
President and CEO
4
<PAGE>
EXHIBIT 10.16
AMENDMENT NO. 3 TO MARK MARLOW EMPLOYMENT AGREEMENT
NetCo Communications Corporation (hereinafter referred to as the
"Corporation") and Mark Marlow (hereinafter referred to as the "Employee" are
parties to an Employment Agreement dated May 10, 1995 (the "Employment
Agreement").
It is agreed between the parties that paragraph 3.1 of the Employment Agreement
be amended to read:
3.1 Base Salary. The Corporation shall pay Employee a Base
Salary ("Base Salary") of Seven Thousand Seven Hundred Eight
Dollars Thirty Three Cents ($7,708.33) per month commencing
January 1, 1998. The Base Salary shall be paid according to the
Corporation's regular payroll procedure, in equal increments
not less frequently than monthly.
It is further agreed between the parties that, except as expressly amended
by this Amendment No. 3, the Employment Agreement shall continue in full force
and effect according to its terms.
IN WITNESS WHEREOF, the parties hereto have duly executed the amendment.
"Employee" "Corporation"
Mark Marlow NetCo Communications
Corporation
/s/ Mark Marlow By: /s/ John Washburn
----------------------- -------------------------------
An Authorized Agent or Officer
<PAGE>
AMENDMENT NO. 2 TO MARK MARLOW EMPLOYMENT AGREEMENT
NetCo Communications Corporation (hereinafter referred to as the
"Corporation") and Mark Marlow (hereinafter referred to as the "Employee" are
parties to an Employment Agreement dated May 10, 1995 (the "Employment
Agreement").
It is agreed between the parties that paragraph 3.1 of the Employment
Agreement be amended to read:
3.1 Base Salary. The Corporation shall pay Employee a Base Salary
("Base Salary") of Seventy Five Thousand Dollars ($75,000) per annum
commencing January 1, 1997. The Base Salary shall be paid according
to the Corporation's regular payroll procedure, in equal increments
not less frequently than monthly.
It is further agreed between the parties that, except as expressly amended
by this Amendment No. 2, the Employment Agreement shall continue in full force
and effect according to its terms.
IN WITNESS WHEREOF, the parties hereto have duly executed the amendment.
"Employee" "Corporation"
Mark Marlow NetCo Communications
Corporation
/s/ Mark Marlow By: /s/ Edward J. Driscoll, III
---------------------- --------------------------------
Edward J. Driscoll, III
President and CEO
<PAGE>
AMENDMENT NO. 1 TO MARK MARLOW EMPLOYMENT AGREEMENT
NetCo Communications Corporation (hereinafter referred to as the
"Corporation") and Mark Marlow (hereinafter referred to as the "Employee" are
parties to an Employment Agreement dated May 10, 1995 (the "Employment
Agreement").
It is agreed between the parties that paragraph 3.1 of the Employment
Agreement be amended to read:
3.1 Base Salary. The Corporation shall pay Employee a Base
Salary ("Base Salary") of Forty Five Thousand Dollars ($45,000)
per annum commencing October 16, 1995. The Base Salary shall be
increased to Fifty Thousand Dollars ($50,000) per annum
commencing on March 18, 1996 providing that the Employee
receives a written, six month performance review and written
recommendation by the Chief Financial Officer for this base
salary increase. The Base Salary shall be paid according to the
Corporation's regular payroll procedure, in equal increments
not less frequently than monthly.
It is further agreed between the parties that, except as expressly amended
by this Amendment No. 1, the Employment Agreement shall continue in full force
and effect according to its terms.
IN WITNESS WHEREOF, the parties hereto have duly executed the amendment.
"Employee" "Corporation"
Mark Marlow NetCo Communications
Corporation
/s/ Mark Marlow By: /s/ Edward J. Driscoll, III
----------------------- -----------------------------------
Edward J. Driscoll, III
Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made and entered into this 10th day of May, 1995, by and
between Netco Communications Corporation, a Minnesota corporation (the
"Corporation"), and MARK MARLOW ("Employee").
WHEREAS, the Corporation and the Employee desire to record the terms of
Employee's employment by the Corporation;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. TERM OF EMPLOYMENT. Subject to the terms and conditions of this
------------------
Agreement, the Corporation hereby employs Employee and Employee hereby accepts
employment for the period commencing _______________________, 1995, and
continuing thereafter until the employment is terminated according to the
provisions of this Agreement.
2. DUTIES. During the term of this Agreement, Employee shall perform the
------
duties of Controller and such additional duties as may be prescribed from time
to time by the Board of Directors or the Chief Executive Officer of the
Corporation.
3. BASE SALARY, COMMISSION, BONUS AND OTHER COMPENSATION.
-----------------------------------------------------
3.1 Base Salary. The Corporation shall pay Employee a Base Salary ("Base
-----------
Salary") of Thirty Six Thousand Dollars ($36,000) per annum commencing
10th May, 1995. The Base Salary shall be paid according to the Corporation's
regular payroll procedure, in equal increments not less frequently than monthly.
3.2 Incentive Stock Option. In addition to any other compensation to
----------------------
which Employee may be entitled by this agreement, Employee shall be entitled to
receive an Incentive Stock Option for Two Thousand (2,000) shares of the
Corporation under the Corporation's 1994 Stock Option Plan according to the
Incentive Stock Option Agreement appended hereto as Exhibit 1. The exercise
price of the Incentive Stock Option shall be in the amount of Two Dollars Twenty
Five Cents ($2.25) per share, being the fair market value on the date of grant.
3.3 Bonus. In addition to any other compensation to which Employee may be
-----
entitled by this agreement, Employee shall be entitled participate in a bonus
plan to be adopted by the Corporation based upon the Corporation's performance
and achievement of defined goals, including sales growth,
<PAGE>
profitability and other factors contributing the Corporation's success, as may
be established annually by the Corporation. The Corporation intends to adopt
such a bonus plan prior to December 31, 1995, to be applicable to following
years.
4. BENEFITS.
--------
4.1 Vacation. During each year of his employment, Employee will be
--------
entitled to reasonable vacations, holidays and sick leave. Vacations shall be
at such time or times and for such periods as Corporation and Employee shall
agree.
4.2 Benefit Programs, Insurance. Employee shall be entitled to
---------------------------
participate in customary employee benefit programs as may be from time to time
determined by the Board of Directors including, but not limited to, life
insurance, hospitalization, surgical and major medical coverage, and long-term
disability as are or may be made available from time to time to other salaried
employees of the Corporation. Before such time as the Corporation provides
medical coverage to all employees, Employee shall be entitled to cash
compensation equivalent to monthly Cobra expense.
5. TERMINATION.
-----------
5.1 Events of Termination. This Agreement may be terminated upon the
---------------------
occurrence of any one of the following events:
(a) Voluntary. Employee may terminate this Agreement at any time
---------
during the term of this Agreement by giving 30 days prior written notice
of termination to the Board.
(b) Involuntary Without Cause. The Corporation may terminate this
-------------------------
Agreement without cause by 30 days written notice to Employee.
(c) Involuntary With Cause. The Corporation may terminate this
----------------------
Agreement immediately for cause for (i) Employee's material breach of any
agreement with the Corporation, (ii) Employee's deliberate, willful or
gross misconduct in the performance or Employee's duties on behalf of the
Corporation, or (iii) Employee's being charged with a crime punishable by
imprisonment
(d) Death. This Agreement shall automatically terminate upon the
-----
death of the Employee.
(e) Disability. This Agreement shall automatically terminate upon
----------
the permanent disability of Employee. For the purposes of this Agreement,
Employee shall be deemed permanently disabled if any ailment, illness or
other incapacity prevents him from performing his duties as
<PAGE>
specified in this Agreement for a period of three consecutive months or
for an aggregate of three months in any twelve month period from the date
of this Agreement.
5.2 Consequences of Termination.
---------------------------
(a) In the event of the termination of this Agreement in accordance
with Subparagraph 5.1(a) or 5.1(c) above, Employee shall be entitled to
Base Salary, and Bonus, if any, earned by him prior to the date of
termination as provided herein computed on a pro rata basis to and
including such date of termination. In addition, Employee shall also be
reimbursed for his reasonable business expenses incurred prior to the date
of termination.
(b) If the Corporation terminates this Agreement without cause
pursuant to Subparagraph 5.1(b) above, Employee shall be entitled to
receive a severance cash payment as liquidated damages for, and in lieu of,
any and all damages which he may incur as a result of such termination in
the amount of Twelve Thousand Dollars ($12,000).
(c) In the event this Agreement is terminated due to the death
(pursuant to Subparagraph 5.1(d)) or disability (pursuant to Subparagraph
5.1(e)) of Employee, Employee (or his estate) shall be entitled to the base
salary earned by him prior to the date of termination as provided herein
computed on a pro rata basis to and including such date of termination plus
any cash bonus payable with respect to the fiscal year of death or
disability according to normal payment procedures of the Corporation.
6. NON-COMPETITION; INVENTIONS.
---------------------------
6.1 Definitions. For purposes of this Section 6, the following words
-----------
and phrases have the meanings ascribed to them, respectively:
(a) "Confidential Information" means all formulas,
processes, customer lists, computer user identifiers and
passwords, and all purchasing, engineering, accounting,
marketing and other information that is proprietary to the
Corporation and not generally known or readily ascertainable
by proper means, relating to research, development,
manufacture or sale of the Corporation's products, as well
as formulas, processes and other information received by the
Corporation from third parties under an obligation
of secrecy. All information disclosed to Employee or to
which Employee has access during the period of his
employment, which he has reasonable basis to
<PAGE>
believe to be Confidential Information, or which is treated
by the Corporation as being Confidential Information, shall
be presumed to be Confidential Information.
(b) "Inventions" means all formulas, processes, discoveries,
improvements, ideas and works of authorship, whether patentable or
copyrightable or not, which Employee learns, has access to, has a part
in developing, first conceives or first reduces to practice, alone or
with others (1) that are developed on the Corporation's time, or (2)
that relate directly to the Corporation's business or actual or
anticipated research, or (3) for which any of the Corporation's
property, including Confidential Information, is used, or (4) that
result from any of Employee's work for the Corporation.
6.2. Disclosure and Assignment. Except as provided elsewhere in this
-------------------------
Agreement, Employee shall treat as for the Corporation's sole benefit and fully
and promptly disclose to the Corporation, without additional compensation, all
ideas, discoveries, inventions and improvements, whether patentable or not,
which, while the Employee is employed by the Corporation, are made conceived or
reduced to practice by Employee, alone or with others, during or after usual
working hours, either on or off the job, and Employee hereby assigns to the
Corporation all such ideas, discoveries, inventions and improvements to be the
Corporation's exclusive property.
6.3 Further Documents. Employee will acknowledge and deliver
-----------------
promptly with reasonable charge all documents to the Corporation, and will do
such other acts as may be necessary in the Corporation's opinion to obtain and
maintain patents (including divisional, reissued or extended Letters Patent) or
copyrights and to vest the entire right and title in the Corporation to such
patents, copyrights and Inventions in all countries.
6.4 Confidentiality. Employee will not use or disclose any
---------------
Confidential Information, either during or after employment by the Corporation,
except as required by his duties to the Corporation, and Employee acknowledges
and understands that the obligation to maintain the confidentiality of the
Corporation's Confidential Information is unconditional and shall not be excused
by any conduct on the part of the Corporation except its prior voluntary
disclosure of the information. Upon termination of employment, Employee agrees
that (a) all Confidential Information, including all copies, excerpts and
summaries in his possession or control (whether prepared by the Corporation, the
Employee or others), and also all other the Corporation property, including
<PAGE>
keys, credit cards, software, reports and the like, shall be left with the
Corporation and (b) Employee will stop use of all Confidential Information.
Employee shall not at any time during the term of this Agreement or thereafter,
or in any manner, either directly or indirectly, divulge, disclose or
communicate to any person, firm or corporation in any manner whatsoever any
information concerning any matters affecting or relating to the business of the
Corporation, including without limiting the generality of the foregoing, any of
its customers, the prices it obtains or has obtained from the sale of, or at
which it sells or has sold, its products, or any other information concerning
the business of the Corporation, its manner of operation, its plans, processes,
or other data without regard to whether all of the foregoing matters will be
deemed confidential, material, or important, the parties hereto stipulating that
as between them, the same are important, material, and confidential and gravely
affect the effective and successful conduct of the business of the Corporation,
and the Corporation's good will, and that any breach of the terms of this
Section 6 shall be a material breach of this Agreement.
6.5 Limitation; First Refusal. The obligations of Section 6.2 and
-------------------------
6.3 shall not apply to any ideas, discoveries, inventions and improvements for
which no equipment, supplies, facility or trade secret information of the
Corporation was used, and which was developed entirely on Employee's own time,
---
and (1) which does not relate (a) directly to the business of the Corporation or
- ---
(b) to the Corporation's actual or demonstrably anticipated research or
development, or (2) which does not result from any work performed by Employee
for the Corporation. Employee will, nonetheless, promptly disclose all such
ideas, discoveries, inventions and improvements to the Corporation and offer to
the Corporation the right of first refusal to enter into a license or purchase
agreement covering the subject idea, discovery, invention or improvement on
terms mutually agreed to by Employee and the Corporation. In the event the
Corporation and Employee cannot agree on terms and Employee receives an offer to
enter into a license or purchase agreement with some other party on terms more
favorable to that other party than the terms offered to the Corporation, then
the Corporation shall have the right and Employee shall have the obligation to
offer to the Corporation the idea, discovery, invention or improvement on such
favorable terms. When such an offer is made to the Corporation pursuant to the
preceding sentence, it must be accepted by the Corporation within thirty (30)
days; or if not accepted, the right of first refusal hereunder as to that offer
shall terminate.
NOTICE: SECTION 6 HEREOF REQUIRES EMPLOYEE TO ASSIGN RIGHTS TO INVENTIONS
TO THE CORPORATION OR ITS SUCCESSORS. MINNESOTA STATUTES $181.78 LIMITS THE
SCOPE OF AGREEMENTS REQUIRING THE INVENTIONS BE ASSIGNED TO EMPLOYERS. THE
STATUTE STATES THAT SUCH ASSIGNMENT AGREEMENTS DO NOT APPLY:
<PAGE>
"TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE
SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED
---
ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (A)
---
DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (B) TO THE EMPLOYER'S
ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2)
WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
EMPLOYER."
PLEASE NOTE THAT SECTION 6 OF THIS AGREEMENT USES THESE STATUTORY TERMS TO
DEFINE THE INVENTIONS WHICH ARE NOT AUTOMATICALLY ASSIGNED TO THE CORPORATION
BUT INSTEAD ARE SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION.
6.6 Assistance to the Corporation. Employee shall give the
-----------------------------
Corporation, at the Corporation's expense, all assistance the Corporation
reasonably requires to perfect, protect, and exercise the rights to all ideas,
discoveries, inventions or improvements acquired by the Corporation pursuant to
the assignment provisions or the right of first refusal provisions of this
Section 6.
6.7 Non-Competition. For one (1) year after termination of Employee's
---------------
employment with Corporation (hereafter referred to as the "Non-Competition
Period") for any reason and by either party:
(a) Before accepting new employment Employee will give a copy of this
Agreement to any employer engaged in or planning to become engaged in
Conflicting Product development or activity or those engaged in related product
development or activity;
(b) Employee will not sell or solicit orders for any Conflicting
Product to or from any customer whom Employee solicited or rendered service or
technical assistance to, or whose account Employee supervised or serviced for
the Corporation, at any time during the last two years of Employee's employment
with the Corporation;
(c) Employee will not engage in or be employed in the development,
production or provision of a Conflicting Product;
(d) Employee will not serve any organization or person engaged in the
development, production or sale of any Conflicting Product except after
furnishing the Corporation with written assurances, satisfactory to the
Corporation, both from Employee and from Employee's new employer, stating that
Employee will not render services prohibited by subparagraphs (b) or (c) of this
Section 6.7.
(e) For purposes of this Section 6.7, "Conflicting Products" means
any product, process, equipment, concept or service (in existence or under
development) of any person or
<PAGE>
organization (other than the Corporation), which resembles or competes with a
product, process, equipment, concept or service upon which I may have worked or
which I may have sold during the last two (2) years of my employment by the
Corporation, or concerning which I acquired Confidential Information at any time
through my work with the Corporation.
(f) If Employee has any questions about whether particular activities
may violate my Non-Competition obligations, Employee will contact the President
of the Corporation in writing, and the Corporation agrees to advise Employee of
its position and/or, in Netco's sole discretion, provide Employee with a written
release.
6.8 Remedies. The Employee's obligations set forth in Section 6 of this
--------
Agreement shall continue to be binding upon Employee, notwithstanding the
termination of his employment with the Corporation for any reason whatsoever.
Such obligations shall be deemed and construed as separate agreements
independent of any other provisions of this Agreement. The existence of any
claim or cause of action by Employee against the Corporation, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Corporation or any or all of such obligations. It is
expressly agreed that the remedy at law for the breach of any such obligation is
inadequate and that temporary and permanent injunctive relief shall be available
to prevent the breach or any threatened breach thereof, without the necessity of
proof of actual damages
7. Notices. Any notices to be given hereunder by either party to the
-------
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Personal delivery to the Corporation shall mean personal delivery to the Chief
Executive Officer of the Corporation. Mailed notices shall be addressed to the
respective addresses shown below. Either party may change its address for
notice by giving written notice according to the terms of this Section 7.
(a) If to Employee:
Mark Marlow
7228 Garfield Ave. South
Richfield, MN 55423
(b) If to the Corporation:
Netco Communications Corporation
104 Union Plaza
333 North Washington Ave
Minneapolis, MN 55401
Att'n: President
<PAGE>
8. GENERAL PROVISIONS.
------------------
8.1 Law Governing. This Agreement shall be governed by and construed
-------------
according to the laws of the State of Minnesota.
8.2 Invalid Provisions. If any provision of this Agreement is held
------------------
to be illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and still be legal, valid or enforceable.
8.3 Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions, warranties, other than those contained herein,
and no amendments or modifications hereto shall be binding unless made in
writing and signed by the parties hereto.
8.4 Binding Effect. This Agreement shall extend to and be binding
--------------
upon and inure to the benefit of the parties hereto, their respective heirs,
representatives, successors and assigns. This Agreement may not be assigned by
Employee.
8.5 Waiver. The waiver by either party hereto of a breach of any
------
term or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of the
breach of any other term or provision of this Agreement.
8.7 Titles. Titles of the paragraphs herein are used solely for
------
convenience and shall not be used for interpretation or construing any word,
clause, paragraph, or provision of this Agreement.
8.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Corporation and Employee have executed this
Agreement as of the date and year first written above.
"Employee" "Corporation"
Mark Marlow Netco Communications Corporation
/s/ Mark Marlow By:/s/ Edward J. Driscoll, III
- -------------------------- ----------------------------------
Edward J. Driscoll, III
Chief Executive Officer
<PAGE>
EXHIBIT 10.18
WAM!NET INC.
AMENDED AND RESTATED
1994 STOCK OPTION PLAN
1. Purpose. The purpose of the WAM!NET Inc. Amended and Restated 1994
-------
Stock Option Plan is to provide a continuing long-term incentive to selected
eligible officers and key employees of WAM!NET Inc. (the "Corporation") and of
any subsidiary corporation of the Corporation (the "Subsidiary"), as herein
defined, and to Non-Employee Directors of the Corporation; to provide a means of
rewarding outstanding performance; and to enable the Corporation to maintain a
competitive position to attract and retain key personnel necessary for continued
growth and profitability.
2. Definitions. The following words and phrases as used herein shall
-----------
have the meanings set forth below:
2.1. "Board" shall mean the Board of Directors of the Corporation.
2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3. "Committee" shall mean the Stock Option Committee of the Board, or
such other committee of the Board as may be designated by the Board, from time
to time, for the purpose of administering this plan as contemplated by Section 4
hereof.
2.4. "Common Stock" shall mean the common stock, $0.01 par value, of the
Corporation.
2.5. "Corporation" shall mean WAM!NET Inc., a Minnesota corporation.
2.6. "Non-Employee Director" shall mean a member of the Board who is not
an employee of the Corporation or any Subsidiary.
2.7. "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges, or is quoted on NASDAQ
National Market, the last reported sales price on the principal such exchange or
NASDAQ on the date in question, or if such security shall not have been traded
on such principal exchange on such date, NASDAQ on the first day prior thereto
on which such security was so traded; or (b) if the security is not listed for
trading on a national securities exchange or NASDAQ National Market, but is
traded in the over-the-counter market, including NASDAQ, closing bid price for
such security on the date in question, or if there is no such bid price for such
security on such date, the closing bid price on the first day prior thereto on
which such price existed; or (c) if neither (a) nor (b) is applicable, by any
means deemed fair and reasonable by the Committee, which determination shall be
final and binding on all parties.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
2.8. "ISO" shall mean any stock option granted pursuant to this Plan as an
"incentive stock option" within the meaning of Section 422 of the Code.
2.9. "NQO" shall mean any stock option granted pursuant to this Plan,
which is not an ISO.
2.10. "Option" shall mean any stock option granted pursuant to this Plan,
whether an ISO or an NQO.
2.11. "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
2.12. "Plan" shall mean this 1994 Stock Option Plan of the Corporation.
2.13. "Subsidiary" shall mean any corporation which at the time qualifies
as a subsidiary of the Corporation under Section 425(f) of the Code.
2.14. "Tax Date" shall mean the date on which the amount of tax to be
withheld is determined under the Code.
3. Shares Available Under Plan. The number of shares which may be
---------------------------
issued pursuant to Options granted under this Plan shall not exceed 22,071,400
shares of the Common Stock of the Corporation; provided, however, that shares
which become available as a result of canceled, unexercised, lapsed or
terminated Options granted under this Plan shall be available for issuance
pursuant to Options subsequently granted under this Plan, and the number of
shares for which Options have been granted or are available for grant under this
Plan shall be proportionately increased or decreased in accordance with Section
8 hereof upon occurrence of any event described therein. The shares issued upon
exercise of Options granted under this Plan may be authorized and unissued
shares or shares previously acquired or to be acquired by the Corporation.
4. Administration.
--------------
4.1. The Plan will be administered by the Board of Directors or by a
Committee (the "Committee") selected by the Board and consisting of at least
three members, none of whom for at least one year prior to service on the
Committee has been eligible to receive any Option under the Plan, or under any
other benefit plan of the Corporation or any of its affiliates entitling the
participants therein to acquire stock or stock options of the Corporation or any
of its Subsidiaries. The Board or such Committee are hereinafter described as
the Committee.
4.2. The Committee will have plenary authority, subject to provisions of
the Plan, to determine when and to whom Options will be granted, the term of
each Option, the number of shares covered by it, the participation by the
Optionee in other plans, and any other terms or conditions of each Option. The
Committee shall determine with respect to each grant of an Option whether a
participant shall receive an ISO or an NQO. The number of shares, the term
2.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
and the other terms and conditions of a particular kind of Option need not be
the same, even as to options granted at the same time. The Committee's
recommendations regarding option grants and terms and conditions thereof will be
conclusive.
4.3. The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation and effect of the Plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.
4.4. The Committee will designate one of its members as chairman. It will
hold its meetings at the times and places as it may determine. A majority of
its members will constitute a quorum, and all determinations of the Committee
will be made by a majority of its members. Any determination reduced to writing
and signed by all members will be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, who need not be a member of the Committee, and may make such rules
and regulations for the conduct of its business as it may deem advisable.
4.5. No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his services on the Committee.
Service on the Committee will constitute service as a member of the Board, so
that the members of the Committee will be entitled to indemnification and
reimbursement as Board members pursuant to the Corporation's Bylaws.
4.6. The Committee will regularly inform the Board as to its actions with
respect to all Options granted under the Plan and the terms and conditions and
any such Options in a manner, at any times, and in any form as the Board may
reasonably request.
5. Participants.
------------
5.1. Participation in this Plan shall be limited to officers and regular
full-time executive, administrative, professional, production and technical
employees of the Corporation, or of a Subsidiary, who are salaried employees of
the Corporation or of a Subsidiary, and consultants of the Corporation or of a
Subsidiary. Non-Employee Directors of the Company shall participate under this
Plan only as specified in Section 14 hereof.
5.2. Subject to other provisions of this Plan, Options may be granted to
the same participants on more than one occasion.
5.3. Except with respect to Options granted to Non-Employee Directors
under Section 14, the Committee's determination under the Plan including,
without limitation,
3.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
determination of the persons to receive Options, the form, amount and type of
such Options, and the terms and provisions of Options need not be uniform and
may be made selectively among otherwise eligible participants, whether or not
the participants are similarly situated.
6. Terms and Conditions.
--------------------
6.1. Each Option granted under the Plan shall be evidenced by a written
agreement, which shall be subject to the provisions of this Plan and to such
other terms and conditions as the Corporation may deem appropriate.
6.2. Each Option agreement shall specify the period for which the Option
thereunder is granted which in no event shall exceed ten years from the date
of the grant for any Option designated by the Committee as an ISO or ten years
and one day from the date of grant for any Option designated by the Committee as
an NQO and shall provide that the Option shall expire at the end of such period.
6.3. The exercise price per share shall be determined by the Committee at
the time any Option is granted and, if the Option is an ISO, shall be no less
than one hundred percent (100%) of Fair Market Value of the Common Stock of the
Corporation on the date the Option is granted, as determined by the Committee.
6.4. The aggregate Fair Market Value (determined as of the time the Option
is granted) of the Common Stock with respect to which an ISO under this Plan or
any other plan of the Corporation or its Subsidiaries is exercisable for the
first time by an Optionee during any calendar year shall not exceed $100,000.
6.5. An Option shall be exercisable at such time or times, and with
respect to such minimum number of shares, as may be determined by the
Corporation at the time of the grant. The Option agreement may require, if so
determined by the Corporation, that no part of the Option may be exercised until
the Optionee shall have remained in the employ of the Corporation or of a
Subsidiary for such period after the date of the Option as the Corporation may
specify.
6.6. The Corporation may prescribe the form of legend which shall be
affixed to the stock certificate representing shares to be issued and the shares
shall be subject to the provisions of any repurchase agreement or other
agreement restricting the sale or transfer thereof. Such agreements or
restrictions shall be noted on the certificate representing the shares to be
issued.
6.7. No Option issued under the Plan shall be transferable by the Optionee
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or rules thereunder.
4.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
7. Exercise of Option.
------------------
7.1. Each exercise of an Option granted hereunder, whether in whole or in
part shall be by written notice thereof, delivered to the Secretary of the
Corporation (or such other person as may be designated). The notice shall state
the number of shares with respect to which the Options are being exercised and
shall be accompanied by payment in full for the number of shares so designated.
Shares shall be registered in the name of the Optionee unless the Optionee
otherwise directs in his or her notice of election.
7.2. Payment shall be made to the Corporation either (i) in cash, including
certified check, bank draft or money order, (ii) at the discretion of the
Corporation, by delivering Common Stock of the Corporation already owned by the
participant, (iii) at the discretion of the Corporation, by delivering a
promissory note, containing such terms and conditions acceptable to the
Corporation, for all or a portion of the purchase price of the shares so
purchased, or a combination of (i), (ii) and (iii). With respect to (ii), the
Fair Market Value of stock so delivered shall be determined as of the date
immediately preceding the date of exercise.
7.3. Upon notification of the amount due and prior to, or concurrently
with, the delivery to the Optionee of a certificate representing any shares
purchased pursuant to the exercise of an Option, the Optionee shall promptly pay
to the Corporation any amount necessary to satisfy applicable federal, state or
local withholding tax requirements.
8. Adjustment of Option Stock. In case the shares issuable upon exercise
--------------------------
of any Option granted under the Plan at any time outstanding shall be subdivided
into a greater or combined into a lesser number of shares (whether with or
without par value), the number of shares purchasable upon exercise of such
Option immediately prior thereto shall be adjusted so that the Optionee shall
be entitled to receive a number of shares which he or she would have owned or
have been entitled to receive after the happening of such event had such Option
been exercised immediately prior to the happening of such subdivision or
combination or any record date with respect thereto. An adjustment made pursuant
to this paragraph shall become effective immediately after the effective date of
such subdivision or combination retroactive to the record date, if any, for such
subdivision or combination. The option price (as such amount may have
theretofore been adjusted pursuant to the provisions hereof) shall be adjusted
by multiplying the option price immediately prior to the adjustment of the
number of shares purchasable under the Option by a fraction, of which the
numerator shall be the number of shares purchasable upon the exercise of the
Option immediately prior to such adjustment, and of which the denominator shall
be the number of shares so purchasable immediately thereafter. Substituted
shares of stock shall be deemed shares under Section 3 of the Plan.
9. Assignments. Any Option granted under this Plan shall be
-----------
exercisable only by the Optionee to whom granted during his or her lifetime and
shall not be assignable or transferable otherwise than by will or by the laws of
descent and distribution.
5.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
10. Severance; Death; Disability. An Option shall terminate, and no
----------------------------
rights thereunder may be exercised, if the person to whom it is granted ceases
to be employed by the Corporation or by a Subsidiary except that:
10.1. If the employment of the Optionee is terminated by any reason other
than his or her death or disability, the Optionee may at any time within not
more than three months after termination of his or her employment, exercise his
or her Option rights but only to the extent they were exercisable by the
Optionee on the date of termination of his or her employment; provided, however,
that if the employment is terminated as a result of the Optionee's deliberate,
willful or gross misconduct as determined by the Committee, all rights under the
Option shall terminate and expire upon such termination.
10.2. If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than three months after termination of his or her
employment, the Optionee's rights under the Option may be exercised at any time
within one year following such death by his or her personal representative or by
the person or persons to whom such rights under the Option shall pass by will or
by the laws of descent and distribution, but only to the extent they were
exercisable by the Optionee on the date of death.
10.3. If the employment of the Optionee is terminated because of permanent
disability, the Optionee, or his or her legal representative, may at any time
within not more than one year after termination of his or her employment,
exercise his or her Option rights but only to the extent they were exercisable
by the Optionee on the date of termination of his or her employment.
10.4. Any provision of Sections 10.1, 10.2 and 10.3 to the contrary
notwithstanding, no Option or any right claimed thereby, therein or thereunder
shall be exercisable by anyone after the expiration of the term of the Option.
10.5. Transfers of employment between the Corporation and a Subsidiary, or
between Subsidiaries, will not constitute termination of employment for purposes
of any Option granted under this Plan. The Committee may specify in the terms
and conditions of an Option whether any authorized leave of absence or absence
for military or government service or for any other reasons will constitute a
termination of employment for purposes of the Option and the Plan.
11. Rights of Participants. Neither the participant nor the personal
----------------------
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
12. Securities Registration. If any law or regulation of the Securities
-----------------------
and Exchange Commission or of any other body having jurisdiction shall require
the Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding
6.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
any contrary provision of an Option agreement or this Plan, the date for
exercise of such Option and the delivery of the shares purchased thereunder
shall be deferred until the completion of the necessary action. In the event
that the Corporation shall deem it necessary, the Corporation may condition the
grant or exercise of an Option granted under this Plan upon the receipt of a
satisfactory certificate that the Optionee is acquiring the Option or the shares
obtained by exercise of the Option for investment purposes and not with the view
or intent to resell or otherwise distribute such Option or shares. In such
event, the stock certificate evidencing such shares shall bear a legend
referring to applicable laws restricting transfer of such shares. In the event
that the Corporation shall deem it necessary to register under the Securities
Act of 1933, as amended, or any other applicable statute, any Options or any
shares with respect to which an Option shall have been granted or exercised,
then the participant shall cooperate with the Corporation and take such action
as is necessary to permit registration or qualification of such Options or
shares.
13. Duration and Amendment.
----------------------
13.1. There is no express limitation upon the duration of the Plan, except
for the requirement of the Code that all ISO's must be granted within ten years
from the date the Plan is approved by the shareholders.
13.2. The Board may terminate or may amend the Plan at any time; provided,
however, that the Board may not, without approval of the shareholders of the
Corporation, (i) increase the maximum number of shares as to which Options may
be granted under the Plan, (ii) permit the granting of ISO's at less than 100%
of Fair Market Value at time of grant, (iii) change the class of employees
eligible to receive Options under the Plan, or (iv) permit Directors to receive
options under the Plan other than pursuant to Section 14 hereof; and, provided
further, that the Board may not amend the Plan more than once every six months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act, or rules thereunder.
14. Granting of Options to Non-Employee Directors.
---------------------------------------------
14.1. Non-Employee Directors shall be entitled to receive such Options
under this Plan as may be granted to them from time to time.
14.2. All Options granted to Non-Employee Directors shall be designated as
NQOs, shall be evidenced by a written option agreement signed by the Corporation
and the Non-Employee Director, and shall be subject to the same terms and
provisions as are then in effect with respect to granting of NQOs to salaried
officers and key employees of the Corporation, except that the Option shall be
exercisable as to all or any part of the shares subject to the Option from the
date the Option is granted, and shall expire on the earliest of (i) twelve
months after the Optionee ceases to be a director (except by death), (ii) one
year after the death of the optionee, or (iii) seven years after the date of
grant. Subject to the foregoing, all provisions of this Plan not inconsistent
with the foregoing shall apply to Options granted to
7.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
Directors, except that Directors shall always have the right to deliver stock in
exercise of options as provided in Section 7.2.
15. Approval of Shareholders. This Plan expressly is subject to approval
------------------------
of holders of a majority of the outstanding shares of Common Stock of the
Corporation, and if it is not so approved on or before one year after the date
of adoption of this Plan by the Board, the Plan shall not come into effect, and
any Options granted pursuant to this Plan shall be deemed canceled.
16. Conditions of Employment. The granting of an Option to a participant
------------------------
under this Plan who is an employee shall impose no obligation on the Corporation
to continue the employment of any participant and shall not lessen or affect the
right of the Corporation to terminate the employment of the participant.
17. Other Options. Nothing in the Plan will be construed to limit the
-------------
authority of the Corporation to exercise its corporate rights and powers,
including, by way of illustration and not by way of limitation, the right to
grant options for proper corporate purposes otherwise than under the Plan to any
employee or any other person, firm, corporation, association, or other entity,
or to grant options to, or assume options of, any person for the acquisition by
purchase, lease, merger, consolidation, or otherwise, of all or any part of the
business and assets of any person, firm, corporation, association, or other
entity.
Adopted by the Board of Directors on September 24, 1994
Approved by Shareholders on October 17, 1994
Amendments Approved by Shareholders on February 7, 1998
Restated as of February 28, 1998
8.
<PAGE>
Exhibit 10.19
WAM!NET INC.
AMENDED AND RESTATED
1994 STOCK OPTION PLAN
1. Purpose. The purpose of the WAM!NET Inc. 1994 Stock Option Plan
-------
(formerly the Netco Communications Corporation 1994 Stock Option Plan) (the
"Plan") has been to provide a continuing long-term incentive to selected
eligible officers and key employees of WAM!NET Inc. (the "Corporation") and of
any subsidiary corporation of the Corporation (the "Subsidiary"), as herein
defined, and to Non-Employee Directors of the Corporation; to provide a means of
rewarding outstanding performance; and to enable the Corporation to maintain a
competitive position to attract and retain key personnel necessary for continued
growth and profitability. This amendment and restatement of the Plan was adopted
by the Corporation's Board of Director's on April 24th, 1998, in conjunction
with the adoption of the WAM!NET Inc. 1998 Combined Stock Option Plan, to
reflect the Corporation's name change to WAM!NET Inc., to incorporate prior
amendments to the Plan, to provide that no new Options will be granted after
April 24, 1998 under the Plan, and to limit the number of shares available under
the Plan to those with respect to which Options were granted prior to April
25,1998.
2. Definitions. The following words and phrases as used herein shall have
-----------
the meanings set forth below:
2.1. "Board" shall mean the Board of Directors of the Corporation.
2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3. "Committee" shall mean the Stock Option Committee of the Board, or
such other committee of the Board as may be designated by the Board, from time
to time, for the purpose of administering this plan as contemplated by Section 4
hereof.
2.4. "Common Stock" shall mean the common stock, $0.01 par value, of the
Corporation.
2.5. "Corporation" shall mean WAM!NET Inc., (f/k/a Netco Communications
Corporation), a Minnesota corporation.
2.6. "Non-Employee Director" shall mean a member of the Board who is not an
employee of the Corporation or any Subsidiary.
2.7. "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges, or is quoted on NASDAQ
National Market, the last reported sales price on the principal such exchange or
NASDAQ on the date in question, or if such security shall not have been traded
on such principal exchange on such date, NASDAQ on the first day prior thereto
on which such security was so traded; or (b) if the security is not listed for
trading on a national
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
securities exchange or NASDAQ National Market, but is traded in the over-the-
counter market, including NASDAQ, closing bid price for such security on the
date in question, or if there is no such bid price for such security on such
date, the closing bid price on the first day prior thereto on which such price
existed; or (c) if neither (a) nor (b) is applicable, by any means deemed fair
and reasonable by the Committee, which determination shall be final and binding
on all parties.
2.8. "ISO" shall mean any stock option granted pursuant to this Plan as an
"incentive stock option" within the meaning of Section 422 of the Code.
2.9. "NQO" shall mean any stock option granted pursuant to this Plan,
which is not an ISO.
2.10. "Option" shall mean any stock option granted pursuant to this Plan,
whether an ISO or an NQO.
2.11. "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
2.12. "Plan" shall mean this 1994 Stock Option Plan of the Corporation.
2.13. "Subsidiary" shall mean any corporation which at the time qualifies
as a subsidiary of the Corporation under Section 425(f) of the Code.
2.14. "Tax Date" shall mean the date on which the amount of tax to be
withheld is determined under the Code.
3. Shares Available Under Plan. The number of shares which may be issued
---------------------------
pursuant to Options granted under this Plan shall not exceed 7,000,000 shares
(after adjustment pursuant Section 8 hereof to reflect the 5-for-1 stock split
effected by the Corporation on February 26, 1998) of the Common Stock of the
Corporation; provided, however, that shares which become available as a result
of canceled, unexercised, lapsed or terminated Options granted under this Plan
shall be available for issuance pursuant to Options subsequently granted under
this Plan, and the number of shares for which Options have been granted or are
available for grant under this Plan shall be proportionately increased or
decreased in accordance with Section 8 hereof upon occurrence of any event
described therein. The shares issued upon exercise of Options granted under this
Plan may be authorized and unissued shares or shares previously acquired or to
be acquired by the Corporation.
4. Administration.
--------------
4.1. The Plan will be administered by the Board of Directors or by a
Committee (the "Committee") selected by the Board and consisting of at least
three members, none of whom for at least one year prior to service on the
Committee has been eligible to receive any Option under the Plan, or under any
other benefit plan of the Corporation or any of its affiliates entitling the
2.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
participants therein to acquire stock or stock options of the Corporation or any
of its Subsidiaries. The Board or such Committee are hereinafter described as
the Committee.
4.2. The Committee will have plenary authority, subject to provisions of
the Plan, to determine when and to whom Options will be granted, the term of
each Option, the number of shares covered by it, the participation by the
Optionee in other plans, and any other terms or conditions of each Option. The
Committee shall determine with respect to each grant of an Option whether a
participant shall receive an ISO or an NQO. The number of shares, the term and
the other terms and conditions of a particular kind of Option need not be the
same, even as to options granted at the same time. The Committee's
recommendations regarding option grants and terms and conditions thereof will be
conclusive.
4.3. The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation and effect of the Plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.
4.4. The Committee will designate one of its members as chairman. It will
hold its meetings at the times and places as it may determine. A majority of its
members will constitute a quorum, and all determinations of the Committee will
be made by a majority of its members. Any determination reduced to writing and
signed by all members will be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, who need not be a member of the Committee, and may make such rules
and regulations for the conduct of its business as it may deem advisable.
4.5. No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his services on the Committee.
Service on the Committee will constitute service as a member of the Board, so
that the members of the Committee will be entitled to indemnification and
reimbursement as Board members pursuant to the Corporation's Bylaws.
4.6. The Committee will regularly inform the Board as to its actions with
respect to all Options granted under the Plan and the terms and conditions and
any such Options in a manner, at any times, and in any form as the Board may
reasonably request.
5. Participants.
------------
5.1. Participation in this Plan shall be limited to officers and regular
full-time executive, administrative, professional, production and technical
employees of the Corporation, or of a Subsidiary, who are salaried employees of
the Corporation or of a Subsidiary, and
3.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
consultants of the Corporation or of a Subsidiary. Non-Employee Directors of the
Company shall participate under this Plan only as specified in Section 14
hereof.
5.2. Subject to other provisions of this Plan, Options may be granted to
the same participants on more than one occasion.
5.3. Except with respect to Options granted to Non-Employee Directors
under Section 14, the Committee's determination under the Plan including,
without limitation, determination of the persons to receive Options, the form,
amount and type of such Options, and the terms and provisions of Options need
not be uniform and may be made selectively among otherwise eligible
participants, whether or not the participants are similarly situated.
6. Terms and Conditions.
--------------------
6.1. Each Option granted under the Plan shall be evidenced by a written
agreement, which shall be subject to the provisions of this Plan and to such
other terms and conditions as the Corporation may deem appropriate.
6.2. Each Option agreement shall specify the period for which the Option
thereunder is granted which in no event shall exceed ten years from the date of
the grant for any Option designated by the Committee as an ISO or ten years and
one day from the date of grant for any Option designated by the Committee as an
NQO and shall provide that the Option shall expire at the end of such period.
6.3. The exercise price per share shall be determined by the Committee at
the time any Option is granted and, if the Option is an ISO, shall be no less
than one hundred percent (100%) of Fair Market Value of the Common Stock of the
Corporation on the date the Option is granted, as determined by the Committee.
6.4. The aggregate Fair Market Value (determined as of the time the Option
is granted) of the Common Stock with respect to which an ISO under this Plan or
any other plan of the Corporation or its Subsidiaries is exercisable for the
first time by an Optionee during any calendar year shall not exceed $100,000.
6.5. An Option shall be exercisable at such time or times, and with
respect to such minimum number of shares, as may be determined by the
Corporation at the time of the grant. The Option agreement may require, if so
determined by the Corporation, that no part of the Option may be exercised until
the Optionee shall have remained in the employ of the Corporation or of a
Subsidiary for such period after the date of the Option as the Corporation may
specify.
6.6. The Corporation may prescribe the form of legend which shall be
affixed to the stock certificate representing shares to be issued and the shares
shall be subject to the provisions of any repurchase agreement or other
agreement restricting the sale or transfer thereof. Such agreements or
restrictions shall be noted on the certificate representing the shares to be
issued.
4.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
6.7. Each Incentive Stock Option granted hereunder shall not be
transferable by the Optionee other than by will or by the laws of descent and
distribution, and shall be, during the Optionee's lifetime, exercisable only by
the Optionee or Optionee's guardian or legal representative. Each Non-Qualified
Stock Option granted hereunder may be transferred by the Optionee for estate
planning purposes subject to prior or other written approval by the Committee in
its sole discretion or pursuant to any policy and requirements concerning such
transfers then in effect as the Committee may in its discretion establish, amend
or revoke from time to time; by will or the laws of descent and distribution; or
pursuant to a qualified domestic relations order as defined in Section 414 of
the Code or Section 206 of the Employee Retirement Income Security Act, or rules
thereunder. Except as permitted by the preceding sentences, each Option granted
under the Plan and the rights and privileges thereby conferred shall not be
transferred, assigned or pledged in any way (whether by operation of law or
otherwise), and shall not be subject to execution, attachment or similar
process. Any attempt to so transfer, assign, pledge or otherwise dispose of the
Option, or of any right or privilege conferred thereby, contrary to the
provisions of the Option or the Plan, or any levy of any attachment or similar
process upon such rights and privileges, shall be void and unenforceable against
the Corporation.
7. Exercise of Option.
------------------
7.1. Each exercise of an Option granted hereunder, whether in whole or in
part, shall be by written notice thereof, delivered to the Secretary of the
Corporation (or such other person as may be designated). The notice shall state
the number of shares with respect to which the Options are being exercised and
shall be accompanied by payment in full for the number of shares so designated.
Shares shall be registered in the name of the Optionee unless the Optionee
otherwise directs in his or her notice of election.
7.2. Payment shall be made to the Corporation either (i) in cash,
including certified check, bank draft or money order, (ii) at the discretion of
the Corporation, by delivering Common Stock of the Corporation already owned by
the participant, (iii) at the discretion of the Corporation, by delivering a
promissory note, containing such terms and conditions acceptable to the
Corporation, for all or a portion of the purchase price of the shares so
purchased, or a combination of (i), (ii) and (iii). With respect to (ii), the
Fair Market Value of stock so delivered shall be determined as of the date
immediately preceding the date of exercise.
7.3. Upon notification of the amount due and prior to, or concurrently
with, the delivery to the Optionee of a certificate representing any shares
purchased pursuant to the exercise of an Option, the Optionee shall promptly pay
to the Corporation any amount necessary to satisfy applicable federal, state or
local withholding tax requirements.
8. Adjustment of Option Stock. In case the shares issuable upon exercise
--------------------------
of any Option granted under the Plan at any time outstanding shall be subdivided
into a greater or combined into a lesser number of shares (whether with or
without par value), the number of shares purchasable upon exercise of such
Option immediately prior thereto shall be adjusted so that the Optionee shall be
entitled to receive a number of shares which he or she would have
5.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
owned or have been entitled to receive after the happening of such event had
such Option been exercised immediately prior to the happening of such
subdivision or combination or any record date with respect thereto. An
adjustment made pursuant to this paragraph shall become effective immediately
after the effective date of such subdivision or combination retroactive to the
record date, if any, for such subdivision or combination. The option price (as
such amount may have theretofore been adjusted pursuant to the provisions
hereof) shall be adjusted by multiplying the option price immediately prior to
the adjustment of the number of shares purchasable under the Option by a
fraction, of which the numerator shall be the number of shares purchasable upon
the exercise of the Option immediately prior to such adjustment, and of which
the denominator shall be the number of shares so purchasable immediately
thereafter. Substituted shares of stock shall be deemed shares under Section 3
of the Plan.
9. Assignments. Other than as provided in Section 6.7, any Option
-----------
granted under this Plan shall be exercisable only by the Optionee to whom
granted during his or her lifetime and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Severance; Death; Disability. An Option shall terminate, and no
----------------------------
rights thereunder may be exercised, if the person to whom it is granted ceases
to be employed by the Corporation or by a Subsidiary except that:
10.1. If the employment of the Optionee is terminated by any reason other
than his or her death or disability, the Optionee may at any time within not
more than three months after termination of his or her employment, exercise his
or her Option rights but only to the extent they were exercisable by the
Optionee on the date of termination of his or her employment; provided, however,
that if the employment is terminated as a result of the Optionee's deliberate,
willful or gross misconduct as determined by the Committee, all rights under the
Option shall terminate and expire upon such termination.
10.2. If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than three months after termination of his or her
employment, the Optionee's rights under the Option may be exercised at any time
within one year following such death by his or her personal representative or by
the person or persons to whom such rights under the Option shall pass by will or
by the laws of descent and distribution, but only to the extent they were
exercisable by the Optionee on the date of death.
10.3. If the employment of the Optionee is terminated because of permanent
disability, the Optionee, or his or her legal representative, may at any time
within not more than one year after termination of his or her employment,
exercise his or her Option rights but only to the extent they were exercisable
by the Optionee on the date of termination of his or her employment.
6.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
10.4. The same exercise periods as provided in Sections 11.1, 11.2 and 11.3
shall also apply with respect to a tranferee of an Option pursuant to Section
6.7, including the extension of the exercise period under Section 11.2 upon the
death of the tranferee.
10.5. Any provision of Sections 10.1, 10.2 and 10.3 to the contrary
notwithstanding, no Option or any right claimed thereby, therein or thereunder
shall be exercisable by anyone after the expiration of the term of the Option.
10.6. Transfers of employment between the Corporation and a Subsidiary, or
between Subsidiaries, will not constitute termination of employment for purposes
of any Option granted under this Plan. The Committee may specify in the terms
and conditions of an Option whether any authorized leave of absence or absence
for military or government service or for any other reasons will constitute a
termination of employment for purposes of the Option and the Plan.
11. Rights of Participants. Neither the participant nor the personal
----------------------
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
12. Securities Registration. If any law or regulation of the Securities
-----------------------
and Exchange Commission or of any other body having jurisdiction shall require
the Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery of
the shares purchased thereunder shall be deferred until the completion of the
necessary action. In the event that the Corporation shall deem it necessary, the
Corporation may condition the grant or exercise of an Option granted under this
Plan upon the receipt of a satisfactory certificate that the Optionee is
acquiring the Option or the shares obtained by exercise of the Option for
investment purposes and not with the view or intent to resell or otherwise
distribute such Option or shares. In such event, the stock certificate
evidencing such shares shall bear a legend referring to applicable laws
restricting transfer of such shares. In the event that the Corporation shall
deem it necessary to register under the Securities Act of 1933, as amended, or
any other applicable statute, any Options or any shares with respect to which an
Option shall have been granted or exercised, then the participant shall
cooperate with the Corporation and take such action as is necessary to permit
registration or qualification of such Options or shares.
13. Duration and Amendment.
----------------------
13.1. There is no express limitation upon the duration of the Plan, except
for the requirement of the Code that all ISO's must be granted within ten years
from the date the Plan is approved by the shareholders.
7.
<PAGE>
WAM!NET Inc.
Amended and Restated
1994 Stock Option Plan
13.2. The Board may terminate or may amend the Plan at any time; provided,
however, that the Board may not, without approval of the shareholders of the
Corporation, (i) increase the maximum number of shares as to which Options may
be granted under the Plan, (ii) permit the granting of ISO's at less than 100%
of Fair Market Value at time of grant, (iii) change the class of employees
eligible to receive Options under the Plan, or (iv) permit Directors to receive
options under the Plan other than pursuant to Section 14 hereof; and, provided
further, that the Board may not amend the Plan more than once every six months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act, or rules thereunder.
14. Granting of Options to Non-Employee Directors.
---------------------------------------------
14.1. Non-Employee Directors shall be entitled to receive such Options
under this Plan as may be granted to them from time to time.
14.2. All Options granted to Non-Employee Directors shall be designated as
NQOs, shall be evidenced by a written option agreement signed by the Corporation
and the Non-Employee Director, and shall be subject to the same terms and
provisions as are then in effect with respect to granting of NQOs to salaried
officers and key employees of the Corporation, except that the Option shall be
exercisable as to all or any part of the shares subject to the Option from the
date the Option is granted, and shall expire on the earliest of (i) twelve
months after the Optionee ceases to be a director (except by death), (ii) one
year after the death of the optionee, or (iii) seven years after the date of
grant. Subject to the foregoing, all provisions of this Plan not inconsistent
with the foregoing shall apply to Options granted to Directors, except that
Directors shall always have the right to deliver stock in exercise of options as
provided in Section 7.2.
15. Approval of Shareholders. This Plan expressly is subject to approval
------------------------
of holders of a majority of the outstanding shares of Common Stock of the
Corporation, and if it is not so approved on or before one year after the date
of adoption of this Plan by the Board, the Plan shall not come into effect, and
any Options granted pursuant to this Plan shall be deemed canceled.
16. Conditions of Employment. The granting of an Option to a participant
------------------------
under this Plan who is an employee shall impose no obligation on the Corporation
to continue the employment of any participant and shall not lessen or affect the
right of the Corporation to terminate the employment of the participant.
17. Other Options. Nothing in the Plan will be construed to limit the
-------------
authority of the Corporation to exercise its corporate rights and powers,
including, by way of illustration and not by way of limitation, the right to
grant options for proper corporate purposes otherwise than under the Plan to any
employee or any other person, firm, corporation, association, or other entity,
or to grant options to, or assume options of, any person for the acquisition by
purchase, lease, merger, consolidation, or otherwise, of all or any part of the
business and assets of any person, firm, corporation, association, or other
entity.
8.
<PAGE>
EXHIBIT 10.20
WAM!NET INC.
1998 COMBINED STOCK OPTION PLAN
1. Purpose. The purpose of the WAM!NET Inc. 1998 Combined Stock Option
-------
Plan (the "Plan") is to provide a continuing long-term incentive to selected
eligible officers and key employees (including foreign nationals) of WAM!NET
Inc. (the "Corporation") and of any subsidiary corporation of the Corporation
(the "Subsidiary"), as herein defined, to Non-Employee Directors of the
Corporation and to Non-Employee Consultants to the Corporation; to provide a
means of rewarding outstanding performance; and to enable the Corporation to
maintain a competitive position to attract and retain key personnel necessary
for continued growth and profitability.
2. Definitions. The following words and phrases as used herein shall
-----------
have the meanings set forth below:
2.1. "Addendum" shall mean an addendum attached to the Plan which provides
for certain grants of Options to employees of the Corporation or a Subsidiary
who are foreign nationals, and is intended to conform to the laws of such
employees' country of citizenship with respect to such Options and the granting
thereof.
2.2. "Board" shall mean the Board of Directors of the Corporation.
2.3. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4. "Committee" shall mean the Stock Option Committee of the Board, or
such other committee of the Board as may be designated by the Board, from time
to time, for the purpose of administering this plan as contemplated by Section 4
hereof.
2.5. "Common Stock" shall mean the common stock, $0.01 par value, of the
Corporation.
2.6. "Corporation" shall mean WAM!NET Inc., (f/k/a Netco Communications
Corporation), a Minnesota corporation.
2.7. "Non-Employee Consultant" shall mean an individual who is retained to
provide consulting or legal services to the Corporation or a Subsidiary, and who
is not an employee of the Corporation or any Subsidiary.
2.8. "Non-Employee Director" shall mean a member of the Board who is not an
employee of the Corporation or any Subsidiary.
2.9. "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges, or is quoted on NASDAQ
National Market, the last reported sales price on the principal such exchange or
NASDAQ on the date in question, or if such security shall not have
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
been traded on such principal exchange on such date, NASDAQ on the first day
prior thereto on which such security was so traded; or (b) if the security is
not listed for trading on a national securities exchange or NASDAQ National
Market, but is traded in the over-the-counter market, including NASDAQ, closing
bid price for such security on the date in question, or if there is no such bid
price for such security on such date, the closing bid price on the first day
prior thereto on which such price existed; or (c) if neither (a) nor (b) is
applicable, by any means deemed fair and reasonable by the Committee, which
determination shall be final and binding on all parties.
2.10. "ISO" shall mean any stock option granted pursuant to this Plan as
an "incentive stock option" within the meaning of Section 422 of the Code.
2.11. "NQO" shall mean any stock option granted pursuant to this Plan,
which is not an ISO.
2.12. "Option" shall mean any stock option granted pursuant to this Plan.
2.13. "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
2.14. "Plan" shall mean this 1998 Combined Stock Option Plan of the
Corporation.
2.15. "Subsidiary" shall mean any corporation which at the time qualifies
as a subsidiary of the Corporation under Section 425(f) of the Code.
2.16. "Tax Date" shall mean the date on which the amount of tax to be
withheld is determined under the Code.
3. Shares Available Under Plan. The number of shares which may be
---------------------------
issued pursuant to Options granted under this Plan, including Options granted
pursuant to an Addendum, shall not exceed 25,000,000 shares of the Common Stock
of the Corporation; provided, however, that shares which become available as a
result of canceled, unexercised, lapsed or terminated Options granted under this
Plan shall be available for issuance pursuant to Options subsequently granted
under this Plan, and the number of shares for which Options have been granted or
are available for grant under this Plan shall be proportionately increased or
decreased in accordance with Section 8 hereof upon occurrence of any event
described therein. The shares issued upon exercise of Options granted under this
Plan may be authorized and unissued shares or shares previously acquired or to
be acquired by the Corporation.
4. Administration.
--------------
4.1. The Plan will be administered by the Board of Directors or by a
Committee (the "Committee") selected by the Board and consisting of at least
three members, none of whom for at least one year prior to service on the
Committee has been eligible to receive any Option under the Plan, or under any
other benefit plan of the Corporation or any of its affiliates entitling the
participants therein to acquire stock or stock options of the Corporation or any
of its Subsidiaries. The Board or such Committee are hereinafter described as
the Committee.
2.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
4.2. The Committee will have plenary authority, subject to provisions of
the Plan, to determine when and to whom Options will be granted, the term of
each Option, the number of shares covered by it, the participation by the
Optionee in other plans, and any other terms or conditions of each Option. The
Committee shall determine with respect to each grant of an Option whether a
participant shall receive an ISO or an NQO, or an Option pursuant to the
provisions of an Addendum. The number of shares, the term and the other terms
and conditions of a particular kind of Option need not be the same, even as to
options granted at the same time. The Committee's recommendations regarding
option grants and terms and conditions thereof will be conclusive.
4.3. The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation and effect of the Plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.
4.4. The Committee will designate one of its members as chairman. It will
hold its meetings at the times and places as it may determine. A majority of its
members will constitute a quorum, and all determinations of the Committee will
be made by a majority of its members. Any determination reduced to writing and
signed by all members will be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, who need not be a member of the Committee, and may make such rules
and regulations for the conduct of its business as it may deem advisable.
4.5. No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his services on the Committee.
Service on the Committee will constitute service as a member of the Board, so
that the members of the Committee will be entitled to indemnification and
reimbursement as Board members pursuant to the Corporation's Bylaws.
4.6. The Committee will regularly inform the Board as to its actions with
respect to all Options granted under the Plan and the terms and conditions and
any such Options in a manner, at any times, and in any form as the Board may
reasonably request.
5. Participants.
------------
5.1. Participation in this Plan shall be limited to employees of the
Corporation or of a Subsidiary and to Non-Employee Directors and Non-Employee
Consultants. Non-Employee Directors and Non-Employee Consultants shall
participate under this Plan only as specified in Section 14 hereof.
3.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
5.2. Without amending the Plan, the Committee may grant Options to
eligible employees who are foreign nationals on such terms and conditions
different from those specified in this Plan as may in the judgment of the
Committee be necessary or desirable to foster and promote achievement of the
purposes of the Plan, and, in furtherance of such purposes the Committee may
make such Addenda, modification, amendments, procedures, subplans and the like
as may be necessary or advisable to comply with provisions of laws in other
countries in which the Company operates or has employees.
5.3. Subject to other provisions of this Plan, Options may be granted to
the same participants on more than one occasion.
5.4. Except with respect to Options granted to Non-Employee Directors or
Non Employee Consultants under Section 15, the Committee's determination under
the Plan including, without limitation, determination of the persons to receive
Options, the form, amount and type of such Options, and the terms and provisions
of Options need not be uniform and may be made selectively among otherwise
eligible participants, whether or not the participants are similarly situated.
6. Terms and Conditions.
--------------------
6.1. Each Option granted under the Plan shall be evidenced by a written
agreement, which shall be subject to the provisions of this Plan and to such
other terms and conditions as the Corporation may deem appropriate.
6.2. Each Option agreement shall specify the period for which the Option
thereunder is granted which in no event shall exceed ten years from the date of
the grant for any Option designated by the Committee as an ISO or ten years and
one day from the date of grant for any Option and shall provide that the Option
shall expire at the end of such period.
6.3. The exercise price per share shall be determined by the Committee at
the time any Option is granted and, if the Option is an ISO, shall be no less
than one hundred percent (100%) of Fair Market Value of the Common Stock of the
Corporation on the date the Option is granted, as determined by the Committee.
6.4. The aggregate Fair Market Value (determined as of the time the
Option is granted) of the Common Stock with respect to which an ISO under this
Plan or any other plan of the Corporation or its Subsidiaries is exercisable for
the first time by an Optionee during any calendar year shall not exceed
$100,000.
6.5. An Option shall be exercisable at such time or times, and with
respect to such minimum number of shares, as may be determined by the
Corporation at the time of the grant. The Option agreement may require, if so
determined by the Corporation, that no part of the Option may be exercised until
the Optionee shall have remained in the employ of the Corporation or of a
Subsidiary for such period after the date of the Option as the Corporation may
specify.
4.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
6.6. The Corporation may prescribe the form of legend which shall be
affixed to the stock certificate representing shares to be issued and the shares
shall be subject to the provisions of any repurchase agreement or other
agreement restricting the sale or transfer thereof. Such agreements or
restrictions shall be noted on the certificate representing the shares to be
issued.
6.7. Each Incentive Stock Option granted hereunder shall not be
transferable by the Optionee other than by will or by the laws of descent and
distribution, and shall be, during the Optionee's lifetime, exercisable only by
the Optionee or Optionee's guardian or legal representative. Each Non-Qualified
Stock Option granted hereunder may be transferred by the Optionee for estate
planning purposes subject to prior or other written approval by the Committee in
its sole discretion or pursuant to any policy and requirements concerning such
transfers then in effect as the Committee may in its discretion establish, amend
or revoke from time to time; by will or the laws of descent and distribution; or
pursuant to a qualified domestic relations order as defined in Section 414 of
the Code or Section 206 of the Employee Retirement Income Security Act, or rules
thereunder. Except as permitted by the preceding sentences, each Option granted
under the Plan and the rights and privileges thereby conferred shall not be
transferred, assigned or pledged in any way (whether by operation of law or
otherwise), and shall not be subject to execution, attachment or similar
process. Any attempt to so transfer, assign, pledge or otherwise dispose of an
Option, or of any right or privilege conferred thereby, contrary to the
provisions of the Option or the Plan, or any levy of any attachment or similar
process upon such rights and privileges, shall be void and unenforceable against
the Corporation.
7. Exercise of Option.
------------------
7.1. Each exercise of an Option granted hereunder, whether in whole or in
part, shall be by written notice thereof, delivered to the Secretary of the
Corporation (or such other person as may be designated). The notice shall state
the number of shares with respect to which the Options are being exercised and
shall be accompanied by payment in full for the number of shares so designated.
Shares shall be registered in the name of the Optionee unless the Optionee
otherwise directs in his or her notice of election.
7.2. Payment shall be made to the Corporation either (i) in cash,
including certified check, bank draft or money order, (ii) at the discretion of
the Corporation, by delivering Common Stock of the Corporation already owned by
the participant, (iii) at the discretion of the Corporation, by delivering a
promissory note, containing such terms and conditions acceptable to the
Corporation, for all or a portion of the purchase price of the shares so
purchased, or a combination of (i), (ii) and (iii). With respect to (ii), the
Fair Market Value of stock so delivered shall be determined as of the date
immediately preceding the date of exercise.
7.3. Upon notification of the amount due and prior to, or concurrently
with, the delivery to the Optionee of a certificate representing any shares
purchased pursuant to the exercise of an Option, the Optionee shall promptly pay
to the Corporation any amount necessary to satisfy applicable federal, state or
local withholding tax requirements.
5.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
8. Adjustment of Option Stock. In case the shares issuable upon
--------------------------
exercise of any Option granted under the Plan at any time outstanding shall be
subdivided into a greater or combined into a lesser number of shares (whether
with or without par value), the number of shares purchasable upon exercise of
such Option immediately prior thereto shall be adjusted so that the Optionee
shall be entitled to receive a number of shares which he or she would have owned
or have been entitled to receive after the happening of such event had such
Option been exercised immediately prior to the happening of such subdivision or
combination or any record date with respect thereto. An adjustment made pursuant
to this paragraph shall become effective immediately after the effective date of
such subdivision or combination retroactive to the record date, if any, for such
subdivision or combination. The option price (as such amount may have
theretofore been adjusted pursuant to the provisions hereof) shall be adjusted
by multiplying the option price immediately prior to the adjustment of the
number of shares purchasable under the Option by a fraction, of which the
numerator shall be the number of shares purchasable upon the exercise of the
Option immediately prior to such adjustment, and of which the denominator shall
be the number of shares so purchasable immediately thereafter. Substituted
shares of stock shall be deemed shares under Section 3 of the Plan.
9. Change in Control.
-----------------
9.1. For purposes of this Section 9, a "Change in Control" of the
Corporation will mean (i) the sale, lease, exchange or other transfer of
substantially all of the assets of the Corporation (in one transaction or in a
series of related transactions) to a person or entity that is not controlled,
directly or indirectly, by the Corporation, (ii) a merger or consolidation to
which the Corporation is a party if the stockholders of the Corporation
immediately prior to effective date of such merger or consolidation do not have
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act)
immediately following the effective date of such merger or consolidation of more
than 80% of the combined voting power of the surviving corporation's outstanding
securities ordinarily having the right to vote at elections of directors, or
(iii) a change in control of the Corporation of a nature that would be required
to be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or
not the Corporation is then subject to such reporting requirements, including,
without limitation, such time as (1) any person becomes, after the effective
date of the Plan, the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 40% or more of the combined voting
power of the Corporation's outstanding securities ordinarily having the right to
vote at elections of directors, or (2) individuals who constitute the Board of
Directors on the effective date of the Plan cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director
subsequent to the effective date of the Plan whose election, or nomination for
election by the Corporation's stockholders, was approved by a vote of at least a
majority of the directors comprising the Board on the effective date of the Plan
will, for purposes of this clause (2), be considered as though such persons were
a member of the Board of Directors on the effective date of the Plan.
9.2. Without limiting the authority of the Committee under Section 4 of
the Plan, if a Change in Control of the Corporation occurs, then, if approved by
the Committee in its sole discretion either in an agreement evidencing an Option
grant at the time of grant or at any time
6.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
after the grant of an Option, all Options will become immediately exercisable in
full and will remain exercisable in accordance with the terms of the Plan;
provided, however, that a recipient of Incentive Stock Options may elect that
such acceleration of vesting not apply with respect to some or all of the
Incentive Stock Options granted to him by so notifying the Committee in writing
within three (3) business days of being notified of the Committee's actions
pursuant to this Section 9.
9.3. If a Change in Control of the Corporation occurs, then the Committee
in its sole discretion either in an agreement evidencing an Option grant at the
time of grant or at any time after the grant of an Option, and without the
consent of any Option recipient effected thereby, may determine that some or all
recipients holding outstanding Options will receive, with respect to and in lieu
of some or all of the shares of Option Stock, as of the effective date of any
such Change in Control of the Corporation, cash in an amount equal to the excess
of the Fair Market Value of such shares either immediately prior to the
effective date of such Change in Control of the Corporation or, if greater,
determined on the basis of the amount paid as consideration by the other
party(ies) to the Change in Control transaction over the exercise price per
share of such Options.
9.4. Notwithstanding anything in Section 9.2 or 9.3 of the Plan to the
contrary, if the Corporation is then subject to the provisions of Section 280G
of the Code, and if the acceleration of the vesting of an Option as provided in
Section 9.2 or the payment of cash in exchange for all or part of an Option as
provided in Section 9.3 (which acceleration or payment could be deemed a
"payment" within the meaning of Section 28OG(b)(2) of the Code), together with
any other payments which such recipient has the right to receive from the
Corporation or any corporation that is a member of an "affiliated group" (as
defined in Section 1504(a) of the Code without regard to Section 1504(b) of the
Code) of which the Corporation is a member, would constitute a "parachute
payment" (as defined in Section 28OG(b)(2) of the Code), then the payments to
such recipient pursuant to Section 9.2 or 9.3 will be reduced to the largest
amount as will result in no portion of such payments being subject to the excise
tax imposed by Section 4999 of the Code; provided, however, that if such
recipient is subject to a separate agreement with the Corporation or a
Subsidiary which specifically provides that payments attributable to one or more
forms of employee stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even if it
would constitute an excess parachute payment, then the limitations of this
Section 9.4 will, to that extent, not apply.
10. Assignments. Other than as provided in Section 6.7, any Option
-----------
granted under this Plan shall be exercisable only by the Optionee to whom
granted during his or her lifetime and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
11. Severance; Death; Disability. An Option shall terminate, and no
----------------------------
rights thereunder may be exercised, if the person to whom it is granted ceases
to be employed by the Corporation or by a Subsidiary except that:
7.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
11.1. If the employment of the Optionee is terminated by any reason other
than his or her death or disability, the Optionee may at any time within not
more than three months after termination of his or her employment, exercise his
or her Option rights but only to the extent they were exercisable by the
Optionee on the date of termination of his or her employment; provided, however,
that if the employment is terminated as a result of the Optionee's deliberate,
willful or gross misconduct as determined by the Committee, all rights under the
Option shall terminate and expire upon such termination.
11.2. If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than three months after termination of his or her
employment, the Optionee's rights under the Option may be exercised at any time
within one year following such death by his or her personal representative or by
the person or persons to whom such rights under the Option shall pass by will or
by the laws of descent and distribution, but only to the extent they were
exercisable by the Optionee on the date of death.
11.3. If the employment of the Optionee is terminated because of permanent
disability, the Optionee, or his or her legal representative, may at any time
within not more than one year after termination of his or her employment,
exercise his or her Option rights but only to the extent they were exercisable
by the Optionee on the date of termination of his or her employment.
11.4. The same exercise periods as provided in Sections 11.1, 11.2 and
11.3 shall also apply with respect to a tranferee of an Option pursuant to
Section 6.7, including the extension of the exercise period under Section 11.2
upon the death of the tranferee.
11.5. Any provision of Sections 11.1, 11.2 and 11.3 to the contrary
notwithstanding, no Option or any right claimed thereby, therein or thereunder
shall be exercisable by anyone after the expiration of the term of the Option.
11.6. Transfers of employment between the Corporation and a Subsidiary, or
between Subsidiaries, will not constitute termination of employment for purposes
of any Option granted under this Plan. The Committee may specify in the terms
and conditions of an Option whether any authorized leave of absence or absence
for military or government service or for any other reasons will constitute a
termination of employment for purposes of the Option and the Plan.
12. Rights of Participants. Neither the participant nor the personal
----------------------
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
13. Securities Registration. If any law or regulation of the
-----------------------
Securities and Exchange Commission or of any other body having jurisdiction
shall require the Corporation or the participant to take any action in
connection with the exercise of an Option, then notwithstanding any contrary
provision of an Option agreement or this Plan, the date for exercise of such
Option
8.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
and the delivery of the shares purchased thereunder shall be deferred until the
completion of the necessary action. In the event that the Corporation shall deem
it necessary, the Corporation may condition the grant or exercise of an Option
granted under this Plan upon the receipt of a satisfactory certificate that the
Optionee is acquiring the Option or the shares obtained by exercise of the
Option for investment purposes and not with the view or intent to resell or
otherwise distribute such Option or shares. In such event, the stock certificate
evidencing such shares shall bear a legend referring to applicable laws
restricting transfer of such shares. In the event that the Corporation shall
deem it necessary to register under the Securities Act of 1933, as amended, or
any other applicable statute, any Options or any shares with respect to which an
Option shall have been granted or exercised, then the participant shall
cooperate with the Corporation and take such action as is necessary to permit
registration or qualification of such Options or shares.
14. Duration and Amendment.
----------------------
14.1. There is no express limitation upon the duration of the Plan, except
for the requirement of the Code that all ISO's must be granted within ten years
from the date the Plan is approved by the shareholders.
14.2. The Board may terminate or may amend the Plan at any time; provided,
however, that the Board may not, without approval of the shareholders of the
Corporation, (i) increase the maximum number of shares as to which Options may
be granted under the Plan, (ii) permit the granting of ISO's at less than 100%
of Fair Market Value at time of grant, (iii) change the class of employees
eligible to receive Options under the Plan, or (iv) permit Directors to receive
options under the Plan other than pursuant to Section 15 hereof; and, provided
further, that the Board may not amend the Plan more than once every six months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act, or rules thereunder.
15. Granting of Options to Non-Employee Directors and Non-Employee
--------------------------------------------------------------
Consultants.
- -----------
15.1. Non-Employee Directors and Non-Employee Consultants shall be
entitled to receive such Options under this Plan as may be granted to them from
time to time.
15.2. All Options granted to Non-Employee Directors and Non-Employee
Consultants shall be designated as NQOs, shall be evidenced by a written option
agreement signed by the Corporation and the Non-Employee Director or Non-
Employee Consultant, and shall be subject to the same terms and provisions as
are then in effect with respect to granting of NQOs to salaried officers and key
employees of the Corporation, except that the Option shall be exercisable as to
all or any part of the shares subject to the Option from the date the Option is
granted, and shall expire on the earliest of (i) twelve months after the
Optionee ceases to be a Non-Employee Director or a Non-Employee Consultant
(except by death), (ii) one year after the death of the optionee, or (iii) seven
years after the date of grant. Subject to the foregoing, all provisions of this
Plan not inconsistent with the foregoing shall apply to Options granted to Non-
Employee Directors, except that Non-Employee Directors shall always have the
right to deliver stock in exercise of options as provided in Section 7.2.
9.
<PAGE>
WAM!NET Inc.
1998 Combined Stock Option Plan
16. Approval of Shareholders. This Plan expressly is subject to
------------------------
approval of holders of a majority of the outstanding shares of Common Stock of
the Corporation, and if it is not so approved on or before one year after the
date of adoption of this Plan by the Board, the Plan shall not come into effect,
and any Options granted pursuant to this Plan shall be deemed canceled.
17. Conditions of Employment. The granting of an Option to a
------------------------
participant under this Plan who is an employee shall impose no obligation on the
Corporation to continue the employment of any participant and shall not lessen
or affect the right of the Corporation to terminate the employment of the
participant.
18. Other Options. Nothing in the Plan will be construed to limit the
-------------
authority of the Corporation to exercise its corporate rights and powers,
including, by way of illustration and not by way of limitation, the right to
grant options for proper corporate purposes otherwise than under the Plan to any
employee or any other person, firm, corporation, association, or other entity,
or to grant options to, or assume options of, any person for the acquisition by
purchase, lease, merger, consolidation, or otherwise, of all or any part of the
business and assets of any person, firm, corporation, association, or other
entity.
10.
<PAGE>
EXHIBIT 12
Statement re Computation of Ratios
Ratio of Earnings to Fixed Charges
for 4-Sight Limited
<TABLE>
<CAPTION>
8/31/96 9/30/97 12/31/97
<S> <C> <C> <C>
Income before income taxes 2084 2436 3387
Interest expense 48 64 28
1/3 operating leases 6 6 6
------------------------------
2138 2506 3421
Fixed charges
Interest 48 64 28
Leases 6 6 6
------------------------------
54 70 34
Ratio 39.6 35.8 100.6
</TABLE>
Page 1
<PAGE>
EXHIBIT 15
[Letterhead of Ernst & Young Chartered Accountants]
28 May 1998
The Directors
WAM!NET, Inc.
6100 West 110th Street
Minneapolis, MN 55438
We are aware of the inclusion in the Registration Statement (Form S-4) of
WAM!NET, Inc. for the registration of $208,530,000 of its 13 1/4% Senior
Discount Notes due 2005 of our compilation report dated February 20, 1998
relating to the unaudited consolidated balance sheet of 4-Sight Limited as of
December 31, 1997 and the related unaudited consolidated statement of operations
for the twelve months then ended.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Yours faithfully
/s/ Ernst & Young
<PAGE>
EXHIBIT 23.1
[Letterhead of Ernst & Young LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 9, 1998 (except Note 2, as to which the
date is March 12, 1998), in the Registration Statement (Form S-4) and related
Prospectus of WAM!NET, Inc. for the registration of $208,530,000 of 13 1/4%
Senior Discount Notes due 2005, Series B.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 26, 1998
<PAGE>
EXHIBIT 23.2
[Letterhead of Ernst & Young, Chartered Accountants]
28 May 1998
The Directors
WAM!NET Inc.
6100 West 110th Street
Minneapolis
MN 55438
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of WAM!NET, Inc. for the registration of
$208,530,000 of its 13 1/4% Senior Discount Notes due 2005 and to the
inclusion therein of our report dated May 28, 1998 with respect to the
consolidated financial statements of 4-Sight Limited.
Yours faithfully,
/s/ Ernst & Young
<PAGE>
EXHIBIT 25
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
U.S. BANK TRUST NATIONAL ASSOCIATION
FORMERLY KNOWN AS
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
WAM!NET INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1795247
(State of Incorporation) (I.R.S. Employer
Identification No.)
6100 West 110th Street,
Minneapolis, Minnesota 55438
(Address of Principal Executive Offices) (Zip Code)
13 1/4% Senior Discount Notes due 2005
(Title of the Indenture Securities)
<PAGE>
GENERAL
-------
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.
Comptroller of the Currency
Washington, D.C.
(B) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
------------------------------------------
underwriter for the obligor is an affiliate of the Trustee,
describe each such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for
which the Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this
----------------
statement of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust
powers (included in Exhibits 1 and 2; no separate
instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the
act.
7. Copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its supervising
or examining authority is incorporated by reference to
Registration Number 333-42147.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. while the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association f/k/a First Trust National
Association, an Association organized and existing under the laws of the United
States, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Saint Paul and State of
Minnesota on the 12th day of May, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
------------------------------
Richard H. Prokosch
Assistant Vice President
/s/ Kathe M. Barrett
- ------------------------
Kathe M. Barrett
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL
ASSOCIATION hereby consents that reports of examination of the undersigned by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon its request therefor.
Dated: May 12, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
-----------------------------
Richard H. Prokosch
Assistant Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE COMPANY AS OF DECEMBER 31, 1997 AND MARCH 31,
1998
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 274,000 66,759,659
<SECURITIES> 0 0
<RECEIVABLES> 469,000 3,502,985
<ALLOWANCES> (10,000) (10,000)
<INVENTORY> 0 940,000
<CURRENT-ASSETS> 1,287,000 71,957,272
<PP&E> 22,197,000 33,796,973
<DEPRECIATION> (2,877,000) (4,402,272)
<TOTAL-ASSETS> 21,086,000 137,770,348
<CURRENT-LIABILITIES> 8,108,000 12,149,089
<BONDS> 42,649,000 139,936,749
1,000,000 1,000,000
0 0
<COMMON> 14,000 92,655
<OTHER-SE> 11,824,000 53,712,223
<TOTAL-LIABILITY-AND-EQUITY> 21,086,000 137,770,348
<SALES> 0 0
<TOTAL-REVENUES> 1,555,000 1,880,026
<CGS> 0 0
<TOTAL-COSTS> 31,037,000 25,412,384
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,356,000 3,419,282
<INCOME-PRETAX> (33,636,000) (26,657,969)
<INCOME-TAX> 0 (25,000)
<INCOME-CONTINUING> (33,636,000) (26,682,969)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (33,706,000) (26,682,969)
<EPS-PRIMARY> (5.19) (3.65)
<EPS-DILUTED> (5.19) (3.65)
</TABLE>
<PAGE>
Exhibit 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON ________
__, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
WAM!NET INC.
6100 West 110th Street
Minneapolis, Minnesota 55438
LETTER OF TRANSMITTAL
For 13 1/4% Senior Discount Notes due 2005, Series A
Exchange Agent:
U.S. Bank Trust National Association
(f/k/a First Trust National Association)
By Facsimile:
(612) 244-1537
Attention: Specialized Finance
Confirm by telephone:
(612) 244-1572
By Registered or Certified Mail:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Specialized Finance, 4th Floor
By Hand/Overnight Courier:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Specialized Finance, 4th Floor
or
U.S. Bank Trust New York
(f/k/a First Trust New York)
100 Wall Street
Bond Window, 20th Floor
New York, New York 10005
Delivery of this instrument to an address other than as set forth above
does not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus dated _______,
1998 (the "Prospectus") of WAM!NET Inc., a Minnesota corporation ("WAM!NET" or
the "Issuer"), and this Letter of Transmittal for 13 1/4% Senior Discount Notes
due 2005, Series A, which may be amended from time to time (this "Letter"),
which together constitute the Issuer's offer (the "Exchange Offer") to exchange,
for each $1,000 in principal amount of its outstanding 13 1/4% Senior Discount
Notes due 2005, Series A (the "Original Notes") issued and sold in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), $1,000 in principal amount of 13 1/4% Senior Discount Notes
due 2005, Series B (the "Exchange Notes").
<PAGE>
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Original Notes who wish to tender their Original Notes
must, prior to the Expiration Date: (1) complete, sign, date and mail or
otherwise deliver this Letter to the Exchange Agent, in person or to the address
set forth above; and (2) tender his or her Original Notes or, if a tender of
Original Notes is to be made by book-entry transfer to the account maintained by
the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in
each case in accordance with the procedures for tendering described in the
Instructions to this Letter. Holders of Original Notes whose certificates are
not immediately available, or who are unable to deliver their certificates or
Book-Entry Confirmation and all other documents required by this Letter to be
delivered to the Exchange Agent on or prior to the Expiration Date, must tender
their Original Notes according to the guaranteed delivery procedures set forth
under the caption "The Exchange Offer -- How to Tender" in the Prospectus. (See
Instruction 1). The Letter is to be used: (i) by all holders of Original Notes
who are not members of the Automated Tender Offering Program ("ATOP") at the
Depository Trust Company; (ii) by holders of Original Notes who are ATOP members
but choose not to use ATOP; or (iii) if the Original Notes are to be tendered in
accordance with the guaranteed delivery procedures set forth in "The Exchange
Offer -- How to Tender -- Guaranteed Delivery Procedures" section of the
Prospectus. (See Instruction 1). Delivery of this Letter to the Depository Trust
Company does not constitute delivery to the Exchange Agent.
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above.
2
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
Capitalized terms used in this Letter and not defined herein shall have
the respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Original Notes of which you are the holder. If
the space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Original Notes on a separate signed schedule and affix that
schedule to this Letter.
<TABLE>
<CAPTION>
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
- -----------------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Certificate Principal Amount Principal
(Please fill in if blank) Number(s)(1) of Original Notes Amount of
Original Notes
Tendered(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Totals:
----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed if Original Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Original Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Original Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Original Notes tendered with this Letter, the undersigned exchanges, assigns
and transfers to, or upon the order of, the Issuer all right, title and interest
in and to the Original Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or
her agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Original Notes,
with full power of substitution, to: (a) deliver certificates for such Original
Notes; (b) deliver Original Notes and all accompanying evidence of transfer and
authenticity to or upon the order of the Issuer upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Issuer of the Original Notes
tendered under the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Original Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Original Notes
tendered hereby and that the Issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Issuer to be necessary or
desirable to complete the assignment and transfer of the Original Notes
tendered.
3
<PAGE>
The undersigned agrees that acceptance of any tendered Original Notes
by the Issuer and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Issuer of their obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that, upon the
issuance of the Exchange Notes, the Issuer will have no further obligations or
liabilities thereunder (except in certain limited circumstances). By tendering
Original Notes, the undersigned certifies (a) that it is not an "affiliate" of
the Issuer within the meaning of Rule 405 under the Securities Act, that it is
not a broker-dealer that owns Original Notes acquired directly from the Issuer
or an affiliate of the Issuer, that it is acquiring the Exchange Notes in the
ordinary course of the undersigned's business and that the undersigned has no
arrangement with any person to participate in the distribution of the Exchange
Notes or (b) that it is an "affiliate" (as so defined) of the Issuer or of the
initial purchasers in the original offering of the Original Notes, and that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer holding
Original Notes acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of Exchange
Notes received in respect of such Original Notes pursuant to the Exchanger
Offer. 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.
The undersigned understands that the Issuer may accept the
undersigned's tender by delivering written notice of acceptance to the Exchange
Agent, at which time the undersigned's right to withdraw such tender will
terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below,
the Exchange Agent will deliver Exchange Notes (and, if applicable, a
certificate for any Original Notes not tendered but represented by a certificate
also encompassing Original Notes which are tendered) to the undersigned at the
address set forth in Box 1.
The undersigned acknowledges that the Exchange Offer is subject to the
more detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter, the Prospectus shall
prevail.
|_| CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-------------------------------------
Account Number:
----------------------------------------------------
Transaction Code Number:
-------------------------------------------
|_| CHECK HERE IF TENDERED ORIGINAL 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 Owner(s):
------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------
Window Ticket Number (if available):
-------------------------------
Name of Institution which Guaranteed Delivery:
---------------------
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
WHETHER OR NOT ORIGINAL NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X
-------------------------- ---------------
X
-------------------------- ---------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
------------------------------
This box must be signed by registered holder(s) of Original Notes as their
name(s) appear(s) on certificate(s) for Original Notes, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Letter. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
(See Instruction 3)
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Signature(s) Guaranteed
---------------------------------------------------------
by an Eligible Institution: (Authorized Signature)
(If required by
Instruction 3) ---------------------------------------------------------
(Title)
---------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
5
<PAGE>
<TABLE>
<CAPTION>
BOX 3
- ---------------------------------------------------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: U.S. BANK TRUST NATIONAL ASSOCIATION
- ---------------------------------------------------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN IN
THE BOX AT THE RIGHT AND CERTIFY BY -----------------------------------------
SIGNING AND DATING BELOW. Social Security Number
or Employer Identification Number
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE
Form W-9 Part 2--Check the box if you are NOT subject to back-up withholding under the provisions
Department of the of Section 2406(a)(1)(C) of the Internal Revenue Code because (1) you have not been
Treasury Internal notified that you are subject to back-up withholding as a result of failure to report
Revenue Service all interest or dividends or (2) the Internal Revenue Service has notified you that you
are no longer subject to back-up withholding. |_|
Payor's Request for
Taxpayer Identification
Number (TIN) ----------------------------------------------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE Part 3
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. Check if
Awaiting TIN
SIGNATURE DATE |_|
-------------------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------- --------------------------------------------------------
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
To be completed ONLY if certificates for Original Notes To be completed ONLY if certificates for Original
in a principal amount not exchanged, or Exchange Notes, Notes in a principal amount not exchanged, or Exchange
are to be issued in the name of someone other than the Notes, are to be sent to someone other than the person
person whose signature appears in Box 2, or if Original whose signature appears in Box 2 or to an address
Notes delivered by book-entry transfer which are not other than that shown in Box 1.
accepted for exchange are to be returned by credit to an
account maintained at the Book-Entry Transfer Facility Deliver:
other than the account indicated above.
(check appropriate boxes)
Issue and deliver:
|_| Original Notes not tendered
(check appropriate boxes)
|_| Exchange Notes, to:
|_| Original Notes not tendered
Name
|_| Exchange Notes, to: -------------------------------------------------------
(Please Print)
Name Address
- ------------------------------------------------------- ------------------------------------------------------
(Please Print) -------------------------------------------------------------
Address
Please complete the Substitute Form W-9 at Box 3
Tax I.D. or Social Security Number:
-----------
- ---------------------------------------------------------- --------------------------------------------------------
</TABLE>
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original
Notes or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents required
by this Letter, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Original Notes or a Book-Entry Confirmation, as
the case may be, and any other required documents is at the election and risk of
the tendering holder, but except as otherwise provided below, the delivery will
be deemed made when actually received by the Exchange Agent. If delivery is by
mail, the use of registered mail with return receipt requested, properly
insured, is suggested.
Holders whose Original Notes are not immediately available or who
cannot deliver their Original Notes or a Book-Entry Confirmation, as the case
may be, and all other required documents to the Exchange Agent on or before the
Expiration Date may tender their Original Notes pursuant to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i)
tender must be made by or through an Eligible Institution (as defined in the
Prospectus under the caption "The Exchange Offer"); (ii) prior to the Expiration
Date, the Exchange Agent must have received from the Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) (x) setting forth the name
and address of the holder, the description of the Original Notes and the
principal amount of Original Notes tendered, (y) stating that the tender is
being made thereby and (z) guaranteeing that, within five New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery, this Letter together with the certificates representing the Original
Notes or a Book-Entry Confirmation, as the case may be, and any other documents
required by this Letter will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) the certificates for all tendered Original Notes or a
Book-Entry Confirmation, as the case may be, as well as all other documents
required by this Letter, must be received by the Exchange Agent within five New
York Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in the Prospectus under the caption "The
Exchange Offer -- How to Tender."
This Letter of Transmittal is to be used: (i) by all holders of
Original Notes who are not ATOP members, (ii) by holders of Original Notes who
are ATOP members but choose not to use ATOP or (iii) if the Original Notes are
to be tendered in accordance with the guaranteed delivery procedures set forth
in the Prospectus under "The Exchange Offer -- How to Tender -- Guaranteed
Delivery Procedures." To validly tender Original Notes, a holder must physically
deliver a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and all other required
documents to the Exchange Agent at its address set forth on the cover of this
Letter of Transmittal prior to the Expiration Date, as described in the
preceding paragraph, or the holder must properly complete and duly execute an
ATOP ticket in accordance with the Depository Trust Company's procedures.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Issuer, whose determination will be final and binding. The
Issuer reserves the absolute right to reject any or all tenders that are not in
proper form or the acceptance of which, in the opinion of the Issuer's counsel,
would be unlawful. The Issuer also reserves the right to waive any
irregularities or conditions of tender as to particular Original Notes. All
tendering holders, by execution of this Letter, waive any right to receive
notice of acceptance of their Original Notes.
Neither the Issuer, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal
amount of any Original Note evidenced by a submitted certificate or by a Book-
Entry Confirmation is tendered, the tendering holder must fill in the principal
amount tendered in the fourth column of Box 1 above. All of the Original Notes
represented by a certificate or by a Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
A certificate for Original Notes not tendered will be sent to the holder, unless
otherwise provided in Box 5, as soon as practicable after the Expiration Date,
in the event that less than the entire principal amount of Original Notes
represented by a submitted certificate is tendered (or, in the case of Original
Notes tendered by book-entry transfer, such non-
7
<PAGE>
exchanged Original Notes will be credited to an account maintained by the holder
with the Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Original Notes, a notice of withdrawal must: (i) be received by the
Exchange Agent before the Issuer notifies the Exchange Agent that they have
accepted the tender of Original Notes pursuant to the Exchange Offer; (ii)
specify the name of the person who tendered the Original Notes; (iii) contain a
description of the Original Notes to be withdrawn, the certificate numbers shown
on the particular certificates evidencing such Original Notes and the principal
amount of Original Notes represented by such certificates; and (iv) be signed by
the holder in the same manner as the original signature on this Letter
(including any required signature guarantee).
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If
this Letter is signed by the holder(s) of Original Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Original Notes, without alteration, enlargement or any
change whatsoever.
If any of the Original Notes tendered hereby are owned by two or more
joint owners, all owners must sign this Letter. If any tendered Original Notes
are held in different names on several certificates, it will be necessary to
complete, sign and submit as many separate copies of this Letter as there are
names in which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Original Notes are tendered; and/or (ii)
untendered Original Notes, if any, are to be issued to the holder of record,
then the holder of record need not endorse any certificates for tendered
Original Notes, nor provide a separate bond power. If any other case, the holder
of record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is 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 proper evidence satisfactory to the
Issuer of their authority to so act must be submitted, unless waived by the
Issuer.
Signatures on this Letter must be guaranteed by an Eligible
Institution, unless Original Notes are tendered: (i) by a holder who has not
completed the Box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter; or (ii) for the account of an Eligible
Institution. In the event that the signatures in this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by an eligible guarantor institution which is a member of The Securities
Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges
Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program
(SEMP) (collectively, "Eligible Institutions"). If Original Notes are registered
in the name of a person other than the signer of this Letter, the Original Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Issuer, in their sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Original Notes not exchanged are to be issued
or sent, if different from the name and address of the person signing this
Letter. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Original
Notes by book-entry transfer may request that Original Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as such
holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Original Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to the holder of the Exchange Notes pursuant to
the Exchange Offer may be subject to back-up withholding. (If withholding
results in overpayment of taxes, a refund may be obtained.) Exempt holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these back-up withholding and reporting requirements. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
8
<PAGE>
Under federal income tax laws, payments that may be made by the Issuer
on account of Exchange Notes issued pursuant to the Exchange Offer may be
subject to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Original Notes are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for information on
which TIN to report.
6. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Original Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Notes or certificates for Original
Notes not exchanged are to be delivered to, or are to be issued in the name of,
any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter, or
if a transfer tax is imposed by any reason other than the transfer of Original
Notes to the Issuer or its order pursuant to the Exchange Offer, then the amount
of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to
amend or waive any of the specified conditions in the Exchange Offer in the case
of any Original Notes tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
9
<PAGE>
Exhibit 99.2
WAM!NET Inc.
Exchange Offer
to holders of their
13 1/4% Senior Discount Notes due 2005, Series A
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated ________ __, 1998 (the "Prospectus")
of WAM!NET Inc. ("WAM!NET" or the "Issuer"), and all of the subsidiaries of the
Issuer under "The Exchange Offer -- How to Tender" and in the Letter of
Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange
Offer") by the Issuer to exchange up to $208,530,000 in principal amount of
their 13 1/4% Senior Discount Notes due 2005, Series A issued and sold in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Original Notes"), for $208,530,000 in principal amount of their
13 1/4% Senior Discount Notes due 2005, Series B (the "Exchange Notes"), this
form or one substantially equivalent hereto must be used to accept the Exchange
Offer of the Issuer if: (i) certificates for the Original Notes are not
immediately available; or (ii) time will not permit all required documents to
reach the Exchange Agent (as defined below) on or prior to the Expiration Date
(as defined in the Prospectus) of the Exchange Offer. Such form may be delivered
by hand or transmitted by telegram, telex, facsimile transmission or letter to
the Exchange Agent.
TO: U.S. BANK TRUST NATIONAL ASSOCIATION (f/k/a First Trust National
Association) (the "Exchange Agent")
By Facsimile:
(612) 244-1537
Attention: Specialized Finance
Confirm by telephone:
(612) 244-1572
By Registered or Certified Mail:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Specialized Finance, 4th Floor
By Hand/Overnight Courier:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Specialized Finance, 4th Floor
or
U.S. Bank Trust New York
(f/k/a First Trust National Association)
100 Wall Street
Bond Window, 20th Floor
New York, New York 10005
Delivery of this instrument to an address other than
as set forth above or transmittal of this instrument to
a facsimile or telex number other than as set forth
above does not constitute a valid delivery.
<PAGE>
- -------------------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the principal amount of Original Notes set forth below pursuant to
the guaranteed delivery procedure described in the Prospectus and the Letter of
Transmittal.
---------------------------------------------------------------------------
Principal Amount of Original Notes Sign Here
Tendered Signature(s)
-------------------------- --------------------
--------------------------------
Certificate Nos. Please Print the Following Information
(if available)
--------------------
Name(s)
--------------------------
Total Principal Amount Address
Represented by Original Notes -------------------------
Certificate(s) --------------------------------
-------------------
Area Code and Tel. No(s).
-------
--------------------------------
- -------------------------------------------------------------------------------
GUARANTEE
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17A(d)-15 under the Securities Exchange Act
of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of
certificates tendered hereby, in proper form for transfer, or delivery of such
certificates pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other required documents, is being made within
five trading days after the date of execution of a Notice of Guaranteed Delivery
of the above-named person.
Name of Firm
----------------------------------
Authorized Signature
--------------------------
Name(s)
----------------------------------------
----------------------------------------------
Address
---------------------------------------
----------------------------------------------
Area Code and Tel. No.
------------------------
Dated: _____________, 1998
- -------------------------------------------------------------------------------
2
<PAGE>
Exhibit 99.3
IMPORTANT: THIS LETTER (TOGETHER WITH CERTIFICATES REPRESENTING
TENDERED ORIGINAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
WAM!NET Inc.
Offer to Exchange
Up to $208,530,000 in principal amount of
13 1/4% Senior Discount Notes due 2005, Series A
sold in a transaction exempt
from registration under the Securities Act
of 1933, as amended,
for
$208,530,000 in principal amount of
13 1/4% Senior Discount Notes due 2005, Series B
To Our Clients:
Enclosed for your consideration is a Prospectus dated ________ , 1998
(as the same may be amended or supplemented from time to time, the "Prospectus")
and a form of Letter of Transmittal (the "Letter of Transmittal") relating to
the offer (the "Exchange Offer") by WAM!NET Inc. ("WAM!NET" or the "Issuer") and
all of the subsidiaries of the Issuer to exchange up to $208,530,000 in
principal amount of their 13 1/4% Senior Discount Notes due 2005, Series A
issued and sold in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Original Notes"), for $208,530,000 in principal
amount of their 13 1/4% Senior Discount Notes due 2005, Series B (the "Exchange
Notes").
The material is being forwarded to you as the beneficial owner of the
Original Notes carried by us for your account or benefit but not registered in
your name. A tender of any Original Notes may be made only by us as the
registered holder and pursuant to your instructions. Therefore, the Issuer urges
beneficial owners of Original Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee to contact such registered
holder promptly if they wish to tender Original Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to
tender any or all Original Notes, pursuant to the terms and conditions set forth
in the Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your
Original Notes.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN
ORDER TO PERMIT US TO TENDER ORIGINAL NOTES ON YOUR BEHALF IN ACCORDANCE WITH
THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on _______, ________ __, 1998, unless extended (the
"Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may
be withdrawn, subject to the procedures described in the Prospectus, at any time
prior to the Expiration Date.
If you wish to have us tender any or all of your Original Notes held by
us for your account or benefit, please so instruct us by completing, executing
and returning to us the instruction form that appears below. The accompanying
Letter of Transmittal is furnished to you for informational purposes only and
may not be used by you to tender Original Notes held by us and registered in our
name for your account or benefit.
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of WAM!NET Inc.
This will instruct you to tender the principal amount of Original Notes
indicated below held by you for the account or benefit of the undersigned,
pursuant to the terms of and conditions set forth in the Prospectus and the
Letter of Transmittal.
Box 1 [_] Please tender my Original Notes held by you for my account or
benefit. I have identified on a signed schedule attached hereto
the principal amount of Original Notes to be tendered if I wish
to tender less than all of my Original Notes.
Box 2 [_] Please do not tender any Original Notes held by you for my
account or benefit.
Date: , 1998
----------------------------------
----------------------------------
Signature(s)
----------------------------------
----------------------------------
Please print name(s) here
Unless a specific contrary instruction is given in a signed Schedule attached
hereto, your signature(s) hereon shall constitute an instruction to us to tender
all of your Original Notes.
2
<PAGE>
Exhibit 99.4
WAM!NET Inc.
Offer to Exchange
Up to $208,530,000 in principal amount of
13 1/4% Senior Discount Notes due 2005, Series A
sold in a transaction exempt
from registration under the Securities Act
of 1933, as amended,
for
$208,530,000 in principal amount of
13 1/4% Senior Discount Notes due 2005, Series B
To Securities Dealers, Commercial Banks
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated _______ __, 1998
(as the same may be amended or supplemented from time to time, the "Prospectus")
and a form of Letter of Transmittal (the "Letter of Transmittal") relating to
the offer (the "Exchange Offer") by WAM!NET Inc. ("WAM!NET" or the "Issuer") and
all of the subsidiaries of the Issuer to exchange up to $208,530,000 in
principal amount of their 13 1/4% Senior Discount Notes due 2005, Series A
issued and sold in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Original Notes"), for $208,530,000 in principal
amount of their 13 1/4% Senior Discount Notes due 2005, Series B (the "Exchange
Notes").
We are asking you to contact your clients for whom you hold Original
Notes registered in your name or in the name of your nominee. In addition, we
ask you to contact your clients who, to your knowledge, hold Original Notes
registered in their own name. The Issuer will not pay any fees or commissions to
any broker, dealer or other person in connection with the solicitation of
tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the
Issuer for customary mailing and handling expenses incurred by you in forwarding
any of the enclosed materials to your clients. The Issuer will pay all transfer
taxes, if any, applicable to the tender of Original Notes to it or its order,
except as otherwise provided in the Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the
tender of Original Notes and for the information of your
clients;
3. A form of letter that may be sent to your clients for whose
accounts you hold Original Notes registered in your name or
the name of your nominee, with space provided for obtaining
the clients' instructions with regard to the Exchange Offer;
4. A form of Notice of Guaranteed Delivery; and
5. Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on _________, ________ __, 1998, unless extended
(the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer
may be withdrawn, subject to the procedures described in the Prospectus, at any
time prior to the Expiration Date.
To tender Original Notes, certificates for Original Notes or a Book-
Entry Confirmation, a duly executed and properly completed Letter of Transmittal
or a facsimile thereof, and any other required documents, must be received by
the Exchange Agent as provided in the Prospectus and the Letter of Transmittal.
<PAGE>
Additional copies of the enclosed material may be obtained from U.S.
Bank Trust National Association, the Exchange Agent, by calling (612) 244-1572.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO
THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
2
